SEC Filing | MKS Instruments, Inc.

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mksi-10q_20200630.htm

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 June 30, 2020

☐	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	(I.R.S. Employer
of incorporation or organization)	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 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:

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 July 27, 2020, the registrant had 55,125,265 shares of common stock outstanding.

MKS INSTRUMENTS, INC.

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

	ITEM 1.	FINANCIAL STATEMENTS (Unaudited).

		Condensed Consolidated Balance Sheets – June 30, 2020 and December 31, 2019	3

		Condensed Consolidated Statements of Operations and Comprehensive Income – Three and six months ended June 30, 2020 and 2019	4

		Condensed Consolidated Statements of Stockholders’ Equity – Three and six months ended June 30, 2020 and 2019	5

		Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2020 and 2019	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	33

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	44

	ITEM 4.	CONTROLS AND PROCEDURES.	44

PART II. OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS.	46

	ITEM 1A.	RISK FACTORS.	46

	ITEM 6.	EXHIBITS.	48

SIGNATURES			49

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(Unaudited)

ASSETS	June 30, 2020			December 31, 2019
Current assets:
Cash and cash equivalents	$	428.9		$	414.6
Short-term investments		178.1			109.4
Trade accounts receivable, net of allowance for doubtful accounts of $1.9 and $1.8 at June 30, 2020 and December 31, 2019, respectively		381.1			341.1
Inventories		490.2			462.1
Other current assets		91.5			106.3
Total current assets		1,569.8			1,433.5

Property, plant and equipment, net		248.4			241.9
Right-of-use asset		174.3			64.5
Goodwill		1,058.1			1,058.5
Intangible assets, net		534.4			564.6
Long-term investments		6.0			5.8
Other assets		40.1			47.5
Total assets	$	3,631.1		$	3,416.3

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	11.3		$	12.1
Accounts payable		105.0			88.4
Accrued compensation		104.3			100.9
Income taxes payable		16.0			15.4
Lease liability		16.7			20.6
Deferred revenue and customer advances		28.7			21.5
Other current liabilities		69.6			58.8
Total current liabilities		351.6			317.7

Long-term debt, net		818.6			871.7
Non-current deferred taxes		71.0			72.4
Non-current accrued compensation		43.6			43.9
Non-current lease liability		162.3			44.8
Other liabilities		57.4			42.5
Total liabilities		1,504.5			1,393.0
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; 55,078,833 and 54,596,183 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		0.1			0.1
Additional paid-in capital		858.7			864.3
Retained earnings		1,302.0			1,181.2
Accumulated other comprehensive loss		(34.2	)		(22.3	)
Total stockholders’ equity		2,126.6			2,023.3
Total liabilities and stockholders’ equity	$	3,631.1		$	3,416.3

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in millions, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net revenues:
Products	$	473.0		$	401.3		$	934.2		$	798.7
Services		71.3			72.8			145.8			139.0
Total net revenues		544.3			474.1			1,080.0			937.7
Cost of revenues:
Cost of products		258.0			226.2			514.1			455.9
Cost of services		40.0			36.9			80.0			72.6
Total cost of revenues (exclusive of amortization shown separately below)		298.0			263.1			594.1			528.5
Gross profit		246.3			211.0			485.9			409.2
Research and development		42.8			41.9			85.2			80.8
Selling, general and administrative		86.1			83.2			173.3			165.7
Acquisition and integration costs		0.7			3.2			2.9			33.4
Restructuring and other		3.3			1.2			3.7			3.2
Amortization of intangible assets		13.8			17.6			30.1			33.3
Asset impairment		—			—			1.2			—
COVID-19 related net credits		(1.2	)		—			(1.2	)		—
Fees and expenses related to repricing of Term Loan		—			—			—			5.8
Income from operations		100.8			63.9			190.7			87.0
Interest income		0.3			1.4			1.0			3.1
Interest expense		7.2			12.7			16.1			21.8
Other expense, net		1.5			0.8			1.9			1.1
Income before income taxes		92.4			51.8			173.7			67.2
Provision for income taxes		18.7			14.1			30.9			17.0
Net income	$	73.7		$	37.7		$	142.8		$	50.2
Other comprehensive income, net of tax:
Changes in value of financial instruments designated as cash flow hedges	$	(1.0	)	$	(7.8	)	$	(7.0	)	$	(7.8	)
Foreign currency translation adjustments		6.2			0.6			(5.0	)		(3.7	)
Net actuarial loss on pension and post-retirement benefits		(0.1	)		—			—			—
Unrealized (loss) gain on investments		—			(0.1	)		0.1			(0.1	)
Total comprehensive income	$	78.8		$	30.4		$	130.9		$	38.6
Net income per share:
Basic	$	1.34		$	0.69		$	2.60		$	0.92
Diluted	$	1.33		$	0.69		$	2.58		$	0.91
Weighted average common shares outstanding:
Basic		55.1			54.8			55.0			54.5
Diluted		55.3			55.1			55.3			55.0

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

MKS INSTRUMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except share and per share data)

(Unaudited)

	Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Earnings			Income/(Loss)			Equity
Balance at December 31, 2019		54,596,183	$	0.1	$	864.3		$	1,181.2		$	(22.3	)	$	2,023.3
Net issuance under stock-based plans		276,800				(20.4	)								(20.4	)
Stock-based compensation						8.5									8.5
Cash dividend ($0.20 per common share)									(11.0	)					(11.0	)
Comprehensive income (net of tax):
Net income									69.1						69.1
Other comprehensive loss												(17.0	)		(17.0	)
Balance at March 31, 2020		54,872,983		0.1		852.4			1,239.3			(39.3	)		2,052.5
Net issuance under stock-based plans		205,850				(0.5	)								(0.5	)
Stock-based compensation						6.8									6.8
Cash dividend ($0.20 per common share)									(11.0	)					(11.0	)
Comprehensive income (net of tax):
Net income									73.7						73.7
Other comprehensive income												5.1			5.1
Balance at June 30, 2020		55,078,833	$	0.1	$	858.7		$	1,302.0		$	(34.2	)	$	2,126.6

	Common Stock				Additional Paid-In		Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Earnings			Income/(Loss)			Equity
Balance at December 31, 2018		54,039,554	$	0.1	$	793.9	$	1,084.8		$	(5.6	)	$	1,873.2
Net issuance under stock-based plans		192,218				22.5								22.5
Stock-based compensation						27.8								27.8
Cash dividend ($0.20 per common share)								(10.8	)					(10.8	)
Comprehensive income (net of tax):
Net income