Entegris Inc (ENTG) 2005 Q4 法說會逐字稿

Good day everyone and welcome to Entegris' fourth quarter earnings release conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Steve Cantor, Director of Investor Relations.

Good morning. Thank you for joining our call. Earlier today, we released Entegris' financial results for the fourth quarter and full year fiscal 2005. You can access a copy of the press release on our website, www.Entegris.com.

Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties and our actual results may differ materially. These risks and uncertainties are outlined in detail in our joint proxy statement dated June 30, 2005, in the Mykrolis 2004 10-K report, in the Entegris 2004 10-K report, as well as in other reports and filings with the SEC. We strongly encourage you to carefully read those reports and filings.

On this call, we may also refer to non-GAAP financial measures as defined by the SEC in Regulation G. You can find a reconciliation of non-GAAP financial measures to the comparable reported results of operations under GAAP in this morning's press release.

In addition, all numbers discussed in this call unless specifically noted include the results for the three non-core product lines that we're in the process of divesting as we announced last month.

Gideon Argov will now begin the call with some prepared remarks.

Thank you, Steve. On the call with me today are John Villas, Chief Financial Officer, Jean-Marc Pandraud, Chief Operating Officer, and Peter Walcott, General Counsel.

The fourth quarter capped a watershed year for Entegris. The merger with Mykrolis in August has enhanced the company's position as one of the critical suppliers to the semiconductor industry. It has also given us the critical mass we need to better serve and support our customers, whatever their size and wherever they are based around the world.

Most importantly, we believe the merger has given us a solid platform from which to grow faster than the market over the long term and to build shareholder value by achieving attractive profitability and return on invested capital. Achieving this goal will not be easy and will not happen overnight, but we believe we have the strategy already in place and many of the steps are well underway.

First, the integration process is in full swing and we expect that when it is substantially complete by the middle of calendar 2006, it will yield annualized cost savings in excess of $20 million. We have already unified our sales force and we expect to complete the rationalization of our field operations by the end of calendar 2005, this year. By April of 2006, we expect to complete the integration of our IP platforms around the world and by July, all the merger-related facility and manufacturing consolidations will be behind us.

Second, as we announced in September, we've also begun the process of divesting three unprofitable product lines -- our gas-delivery product line, cleaning equipment for life science applications, and a back end tape-and-reel product. These divestitures should have favorable impact on our reported results for our ongoing businesses.

We are in early discussions with potential buyers for these operations and we will report to you on progress as circumstances warrant.

Third, concurrent to the integration process, we are embarking on a long-term process of increasing our efficiencies and productivity. We will be relentless in this regard. We recognize, it will take time to achieve all this, but as with any integration process, there are a lot of moving parts. We have made a good start in the short time that has passed since we completed the merger and look forward to reporting to you on our progress in the coming quarters.

Turning to our financial results, this is a period of transition for Entegris. Our reported results reflected a number of factors, including costs and expenses associated with the merger, a fairly stable business environment and the residual impact of the three product lines that, as noted above, we've recently marked for divestiture.

Sales in the fourth quarter were $105 million, which included 14 million in sales of Mykrolis products for a period of only three weeks following the August 6 completion of the merger. On a comparable basis excluding such Mykrolis sales, Entegris sales were up nearly 5% for the May quarter.

EBITDA -- earnings before interest, taxes, depreciation and amortization -- for the fourth quarter was negative $8 million. However, excluding integration expenses, merger-related and restructuring charges, and stock-based compensation, it was $14 million, or 14% of sales. We regard EBITDA as an important measure of our performance, and we intend to continue to present it going forward.

Over the long-term, by implementing the steps we have outlined, we believe we can achieving EBITDA margins in excess of 20%.

On a pro forma basis, including Mykrolis sales for the entire Q4 but excluding the businesses to be divested, sales were $150 million -- about even with Q3. Unit-driven product, which include our consumable filtration products, wafer and disk shippers represented about 60% of total fourth quarter sales on a pro forma basis. The demand for unit-driven products reflected the continued high production levels and fab utilization rates on the part of many of our IDM and foundry customers. Specifically, sales of wafer shippers were consistent with the previous quarter, as increases in 300 mm shipper sales offset declines for 200 mm product.

Sales of Mykrolis consumable liquid filtration products declined somewhat due to seasonal buying patterns, particularly in Japan, thought to have rebounded following the end of the quarter. Sales of finished electronic products, such as disk shippers and chip trays, declined once again, consistent with seasonal trends in that business.

