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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM
10-Q
 
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the transition period from
                    
to
                    
Commission file number
0-23621
 
 
MKS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
 
     
Massachusetts
 
04-2277512
(State or other jurisdiction
 
of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
2 Tech Drive, Suite 201, Andover, Massachusetts
 
01810
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Registrant’s telephone number, including area code
(978) 645-5500
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on
 
which registered
Common Stock, no par value
 
MKSI
 
Nasdaq Global Select Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes 
 
    No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required
to
be
submitted pursuant
to
Rule
405
of
Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post
such files
).    
Yes
 
 
☒    No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes 
 
    No  
As of October 
30
, 2019, the registrant had 54,510,355 shares of common stock outstanding.
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

MKS INSTRUMENTS, INC.
FORM
10-Q
INDEX
             
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
 
 
 
7
 
 
 
 
 
 
 
 
 
 
 
8
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
36
 
 
 
 
 
 
 
 
ITEM 3.
 
 
 
48
 
 
 
 
 
 
 
 
ITEM 4.
 
 
 
48
 
 
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
49
 
 
 
 
 
 
 
 
ITEM 1A.
 
 
 
49
 
 
 
 
 
 
 
 
ITEM 6.
 
 
 
50
 
 
 
 
 
 
 
 
51
 
 
 
 
 
 
 
 
 
 
 
2
 

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
                 
 
 
September 30,
2019
   
December 31,
2018
 
ASSET
S
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
  $
386,281
    $
644,345
 
Short-term investments
   
88,847
     
73,826
 
Trade accounts receivable, net of allowance for doubtful accounts of $5,190 and $5,243 at September 30, 2019 and December 31, 2018, respectively
   
327,983
     
295,454
 
Inventories
   
463,263
     
384,689
 
Other current assets
   
94,011
     
65,790
 
                 
Total current assets
   
1,360,385
     
1,464,104
 
Property, plant and equipment, net
   
236,124
     
194,367
 
Right-of-use
asset
   
67,632
     
—  
 
Goodwill
   
1,054,091
     
586,996
 
Intangible assets, net
   
580,880
     
319,807
 
Long-term investments
   
10,146
     
10,290
 
Other assets
   
45,286
     
38,682
 
                 
Total assets
  $
3,354,544
    $
2,614,246
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
     
 
Current liabilities:
   
     
 
Short-term debt
  $
12,623
    $
3,986
 
Accounts payable
   
88,078
     
83,825
 
Accrued compensation
   
87,045
     
82,350
 
Income taxes payable
   
11,048
     
16,358
 
Lease liability
   
20,575
     
—  
 
Deferred revenue and customer advances
   
22,363
     
14,246
 
Other current liabilities
   
68,925
     
62,520
 
                 
Total current liabilities
   
310,657
     
263,285
 
Long-term debt, net
   
873,450
     
343,842
 
Non-current
deferred taxes
   
69,190
     
48,223
 
Non-current
accrued compensation
   
43,704
     
55,598
 
Non-current
lease liability
   
47,294
     
—  
 
Other liabilities
   
36,718
     
30,111
 
                 
Total liabilities
   
1,381,013
     
741,059
 
                 
Commitments and contingencies (Note 19)
   
     
 
Stockholders’ equity:
   
     
 
Preferred Stock, $0.01 par value per share, 2,000,000 shares authorized; none issued and outstanding
   
—  
     
—  
 
Common Stock, no par value, 200,000,000 shares authorized; 54,496,664 and 54,039,554 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
   
113
     
113
 
Additional
paid-in
capital
   
856,437
     
793,932
 
Retained earnings
   
1,149,457
     
1,084,797
 
Accumulated other comprehensive loss
   
(32,476
)    
(5,655
)
                 
Total stockholders’ equity
   
1,973,531
     
1,873,187
 
                 
Total liabilities and stockholders’ equity
  $
3,354,544
    $
2,614,246
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
 
