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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 June 30, 2020

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

(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:

 

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 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

 

 

 

2


 

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.

3


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.

4


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