Sales of CapEx-driven products, which were 39% approximately of pro forma sales, 40% in Q4, were boosted by sales of cleaning equipment for wafer-handling applications, as well as increased sales of 300 mm FOUPS. Excluding the product lines to be divested, the split between the unit-driven and capital-expenditure-driven sales, was approximately 65% unit-driven and 35% capital expenditure-driven as a percent of pro forma Q4 sales.

And with that, I will turn the call over to John.

Thank you, Gideon. Sales for the fourth quarter were $104.7 million, which as Gideon noted, included three weeks of post-merger Mykrolis sales totaling 13.7 million. Primarily reflecting the impact of the merger, the Company reported a net loss in the fourth quarter of $7.9 million or $0.09 per share. This net loss includes a number of merger-related costs and restructuring charges. These include integration expense, the purchase accounting effect on amortization and on our accounting for our inventories, stock-based compensation expenses and restructuring charges unrelated to the merger for the realignment of certain manufacturing facilities. I will discuss each of these items as I review the fourth quarter financial results in detail.

Gross margin for the fourth quarter was $32.8 million or 31% of sales. This included $3.3 million in cost and write-offs for manufacturing, realignment and asset impairment unrelated to the merger.

In addition, gross margin included a $5.9 million charge to write up Mykrolis inventory to fair market value as required by the purchase accounting of the merger. The total inventory write-up is estimated to be $24 million, and we expect the remaining $18 million of this amount to hit the P&L in the first quarter. Excluding these items, gross margin in the fourth quarter was 40%.

Once the merger cost savings are in place and with ongoing improvements in manufacturing efficiency, we believe we can achieve normalized gross margins over the long-term in the mid to upper 40's, depending on revenue levels and sales mix.

In the short-term, however, one ongoing pressure to our gross margin is the impact of higher raw material costs due to the increase in oil prices. We've successfully moderated the impact of price increases for petroleum-based resins in Q4 compared to Q3 by effectively managing the timing of our purchases.

SG&A of $42.8 million and ER&D of $6.4 million were affected by a number of merger-related items, including integration expense, amortization and stock-based compensation. I will discuss these factors individually.

First, integration expense in Q4 was $11.5 million due primarily to severance and retention costs as well as consulting fees. We expect total integration expense to be approximately $30 million, of which 11 to 12 million will be incurred from September through December of this year.

Second, total amortization for the fourth quarter was $2.4 million. This amount includes about $1.1 million of amortization related to the merger and 1.3 million of amortization of intangibles for the pre-merger Entegris.

Going forward, total amortization, including the amount related to the purchase accounting for the merger, is expected to be at a run-rate of approximately $4.5 million on a quarterly basis.

Third, stock-based compensation in Q4 amounted to $2 million and primarily related to restricted stock grants made in connection with the merger. In Q1 we expect stock-based compensation expense to be $9 million, reflecting the continued amortization of restricted stock grants, as well as the impact of FAS 123R for the expensing of stock options. We anticipate the effect of FAS 123R to be moderate, since most of the employee incentive stock options were accelerated either before or at the time of the merger. Before integration expense, stock-based compensation and amortization -- total operating expense was $35.7 million or 34% of sales, and we expect it to be at comparable levels as a percent of sales in Q1 of fiscal 2006.

EBITDA for the fourth quarter, excluding integration expense, merger-related and restructuring charges and stock-based compensation, was $14 million or 14% of sales. We had an income tax benefit of $7 million in the quarter, which is due to our pre-tax loss as well as lower taxes in certain jurisdictions and a reversal of prior-period tax reserves. We expect the normalized income tax rate for fiscal 2006 to be in the mid-30% range. Weighted average shares in the November quarter are expected to be 138 million, reflecting the full number of shares issued in conjunction with the Mykrolis merger.

Turning to the balance sheet, we have a very solid financial position. Cash, cash equivalents and short-term investments were $280 million. Long-term debt was $22.1 million. Ending inventories of $92 million included 18 million related to the write-up of Mykrolis inventories at fair market value. As I discussed earlier, we expect inventories to decline in the November quarter as we ship the Mykrolis inventory.

Cash from operations was slightly positive for the fourth quarter. For modeling purposes, we anticipate normalized quarterly depreciation to be approximately 6 to $7 million, excluding the impact of any purchase accounting. Capital expenditures for the quarter were about $7 million.

Before I turn the call back to Gideon for some final comments regarding the outlook for Q1, I want to reiterate that we are focused on implementing steps to position us for a very exciting future.

Thanks, John. For the November quarter, which will reflect the first full quarter as a combined company, the signs are currently pointing to stable demand in the industry. As we have indicated, we will report our results for the November quarter on a continuing as well as discontinued-operations basis.