3
 

Table of Contents
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
 
                                 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2019
   
2018
   
2019
   
2018
 
Net revenues:
   
     
     
     
 
Products
  $
386,173
    $
426,255
    $
1,184,862
    $
1,432,931
 
Services
   
76,278
     
60,897
     
215,260
     
181,636
 
                                 
Total net revenues
   
462,451
     
487,152
     
1,400,122
     
1,614,567
 
Cost of revenues:
   
     
     
     
 
Cost of products
   
216,238
     
219,311
     
672,161
     
747,522
 
Cost of services
   
41,209
     
35,981
     
113,812
     
97,453
 
                                 
Total cost of revenues (exclusive of amortization shown separately below)
   
257,447
     
255,292
     
785,973
     
844,975
 
Gross profit
   
205,004
     
231,860
     
614,149
     
769,592
 
Research and development
   
41,566
     
31,898
     
122,354
     
103,259
 
Selling, general and administrative
   
82,101
     
70,822
     
247,792
     
229,952
 
Fees and expenses related to term loan
   
642
     
—  
     
6,489
     
378
 
Acquisition and integration costs
   
2,103
     
36
     
35,510
     
(1,132
)
Restructuring and other
   
1,525
     
1,364
     
4,690
     
4,374
 
Amortization of intangible assets
   
17,020
     
10,695
     
50,299
     
32,786
 
Gain on sale of long-lived assets
 
 
(6,773
)
 
 
 
 
 
(6,773
)
 
 
 
                                 
Income from operations
   
66,820
     
117,045
     
153,788
     
399,975
 
Interest income
   
1,230
     
1,516
     
4,367
     
4,077
 
Interest expense
   
13,542
     
3,719
     
35,335
     
13,071
 
Other
(
income
)
 
expense, net
   
(914
)    
326
     
199
     
1,179
 
                                 
Income before income taxes
   
55,422
     
114,516
     
122,621
     
389,802
 
Provision for income taxes
   
7,994
     
21,239
     
24,999
     
68,542
 
                                 
Net income
  $
47,428
    $
93,277
    $
97,622
    $
321,260
 
                                 
Other comprehensive income:
   
     
     
     
 
Changes in value of financial instruments designated as cash flow hedges, net of tax (benefit)
expense
(1)
  $
(782
)   $
163
    $
(8,554
)   $
8,053
 
Foreign currency translation adjustments, net of tax of $0
   
(14,553
)    
(3,576
)    
(18,229
)    
(11,314
)
Unrecognized pension gain (loss), net of tax expense (benefit)
(2)
   
91
     
24
     
92
     
(13
)
Unrealized gain (loss) on investments, net of tax expense (benefit)
(3)
   
16
     
230
     
(130
)    
(95
)
                                 
Total comprehensive income
  $
32,200
    $
90,118
    $
70,801
    $
317,891
 
                                 
Net income per share:
   
     
     
     
 
Basic
 
$
0.86
    $
1.71
   
$
1.79
    $
5.89
 
                                 
Diluted
 
$
 
0.86
    $
1.70
   
$
1.77
    $
5.82
 
                                 
Weighted average common shares outstanding:
   
     
     
     
 
Basic
   
54,945
     
54,476
     
54,636
     
54,539
 
                                 
Diluted
   
55,204
     
54,954
     
55,045
     
55,171
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Tax (benefit) expense was $(242) and $49 for the three months ended September 30, 2019 and 2018, respectively. Tax (benefit) expense was $(2,635) and $2,304 for the nine months ended
September
 30, 2019 and 2018, respectively
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Tax expense was $31 and $7 for the three months ended September 30, 2019 and 2018, respectively. Tax expense (benefit) was $51 and $(17) for the nine months ended September 30, 2019 and 2018, respectively
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3)
Tax expense was $6 and $17 for the three months ended September 30, 2019 and 2018, respectively. Tax (benefit) was $(40) and $(22) for the nine months ended September 30, 2019 and 2018, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
 
