MKS Instruments Reports Fourth Quarter and Full Year 2017 Financial Results

MKS Instruments Reports Fourth Quarter and Full Year 2017 Financial Results 136.8 KB

2017 was a record year in revenue and GAAP and Non-GAAP EPS

· Annual revenue increased 30% compared to pro-forma 2016 to a record $1.9 billion

· Annual semiconductor revenue increased 45% on a pro-forma basis to a record $1.1 billion

· Annual revenue in advanced markets increased 14% on a pro-forma basis to a record $820 million

· Light and Motion set new quarterly and annual revenue records and in Q4'17 exceeded $200 million in revenue for the first time

Our 2018 January Operating Model shows a 33% increase in Non-GAAP EPS compared to the October 2017 Operating Model

ANDOVER, Mass., Jan. 31, 2018 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported fourth quarter and full year 2017 financial results.

GAAP Financial Results¹
	Q4		Full Year
	2017	2016	2017	2016
Net revenues ($ millions)	$512	$405	$1,916	$1,295
Operating margin	23.4%	15.4%	21.2%	12.1%
Net income ($ millions)	$77.6	$45.5	$339.1	$104.8
Diluted EPS	$1.41	$0.83	$6.16	$1.94

Non-GAAP Financial Results¹
	Q4		Full Year
	2017	2016	2017	2016
Net revenues ($ millions)	$512	$405	$1,916	$1,295
Operating margin	25.9%	20.6%	24.6%	18.7%
Net earnings ($ millions)	$94.6	$57.2	$328.2	$164.0
Diluted EPS	$1.71	$1.05	$5.96	$3.03
¹ The full year 2016 results include the results of Newport Corporation (now the Light and Motion segment) since its acquisition on April 29, 2016.

Fourth Quarter Financial Results

Sales were $512 million, an increase of 5% from $486 million in the third quarter of 2017, and an increase of 26% from $405 million in the fourth quarter of 2016.

Fourth quarter net income was $77.6 million, or $1.41 per diluted share, compared to net income of $76.0 million, or $1.38 per diluted share in the third quarter of 2017, and $45.5 million, or $0.83 per diluted share in the fourth quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $94.6 million, or $1.71 per diluted share, compared to $85.9 million, or $1.56 per diluted share in the third quarter of 2017, and $57.2 million, or $1.05 per diluted share in the fourth quarter of 2016.

Sales to semiconductor customers were $284 million, an increase of 1% compared to a strong third quarter of 2017, and sales to advanced markets were $228 million in the quarter, an increase of 11% sequentially driven largely by strong growth from our Light and Motion Division.

Sales in the Vacuum and Analysis segment, the historic MKS business, set a quarterly record of $311 million, driven by very strong sales to semiconductor customers. Sales in the Light and Motion segment, the historic Newport business, also set a quarterly record of $201 million.

Additional Financial Information

The Company had $543 million in cash and short-term investments as of December 31, 2017 and $398 million outstanding under its Term Loan. During the fourth quarter, the Company made another voluntary Term Loan repayment of $50 million and paid a dividend of $9.8 million or $0.18 per diluted share.

Full Year Results

Sales were a record $1.92 billion, an increase of 30% from $1.47 billion in 2016 on a pro-forma basis (assuming the acquisition of Newport Corporation had occurred as of the beginning of 2016), driven by strong sales to both semiconductor customers as well as customers in thin film manufacturing, industrial manufacturing, and health and life sciences. Sales to semiconductor customers were $1.1 billion, an increase of 45% compared to 2016, also on a pro-forma basis, while sales to advanced markets were $820 million, an increase of 14%.

Sales in the Vacuum and Analysis segment were $1.2 billion, an increase of 38% from $872 million in 2016, driven by very strong sales to semiconductor customers, which increased nearly 50% from 2016.

Sales in the Light and Motion segment were $709 million, an increase of 18% from $602 million in 2016, on a pro-forma basis driven by both sales to semiconductor customers as well as industrial manufacturing customers.

"We are very pleased with our fourth quarter and full year 2017 results, which set new records for revenue and profitability, in both of our segments," said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, "This strong performance reflects our focused strategy of achieving sustainable and profitable growth by providing customers with innovative technology solutions, continuing to streamline all aspects of our operations, and investing in high-growth solutions and markets. Moreover, our ability to successfully grow and integrate Newport into the existing MKS business helped us deliver these strong results and positions us for future success."