We currently expect sales from continuing operations to be in the range of 145 to $155 million for the November quarter versus 150 million in the August quarter on a comparable basis.

We expect EBITDA of negative 6 to $8 million in the quarter, excluding integration expenses, merger-related and restructuring charges and stock-based compensation. That range will actually be in the 24 to $29 million positive.

I'd like to conclude my formal remarks with the following comments -- the merger of Entegris and Mykrolis has taken the combined enterprise to a new level. It allows us to serve our customers, indeed to serve more customers around the world better than either company could before. It allows us to pursue new and high-value segments, such as advanced photolithography, by combining multiple technologies in innovative ways, in critical subsystems. It enhances our ability to extend leadership in materials integrity management, both organically as well as externally. It allows us to take costs of our system to enhance our efficiency and productivity and thereby to further increase our profitability. It enhances our position as an integral part of the semiconductor value chain from the production of raw wafers to the shipment of finished devices. And finally, by doing all this, it enhances our ability to achieve our primary objective, which is to build value for Entegris shareholders.

And with that, we will now take your questions.

Thank you. (OPERATOR INSTRUCTIONS). Jim Covello, Goldman Sachs.

Hi, this is Amanda Hindlian for Jim Covello. A couple of questions. Can you talk a little bit about the linearity of the cost synergies you expect to realize, by line item on the P&L?

Yes. I think roughly speaking, we would expect those cost synergies to move in a linear fashion, beginning in the fourth quarter and through the end of next year. And certainly by the end of next year, they will all be realized. I would think that you would see, if you're looking at a $20 million number overall, you'll see a fairly linear movement, starting with the fourth quarter and ending with 20 million being realized on a run-rate basis before the end of the year, 2006.

You know most of those savings, most of those savings will be in place certainly by the third quarter of 2006.

And that, I think you had originally said that there is about 15 million that's coming from SG&A and the rest is coming on the margin line. Is that still correct?

Yes, Amanda, this is John. We expect probably a little bit more than 15 million out of the operating expenses, or SG&A, a little bit less than 5 million out of the cost of goods sold line.

Okay. Then a question on the November quarter guidance. What is the ongoing gross margin that we should be thinking about?

Amanda, basically we have targets that say we will get to the gross margin range of mid to upper 40s. We will continue to have some restructuring merger expenses and other things that make that very difficult to model at this point in time, but I would anticipate gross margins somewhere in that mid-40% kind of range for this November quarter. We will be not realizing all of our cost synergies yet, but we will be removing some of our discontinued ops which have had a negative impact on gross margins. So if we can get into that range.

Great, thanks. And for the November quarter, can you just talk a little bit about some of what you're seeing for the underlying business conditions by your CapEx-driven sales versus your unit-driven sales?

Yes, this is a Jean-Marc Pandraud. You know, there are mixed biddings (ph) in the marketplace right now. Honestly, we are seeing a stable kind of outlook going forward into the November quarter. I mean, I do believe that we should see some sign positive on the capital side, and we should be also slightly positive on the unit-driven business. But, it's (indiscernible).

Great, thank you so much.

Timothy Arcuri, Citigroup.

A couple of things. Number one, it looks like if you look at the results, it looks like the Mykrolis segment was about 5 to $6 million less than what a flat trend would imply. Is that the cannibalization that you talked about the last call, John?

No, there's been very little cannibalization, Tim. Those intercompany sales were really not significant whatsoever as they impacted the August quarter. Basically, we're talking about three weeks of results for Mykrolis as we close the merger on August 6. Our year-end was August 27, so the run-rate of 4.5 million-plus per week is in line with our expectations. This is just a small snippet of a quarter, it's just three weeks. So, very much where we would expect it.

Right, but if you actually look at the numbers, it implies that the Mykrolis business was down pretty healthfully, if you pro forma it all the out for the full quarter. It implies that it was down pretty significantly sequentially. Am I not reading that properly?

Tim, this is a Jean-Marc. August is a very, very -- probably the slowest month of the year. And if you take out the three weeks, we are just (indiscernible). These are the three weeks of August and they are not reflective at all of a typical quarter trend. I mean, unfortunately, we cannot talk about the old calendar quarter finishing September, because here we are closing with Entegris in August. But permanently, we have the typical September activity, which we can comment about today.