4
 

Table of Contents
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share data)
(Unaudited)
                                                 
 
Common Stock
   
Additional
   
   
Accumulated
Other
   
Total
 
 
 
Shares
   
Amount
   
Paid-In
Capital
   
Retained
Earnings
   
Comprehensive
Loss
   
Stockholders’
Equity
 
Balance at December 31, 2018
   
54,039,554
    $
113
    $
793,932
    $
1,084,797
    $
(5,655
)   $
1,873,187
 
Net issuance under stock-based plans
   
192,218
     
     
22,491
     
     
     
22,491
 
Stock-based compensation
   
     
     
27,838
     
     
     
27,838
 
Cash dividend ($0.20 per common share)
   
     
     
     
(10,843
)    
     
(10,843
)
Comprehensive income (net of tax):
   
     
     
     
     
     
 
Net income
   
     
     
     
12,455
     
     
12,455
 
Other comprehensive loss
   
     
     
     
     
(4,267
)    
(4,267
)
                                                 
Balance at March 31, 2019
   
54,231,772
     
113
     
844,261
     
1,086,409
     
(9,922
)    
1,920,861
 
Net issuance under stock-based plans
   
247,920
     
     
(2,113
)    
     
     
(2,113
)
Stock-based compensation
   
     
     
7,205
     
     
     
7,205
 
Cash dividend ($0.20 per common share)
   
     
     
     
(10,880
)    
     
(10,880
)
Stock dividends accrued
   
     
     
232
     
(232
)    
     
 
Comprehensive income (net of tax):
   
     
     
     
     
     
 
 
Net income
   
     
     
     
37,739
     
     
37,739
 
Other comprehensive loss
   
     
     
     
     
(7,325
)    
(7,325
)
                                                 
Balance at June 30, 2019
   
54,479,692
     
113
     
849,585
     
1,113,036
     
(17,247
)    
1,945,487
 
                                                 
Net issuance under stock-based plan
s
 
 
16,972
 
 
 
 
 
 
(629
)
 
 
 
 
 
 
 
 
(629
)
Stock-based compensation
   
 
     
     
7,376
     
     
     
7,376
 
Cash dividend ($0.20 per common share)
   
     
     
 
     
(10,898
)
   
     
(10,898
)
Stock dividends accrued
   
     
       
105
   
 
(105
)
 
     
 
Other
   
     
     
 
     
(4
)    
     
(4
)
Comprehensive income (net of tax):
   
     
     
     
     
     
 
 
Net income
   
     
     
     
47,428
     
     
47,428
 
Other comprehensive loss
   
     
     
     
     
(15,229
)    
(15,229
)
                                                 
Balance at September 30, 2019
   
54,496,664
    $
113
    $
856,437
    $
1,149,457
    $
(32,476
)   $
1,973,531
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
 
5
 

Table of Contents
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(in thousands, except per share data)
(Unaudited)
 
 
Common Stock
   
Additional
   
   
Accumulated
Other
   
Total
 
 
Shares
   
Amount
   
Paid-In
Capital
   
Retained
Earnings
   
Comprehensive
Income/(Loss)
   
Stockholders’
Equity
 
Balance at December 31, 2017
   
54,355,535
    $
113
    $
789,644
    $
795,698
    $
3,452
    $
1,588,907
 
Net issuance under stock-based plans
   
136,568
     
     
(8,920
)    
     
     
(8,920
)
Stock-based compensation
   
     
     
10,426
     
     
     
10,426
 
Cash dividend ($0.18 per common share)
   
     
     
     
(9,808
)    
     
(9,808
)
Accounting Standards Codification Topic 606 adjustment
   
     
     
     
1,809
     
     
1,809
 
Comprehensive income (net of tax):
   
     
     
     
     
     
 
Net income
   
     
     
     
105,121
     
     
105,121
 
Other comprehensive gain