"The acquisition of Newport Corporation coupled with our organic growth has enabled us to nearly double non-GAAP EPS in 2017 compared to 2016," said Seth Bagshaw , Senior Vice President and Chief Financial Officer. Mr. Bagshaw added "These achievements are reflected in our newly published January 2018 Operating Model, which demonstrates our continued and long standing efforts to drive improvements in our operating leverage. Furthermore, recently enacted U.S. Federal tax reform legislation is positive for MKS and is expected to result in a significant reduction in our effective tax rate while providing more long term flexibility in our use of cash."

First Quarter 2018 Outlook

Based on current business levels, the Company expects that sales in the first quarter of 2018 may range from $510 to $550 million, and at these volumes, GAAP net income could range from $1.68 to $1.95 per diluted share and non-GAAP net earnings could range from $1.86 to $2.12 per diluted share. This financial guidance incorporates assumptions made based upon the Company's current interpretation of the 2017 Tax Cut and Jobs Act, and may change as additional clarification and implementation guidance is issued.

January 2018 Operating Model

The Company also published an updated operating model, which reflects an illustrative revenue level of $2.2 billion, improvements in gross margin, lower interest expense, and the expected impact of the 2017 Tax Cut and Jobs Act. As a result of these improvements, non-GAAP EPS in the model increased by 33% to $8.55 compared to $6.42 in the prior operating model, published in October of 2017, and represents an improvement in non-GAAP EPS of more than 80% compared to the model entering 2017.

A conference call with management will be held on Thursday, February 1, 2018 at 8:30 a.m. (Eastern Time). To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you. Participants will need to provide the operator with the Conference ID of 5595206, which has been reserved for this call. A live and archived webcast of the call will be available on the Company's website at www.mksinst.com.

About MKS Instruments

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor, and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. The Company's products are derived from core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics. MKS' primary markets include semiconductor capital equipment, general industrial, life sciences, and research. Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results

Non-GAAP amounts exclude amortization of acquired intangible assets, asset impairments, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of the Company's term loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effects of the 2017 Tax Cut and Jobs Act, the tax effect of legal entity restructurings, other discrete tax benefits and charges, and the related tax effect of these adjustments. These non-GAAP measures are not in accordance with generally accepted accounting principles in the United States of America (GAAP). MKS' management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results. Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44 million and included $5 million in debt issuance cost. Annualized GAAP interest expense based upon $398 million in principal currently outstanding and LIBOR plus 200 basis points would be $17.5 million and includes $4 million of debt issuance cost.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance, business prospects and growth of MKS as well as expected synergies and cost savings from the acquisition of Newport Corporation. These statements are only predictions based on current assumptions and expectations. Actual events or results may differ materially from those in the forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to major customers, the Company's ability to successfully integrate Newport's operations and employees, unexpected risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the term loan financing, fluctuations in interest rates, the impact of the 2017 Tax Cut and Jobs Act as additional clarification and implementation guidance is issued with respect thereto, the Company's ability to successfully grow the business, potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and the other factors described in MKS' most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

Company Contact: Seth H. Bagshaw
Senior Vice President, Chief Financial Officer and Treasurer
Telephone: 978.645.5578

Investor Relations Contacts:
Monica Gould
The Blueshirt Group
Telephone: 212.871.3927
Email: monica@blueshirtgroup.com

Lindsay Grant Savarese
The Blueshirt Group
Telephone: 212.331.8417
Email: lindsay@blueshirtgroup.com



MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)



	Three Months Ended
	December 31,			December 31,			September 30,
	2017			2016			2017

Net revenues:
Products	$	463,851		$	359,765		$	434,710
Services		47,949			45,375			51,557
Total net revenues		511,800			405,140			486,267
Cost of revenues:
Products		242,008			194,716			225,174
Services		31,466			27,016			33,098
Total cost of revenues		273,474			221,732			258,272

Gross profit		238,326			183,408			227,995

Research and development		33,045			32,870			32,548
Selling, general and administrative		72,510			67,626			71,839
Acquisition and integration costs		634			2,089			2,466
Restructuring		1,324			618			10
Asset impairment		-			5,000			-
Amortization of intangible assets		10,797			12,691			10,977
Income from operations		120,016			62,514			110,155

Interest income		1,125			702			873
Interest expense		7,989			10,085			7,172
Other expense, net		2,155			3,575			2,485
Income from operations before income taxes		110,997			49,556			101,371
Provision for income taxes		33,359			4,069			25,377
Net income	$	77,638		$	45,487		$	75,994