Understood, understood. Thanks, Jean-Marc. I guess another thing -- you know, it seems that the gross margin guidance, the kind of longer-term target of mid to high 40s, is somewhat conservative given the fact that you are going to save a lot of money by divesting these businesses. Also, you're including Mykrolis which has higher gross margins. So, it would seem like 50% is a little more achievable, longer-term. Are you being more conservative because of some of these higher raw material costs? Is that why you are being a little more conservative?

I think it's part of it. I think that we are not trying to be overly conservative. We do want -- we do want to under-promise and over-deliver, frankly, but we think that the numbers that we're putting out there are designed to be reasonable. And we have, as you know, a mix of products. I do agree with you that the Mykrolis consumable products do carry higher gross margins, and that's why the gross margins will be in the mid to upper 40s and not the other way around. But I think that's a reasonable track, and we would like to get that under our belts. And then if we do reach the number of 50%, we reach it. We are certainly not going to make a forecast that we will do that at that point.

Okay, and then the last thing for me. John, can you give us an exact number in terms of what the charges will be for the November quarter, and maybe if you can extend that into February as well?

Yes, this is John. I will just cover the November; we really haven't formulated at all those targets if you will for the February quarter.

We anticipate that the $15 million of inventory write-up will be pretty well flushed out during the November quarter. We indicated that we expect integration expenses to be in the range of 11 to $12 million between September and December, so it's really hard to be specific. We know they are coming, but exactly where they will fall and whether the November quarter or December, and we also expect $9 million of stock-based compensation expense with the advent of expensing stock options and the continued vesting of the restricted stock grants, which is primarily driven by those granted at the date of the merger. So those are the broad numbers that we would point to.

And Tim, those will certainly tail off. We are taking a lot of charges early in this process. This inventory charge is required by purchase accounting, is basically a little over a quarter effect. So these things to moderate and decline over time pretty rapidly once we get past early next year.

Brett Hodess, Merrill Lynch.

Two questions. First, John, what do you expect your ongoing option expense to be once these merger-related options issues occur on a quarterly or an annual basis?

Brad, it will really be contingent on what kind of grants we see going forward, how that impacts the P&L base on our long-term incentive philosophies. For this November quarter, they will be 9 million and because of the options which have been -- which we are starting to expense in the November quarter, we expect that to decline over time. So, it will be quite a bit less than that 9 million that we will be feeling in the November quarter, but to give a real specific number at this time is difficult.

I would add that we're going to see the kind of percentages that you are probably used to seeing in companies in our industry and are size range, etc. I wouldn't go beyond that, but that is -- you are going to see sort of expected, normal kinds of expenses for those items going forward once we are beyond the integration period.

Great. And then second question was, I think you commented on -- you know, you the wafer shipper and other wafer-specific products that 300 mm is picking up and that 200 mm is tailing off. The 200 mm wafer volume of course continues to be stable to growing a bit. So how do you see the 200 mm trend over time? Obviously, the CapEx part of it won't be there but from a consumable standpoint, do you expect that to stabilize or grow or decline?

I believe we -- it has been a solid revenue for us. We do not expect any kind of major variation. I mean, it has to be -- we expect that to be solid for the ongoing future, Brett, no question.

Nick Gallucio, Trust Company of the West.

Good morning, gentlemen. Question -- given the metric EBITDA being your major focus, what percentage of the combined company is recurring revenue or consumable-driven type of business, as opposed to single sales?

I think we said that, you know, once we -- if you exclude the discontinued operations, approximately 65% is related to unit-driven and largely consumable business. 35% is related to capital expenditure-type equipment.

Second question. If you strip out the seasonality of August, which has a big impact on your bookings, and given the large exposure that Mykrolis had in Japan in particular, what is the tone of order bookings September-October time period, and what do you expect? Are we coming out of the trough, or is it still -- the word you used was "stable"?.

I mean, the business trend currently is steady. I mean, you pointed out that Japan was a bit lighter in the third quarter. I mean, if you refer to the major players in this space, this is exactly in line with what we are talking about. But going forward, we do expect some kind of steady approach. The Japanese is recovering right now (inaudible).

Stuart Muter, RBC Capital Markets.

Yes, thank you. Good morning; a couple of questions, first for Gideon or Jean-Marc. This commentary about a stable environment, I'm just wondering if you can elaborate a little bit more. Because wafer starts have been pretty healthy in calendar Q3 and they look like they might be up in Q4. So I'm kind of curious to understand what's offsetting the growth in units and wafer starts. Do you still see CapEx weak going forward?

We have been, as we said before, we have seen some positive trend in CapEx for us, but it was mostly related to cleaning equipment sales in the fourth quarter. The finished electronic packaging products has been a little bit soft and will continue to be soft. We do expect, however, that the business -- the new business we're going to get on the non-Flash memory will likely offset the big businesses going forward. But we're seeing some kind of weaknesses with this area (indiscernible).

Okay, that's helpful. And a question for John. Earlier in your comments, you said I think 40% gross margin in Q4. Was that just for what Entegris would have been?

No, that's the combined entity. So that was the gross margin for the quarter. Old Entegris would been a little bit below that with some of the mix issues. We had higher sales of some of these cleaning equipment, continuing some impact of petroleum price increases, which has been an impact on us all year. So old Entegris products would have been somewhat less than that 40%.

Hari Chandra, Deutsche Bank.

Good morning. Can you give us a breakdown of the wafer carriers business in terms of the 200 mm product and FOUPS, and also the respective growth rates in the quarter?

I don't think we want to get into that level of detail -- Jean-Marc?

No, we generally don't report the 300 versus 200 mm numbers separately.

Okay, and how much did raw material impact the gross margin in the quarter?

Raw materials, Hari, have been an impact for us all year with these increases in petroleum prices. We state that they were not much different impact in Q4 versus Q3, but we really started to feel that impact very much in our business in our Q2 -- our February quarter. So it certainly had an impact as where we were maybe a year ago from the magnitude of certainly a full percentage point on gross margins, in that kind of range.

Robert Maire, Needham & Co.

Yes, can you tell us what your current GAAP and including options expense, breakeven is and where you are aiming to get the breakeven to?

Well, that's a great question. And I don't have an answer on the top of my head. You know, we've been fairly clear about the goal of $20 million of savings and our goal very, very clearly also is to stay cash-flow-positive and profitable throughout the cycle. So when we say we believe we can get to EBITDA levels of the range of 20%, sort of in a normalized healthy environment --

Okay, but I'm not talking about EBITDA. You must know what your breakeven today is, on a GAAP basis, correct?

Robert, this is John. Basically, we have not run through that calculation. We have just merged. Our run-rate we expect next quarter 145 to 155 million. Once we get through all these merger and integration expenses and etc. behind us on a normalized basis, we will be positive throughout all parts of the cycle. We will always be generating cash.

Okay, and when you say positive through all parts of the cycle, that's on a GAAP basis including options expenses and such?

That will certainly have an impact on us, the option expenses and stock-based compensation. (multiple speakers) that would be several million dollars a quarter of expense and --

Okay, so if we include option expense, you may not be able to keep that promise, so to speak? Or you may fall into the red during the cycle?

We will always have an intent to be in the black. The option expense should not be hugely material in the stock-based compensation expense, but it will have an impact.

Okay. If I take the 145 to 155 and again on a GAAP basis, expensing options and such, what kind of range of earnings on a GAAP basis would that imply for the November quarter?

We would expect earnings to be -- and we already really answered that question -- would be -- EBITDA, we expect EBITDA to be 24 to 29 million, when we exclude all of the restructuring charges, integration expenses, stock-based compensation expense. So, those are substantial numbers that will impact and will have a negative EBITDA because of those. So I think you could probably --

(multiple speakers) no, but what I'm trying to understand is, on an ongoing, GAAP basis.

Yes, we understand what you are asking; we don't have the answer for your question. We are forecasting in the most precise way and in the most informative way that we can, which is the true cash-flow generation and earnings power of this business, and we are choosing to state it in EBITDA terms and not in GAAP terms at this point in time. So, that's the answer.

Okay, what is the variability in the EBITDA to the GAAP conversion that would make you uncomfortable about providing that kind of guidance?

Right now, our tax rates, we expect to be in the mid-30% range, but that is very much a function of our earnings level, as we have better tax rates in some of our foreign jurisdictions, tax credits that we will generate through R&D and other things. So until we get to a better GAAP run-rate, which we will be in in 2006, at that point in time, I think we can be much more specific around our expected earnings, which will be impacted by a tax rate and we can get to a real specific, normalized EPS.

Okay, and one last question in terms of the nonoperational charges or other adjustments related to the merger. How long do you think it will be before those are sort of behind us and when we can go forward cleanly on an ongoing basis? Do you think you have another two quarters of charges or three, or what's your goal there?

Yes, we would expect some additional charges in our first half of 2006 and really pretty much for sure done by mid-2006. (multiple speakers) calendar year basis.

Okay, so, for the next (multiple speakers)

A calendar year basis.

Okay, so for the next three quarters, we can expect some more charges and such and --

If those are being right (ph), I would say, Robert, very heavily front-end affected, we're seeing a lot -- obviously, November quarter, we should see some decline as we go forward.

Tim Summers, Stanford Financial Group.

Yes, thank you, good morning. John, the old Entegris used to provide sales by market and geography. Is that something you're planning to do going forward? And if so, could you provide us with those numbers?

Yes, we will come back to that. We are going to be structured around five different businesses. Jean-Marc, do you want to jump in?

Yes, but we will -- I mean, Asia is currently 34% of our revenue today, and we will. I mean we have done that traditionally for both Mykrolis and Entegris, so we are likely to continue to do that. This was not really 11 (ph) for the current quarter we just closed, because again, we have only three weeks of the old Entegris, but going forward we will record by geographies various business, yes.

And just one other question -- was Intel a 10% customer this quarter?

No, in fact, and will not be as a combined Company. I mean, it was for the old Mykrolis. It fell through the 5% line for the combined company, and so we will not in fact report that publicly now that it's below the 10% level.

Dan Leonard, First Analysis.

Jean-Marc, why would August be a seasonally weak month for Mykrolis but not for the old Entegris business? Are there any differences in buying patterns that I should understand?

No, I mean again, you have a real small sample here of three weeks in August related to builders (ph) having very little revenue from an equipment standpoint. We traditionally had these September, let's say after we leave (ph) the quarter. This is typically what we have in the September quarter. So I would not try to extrapolate the 13 million that John was referring about when contemplating the Mykrolis sales. This is a very small sample of our sales and that's all I can say. The numbers don't talk in that case.

I wasn't even extrapolating the 13 million; I was just taking the 115 and then subtracting 91 for Entegris and then adding back whatever the discontinued operations might have been in the quarter, coming up with a down number. But that's fine.

On the gross margin, I just want to clarify. Do you think you can get to the mid-40s to high 40s on current run-rate, like say 150 million in sales, or do the sales levels need to be higher?

I think that will be contingent somewhat on the revenue levels and the sales mix. Obviously, an increasing revenue environment is very helpful for that. But for this current environment that we are in, the range of 145 to 155, we would expect gross margins in that kind of mid-40% range this quarter, excluding some of these charges that we've talked about. So, that's about where we're seeing things right now.

Mark Fitzgerald, Banc of America securities.

Great. The comments on the material costs here being higher, can we assume that you're not able to pass this on in terms of higher prices to your customers?

In some cases, the answer is yes and in some cases the answer is no. And obviously, we're trying to maximize the former. So, no, you should not assume that across the board. I think it's very dependent on the situation, actually.

So is there a possibility we gain some of the margin loss here?

Yes. I would say over time, the answer is a hopeful yes.

And the discontinued operations -- is there any opportunity to raise -- to sell these and raise cash for the company?

We are pursuing the sale of all those businesses. We are in early discussions with potential buyers for all three. We certainly would prefer that the buyers actually pay something for the businesses. I'm being facetious -- we certainly are intending to sell them, and we will report to you as soon as we have anything to report.

Murali Abburi, JP Morgan.

Actually, I've got a couple of questions. When you talk about raising prices here, is there a potential for any marketshare lost there, or do your competitors usually behave in a rational manner and you're able to pass through the price increases usually?

I think we are in, Murali, we're in very competitive markets. Obviously we price based on value and based on the market conditions. And the same time, based on the technology that we bring to our customers. We think in many cases that we bring superior technology and capability, and we try to price accordingly. The results differ depending on the segment, obviously, but I wouldn't say that we are concerned that pricing will cause us to lose any significant marketshare. That does not keep us up at night. Many things do; that does not.

Would you say that the price increases are easier to pass through for the old Mykrolis business products, or is it more for Entegris products?

No, I wouldn't say that there's any pattern that I would point you towards. It really is very, it's customer-specific; its depending on -- some contracts are long-term contracts, for example. Other contracts are sort of spot contracts, and it really depends on each situation. I couldn't give you a generalization there.

Okay, and then quickly, for the joint company, what would material cost be as a percentage of COGS?

Material as a percentage of cost of goods sold?

Right.

Generally, that would be in the 20%-plus range as a percentage of sales, so it's a higher percentage of our cost of goods sold. (multiple speakers)

60% of COGS.

60%?

Sorry about that -- 40% range of COGS.

(OPERATOR INSTRUCTIONS) Jesse Pichel, Piper Jaffray.

Yes, for clarification, could you give me the total for merger and integration charges; and of that, how much will be cash charges? And a follow-up question.

Yes, we indicated, Jesse, that there will be $30 million of cash integration expenses, I believe is what we stated in our September 12 call, and non-cash charges as it relates to some of these things like the inventory write-up, etc., will be 20 to $30 million as well. So that would be a broad range.

And can you update us in terms of where you are, in terms of closing redundant operations, and in terms of some of the prior Entegris restructuring efforts?

Yes, the only thing we've already embarked on is some restructuring activities on the Chaska campus (ph) in May, and this is proceeding very nicely. Related to the combination of its companies into one company, the Japanese activity is clearly underway right now. So there are a lot of activities going on in Japan to combine several facilities into a much smaller number, right now.

And how much of that 5% workforce reduction stated in the last call is under your belt -- is behind you?

We are right -- the 120 number that was mentioned before is right -- facing us right now.

Let me just add -- we are front-loading the integration process and I can tell you that I am delighted with the progress that we are making. We've got -- we were able to get a real good head start because as soon as we signed the merger, we put together SWAT teams of joint people from both sides so that all the integration plans were in place when the actual merger was closed on the sixth of August. And at that point, we were off and running; we didn't have to gather ourselves and make plans, because the plans were in place. We are in the middle of execution mode right now, the teams are executing very, very well. Let me just give you -- and I think we are right on track. We are absolutely on track, in terms of getting the savings.

I would also say that the integration between the teams of professionals on both sides is proceeding extremely well. I sat the other day at a sales meeting of all of our top salespeople in North America, which happened to be right here where I am right now, and there were about 20-odd people. I went out to dinner with the whole group later on. You couldn't tell a former Entegris guy from a former Mykrolis person, unless the person had a big sign saying "former Mykrolis". Tremendous esprit de corps, people are excited, and we're getting the savings out as we speak, okay?

Jesse, I might just add, too, that the headcount reductions -- there haven't been a lot of those to date, but I would say that a lot have been identified and our plan that we are working and consolidating a lot of functions, a lot of the back office functions, implementing a new worldwide or a combined worldwide ERP system. So a lot of those things simply can't happen until that is brought online in the first calendar quarter of 06. So, identified? Very definitely.

Great, and if I could just ask one more thing. Can you give us an update on the previous Entegris' expansion into Taiwan through that licensing arrangement? And is it in place there for the next cycle, or has it been delayed due to the merger?

If you're talking about the Drum joint venture, it is there, it is starting to operate actually I think this month, the first month of operation. The operation had its first joint board meeting. It's not a significant impact on either revenue or costs, but it will extend our market penetration for those items, which as you may know are bulky and you don't want to be shipping them around the world, because you're shipping a lot of air. It lets us basically address a large market in Asia through this joint venture. So, you know, not a lot of impact there in terms of cost of revenue, but it's actually starting to ship product in this quarter, and I think we are delighted with the progress.

Do you think that could lead to other license licensing arrangements for other products?

You know, this is not really -- this is a joint venture, it's not a licensing arrangement. It's really combining our technology and the infrastructure that our partner has in Taiwan. So, it's not a licensing arrangement in that sense.

We have such a strong presence in Asia, in terms of people on the ground and really I would say recognition among foundries, IDMs and OEMs over there that, yes, we want to make sure all the product that we make in North America and Europe are available in Asia. How we do that is a matter of choice.

Mike Hughes, Delaware Investments.

Yes, I'm not sure if you stated this or not, but what will CapEx be for the combined company for the upcoming fiscal year?

We did not talk about that, but I think you can expect that we will be very prudent in our spending. There will be some spending that we'll need to do to get things integrated and get that integration process done. But on a historical basis, we will be very much in line with norms, or what you would see if you combined old Entegris and old Mykrolis. And that's what we would expect, so (multiple speakers).

And then just one detailed question -- share count for the November quarter around 136 million, is that roughly in line with what you're looking for?

138 million, I think is the number we gave you. Yes, that's what we anticipate was the full impact of being combined for a full quarter.

Avinash Kant, Adams Harkness.

Good morning. I just needed a clarification. I think you did give the answer to this question, the charges during the November quarter. Am I right in understanding that that could be roughly 40 million approximately, total?

Yes, Avinash, this is John. I think when we look at the merger integration expenses, when we look at the amounts of the purchase accounting on the inventory write-up, which is a substantial number, when we look at amortization related to the merger, it is certainly approaching that kind of range. And for this quarter, we will be very, very heavy, particularly as it relates to that inventory write-up for purchase accounting. That will be by and large we expect behind us after the November quarter.

So when you say the EBITDA number that's the minus 24 to minus 29 million (multiple speakers) --

That is a positive EBITDA number, excluding all these charges that we just talked about.

Okay, and then would you be able to give us some idea about, off the 40 million I'm thinking a ballpark figure, how much of it is going to come from the cost line and how much from SG&A?

I would estimate that about half or thereabouts from the COG line because that inventory write-up is the great majority of that, and other portions from the operating expense line.

Okay did you give the headcount for the current quarter?

No, but it's about 2700.

Timothy Arcuri, Citigroup.

just a clarification. In terms of the guidance, with respect to discontinued operations, you are guiding the continuing revenue to be between 145 and 155. You are guiding EBITDA lost to be between 6 and 8, and if you exclude the charges, positive 24 to 29. What would the guidance be if you include the discontinued operations?

That's really hard to estimate, Tim. The discontinued ops will show up as just a single line item as a charge. Those businesses have been underperformers, negative contributors to our growth and operating margins, so I would estimate that the discontinued ops charge would be a few million dollars for the quarter. But we would be more specific than that would be very difficult.

So that would be a few million, John, in addition to the negative 6 to 8 EBITDA, right?

That would be correct. That would be the proper accounting on the -- with the disc ops, which is typically below the operating income line.

Murali Abburi, JP Morgan.

Yes, maybe for Jean-Marc. From a product synergy perspective, Jean-Marc, now that you have a couple of months of the integration under your belt, do you see more clearly what kind of synergies you can get There? And maybe are there are couple of examples you can talk about, given the merger between the Entegris and Mykrolis product lines?

Yes, I have plenty of hopes, I have to tell you. I'm organizing the business along a center of competencies, center of excellence, if you want. And so we have different groups dedicated to various activities, and the last one that is the most promising one is the one that was built around what we call liquid systems. (indiscernible) taking fluid from a container through a valve (indiscernible) piping and the dispensing up to the nozzle. And we will run the business really focused on the technology we have, on the containers and the (indiscernible) international and piping (indiscernible) on the Entegris side, and merge that with the dispense and flow control technology we have on the Mykrolis side. So this is a very good example where one team -- and Gideon was mentioning that it's very difficult (ph) to figure out who was Mykrolis versus who was an Entegris person. One team of united sub-teams is going to be working to address both new opportunities in (indiscernible) P&P (indiscernible), photochemicals, immersion lithography. These are all liquid flow-control activities that do require some specific I would say solutions, where we have the complete (indiscernible). So this is one example.

But there are many other examples in other areas where combining systems with whatever carriers or features with purifiers, would also benefit the older business units which (indiscernible).

Then from a geographic perspective, obviously Mykrolis had a much stronger presence in Japan than Entegris does. How long do you think it will take before Entegris products start seeing either design wins or start winning competitive breakouts (ph) that would translate into share gain in Japan?

Yes, I believe this is one of the strong benefits of this new organization. We have seen that just that on the Mykrolis where (ph) the acquisition of (indiscernible) and Extraction Systems (ph) North American-based company having limited reach outside of North America. Now we see the benefit in Japan and Taiwan of both. And we'll see exactly the same happening on the Entegris side, which was using primarily a distribution model in the ODM, had moved lately (ph) to a direct sales force but was not fully deployed. And now we see that happening. We have these seamless teams in every geographies, presenting a face to the customer which has a critical mass in Japan, in Taiwan, in Korea and also in China, indeed. So we're just doing that right now.

So how long do you think it will be, Jean-Marc, before you actually see tangible share gains in, say, a region like Japan or Taiwan?

I believe middle of 2006, we will see the first premise transform into a reality, yes.

If there are no further questions, I would like to turn the call back over to for any additional remarks or closing comments.

Sure, thank you. I would like to emphasize several points as we end this call.

Number one, we are in a transitional period; I think that's clear from the information we've presented. Number two, we have clear steps that are underway to improve profitability, in terms of both the integration that is on-plan, that is doing well, and in terms of isolating the discontinued operations and preparing -- paving the way for their sale.

We have everything in place in terms of integration by mid-2006. We expect to achieve all of the integration savings by the end of the year, and most of them by the middle of 2006. Our business trends are holding up quite steady, and in fact we are pleased with how the way they are starting out the new quarter.

And finally, just to reiterate, our goal objective which we believe we can achieve, is EBITDA ex-these kind of adjustments, cash flow if you will, in the mid 20% -- in the 20% range, and obviously -- maybe we should have stated it, but obviously cash flow positive throughout whatever the business cycle has to offer.

Thank you for calling in; we look forward to informing you of our progress in the future.

And ladies and gentlemen, this concludes today's teleconference. You may now disconnect, and have a great day.