Net income per share:
Basic	$	1.43		$	0.85		$	1.40
Diluted	$	1.41		$	0.83		$	1.38

Cash dividends per common share	$	0.18		$	0.17		$	0.175

Weighted average shares outstanding:
Basic		54,318			53,617			54,282
Diluted		55,236			54,518			55,101

The following supplemental Non-GAAP earnings information is presented
to aid in understanding MKS' operating results:

Net income	$	77,638		$	45,487		$	75,994

Adjustments:
Acquisition and integration costs (Note 1)		634			2,089			2,466
Fees and expenses relating to re-pricing of term loan (Note 2)		-			526			492
Amortization of debt issuance costs (Note 3)		3,983			2,430			2,314
Restructuring (Note 4)		1,324			618			10
Asset impairment (Note 5)		-			5,000			-
Amortization of intangible assets		10,797			12,691			10,977
Windfall tax benefit on stock-based compensation (Note 6)		(658	)		-			(594	)
Withholding tax on dividends (Note 7)		-			1,362			-
Tax benefit from a legal entity restructuring (Note 8)		-			(6,570	)		-
Deferred tax adjustment (Note 9)		(24,546	)		-			-
Transition tax on accumulated foreign earnings (Note 10)		28,658			-			-
Tax adjustment related to the sale of a business (Note 11)		(12,131	)		-			-
Accrued tax on MKS subsidiary distribution (Note 12)		14,000			-			-
Pro-forma tax adjustments		(5,083	)		(6,437	)		(5,789	)

Non-GAAP net earnings	$	94,616		$	57,196		$	85,870

Non-GAAP net earnings per share	$	1.71		$	1.05		$	1.56

Weighted average shares outstanding		55,236			54,518			55,101

Income from operations	$	120,016		$	62,514		$	110,155

Adjustments:
Acquisition and integration costs (Note 1)		634			2,089			2,466
Fees and expenses relating to re-pricing of term loan (Note 2)		-			526			492
Restructuring (Note 4)		1,324			618			10
Asset impairment (Note 5)		-			5,000			-
Amortization of intangible assets		10,797			12,691			10,977

Non-GAAP income from operations	$	132,771		$	83,438		$	124,100

Non-GAAP operating margin percentage		25.9	%		20.6	%		25.5	%

Interest expense	$	7,989		$	10,085		$	7,172
Amortization of debt issuance costs (Note 3)		3,983			2,430			2,314

Non-GAAP interest expense	$	4,006		$	7,655		$	4,858

Net income	$	77,638		$	45,487		$	75,994
Interest expense, net		6,864			9,383			6,299
Provision for income taxes		33,359			4,069			25,377
Depreciation		9,208			9,478			9,153
Amortization		10,797			12,691			10,977
EBITDA	$	137,866		$	81,108		$	127,800
Stock-based compensation		4,544			5,402			4,846
Acquisition and integration costs (Note 1)		634			2,089			2,466
Fees and expenses relating to re-pricing of term loan (Note 2)		-			526			492
Restructuring (Note 4)		1,324			618			10
Asset impairment (Note 5)		-			5,000			-
Other adjustments		839			817			836
Adjusted EBITDA	$	145,207		$	95,560		$	136,450

Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded fees and expenses related to the re-pricing of our Term Loan Credit Agreement during the three month periods ended September 30, 2017 and December 31, 2016.

Note 3: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 4: We recorded restructuring costs, primarily related to the consolidation of two manufacturing plants during the three months ended December 31, 2017. We recorded restructuring costs related to one of our international facilities during the three months ended December 31, 2016.

Note 5: We recorded an asset impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016.

Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation during the three months ended December 31, 2017 and September 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).

Note 7: We recorded withholding tax on intercompany dividends during the three months ended December 31, 2016.

Note 8: We recorded a tax benefit related to a legal entity restructuring during the three months ended December 31, 2016.

Note 9: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the three months ended December 31, 2017.

Note 10*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended December 31, 2017.

Note 11*: We recorded a tax adjustment resulting from the 2017 Tax Cut and Jobs Act, related to the sale of our Data Analytics Solutions business during the three months ended December 31, 2017.

Note 12*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the three months ended December 31, 2017.

*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.


MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)



	Twelve Months Ended
	December 31,
		2017			2016

Net revenues:
Products	$	1,723,433		$	1,134,013
Services		192,544			161,329
Total net revenues		1,915,977			1,295,342
Cost of revenues:
Products		901,546			627,850
Services		122,980			101,873
Total cost of revenues		1,024,526			729,723

Gross profit		891,451			565,619

Research and development		132,555			110,579
Selling, general and administrative		290,548			229,171
Acquisition and integration costs		5,332			27,279
Restructuring		3,920			642
Asset impairment		6,719			5,000
Amortization of intangible assets		45,743			35,681
Income from operations		406,634			157,267

Interest income		3,021			2,560
Interest expense		30,990			30,611
Gain on sale of business		74,856			-
Other expense, net		5,896			1,239
Income from operations before income taxes		447,625			127,977
Provision for income taxes		108,493			23,168
Net income	$	339,132		$	104,809

Net income per share:
Basic	$	6.26		$	1.96
Diluted	$	6.16		$	1.94

Cash dividends per common share	$	0.71		$	0.68

Weighted average shares outstanding:
Basic		54,137			53,472
Diluted		55,074			54,051

The following supplemental Non-GAAP earnings information is presented
to aid in understanding MKS' operating results:

Net income	$	339,132		$	104,809

Adjustments:
Acquisition and integration costs (Note 1)		5,332			27,279
Acquisition inventory step-up (Note 2)		-			15,090
Expenses related to sale of a business (Note 3)		859			-
Excess and obsolete inventory charge (Note 4)		1,160			-
Fees and expenses relating to re-pricing of term loan (Note 5)		492			1,239
Amortization of debt issuance costs (Note 6)		9,405			6,897
Restructuring (Note 7)		3,920			642
Asset impairment (Note 8)		6,719			5,000
Gain on sale of business (Note 9)		(74,856	)		-
Net proceeds from an insurance policy (Note 10)		-			(1,323	)
Amortization of intangible assets		45,743			35,681
Taxes related to the sale of a business (Note 11)		2,876			-
Windfall tax benefit on stock-based compensation (Note 12)		(11,071	)		-
Withholding tax on dividends (Note 13)		-			1,362
Tax benefit from a legal entity restructuring (Note 14)		-			(5,038	)
Deferred tax adjustment (Note 15)		(24,546	)		-
Transition tax on accumulated foreign earnings (Note 16)		28,658			-
Accrued tax on MKS subsidiary distribution (Note 17)		14,000			-
Pro-forma tax adjustments		(19,639	)		(27,617	)

Non-GAAP net earnings	$	328,184		$	164,021

Non-GAAP net earnings per share	$	5.96		$	3.03

Weighted average shares outstanding		55,074			54,051

Income from operations	$	406,634		$	157,267

Adjustments:
Acquisition and integration costs (Note 1)		5,332			27,279
Acquisition inventory step-up (Note 2)		-			15,090
Expenses related to the sale of a business (Note 3)		859			-
Excess and obsolete inventory charge (Note 4)		1,160			-
Fees and expenses relating to re-pricing of term loan (Note 5)		492			1,239
Restructuring (Note 7)		3,920			642
Asset impairment (Note 8)		6,719			5,000
Amortization of intangible assets		45,743			35,681

Non-GAAP income from operations	$	470,859		$	242,198

Non-GAAP operating margin percentage		24.6	%		18.7	%

Gross profit	$	891,451		$	565,619
Acquisition inventory step-up (Note 2)		-			15,090
Excess and obsolete inventory charge (Note 4)		1,160			-

Non-GAAP gross profit	$	892,611		$	580,709

Non-GAAP gross profit percentage		46.6	%		44.8	%

Interest expense	$	30,990		$	30,611
Amortization of debt issuance costs (Note 6)		9,405			6,897

Non-GAAP interest expense	$	21,585		$	23,714

Net income	$	339,132		$	104,809
Interest expense, net		27,969			28,051
Provision for income taxes		108,493			23,168
Depreciation		36,813			30,245
Amortization		45,743			35,681
EBITDA	$	558,150		$	221,954
Stock-based compensation		24,378			25,228
Acquisition and integration costs (Note 1)		5,332			27,279
Acquisition inventory step-up (Note 2)		-			15,090
Expenses related to the sale of a business (Note 3)		859			-
Excess and obsolete inventory charge (Note 4)		1,160			-
Fees and expenses relating to re-pricing of term loan (Note 5)		492			1,239
Restructuring (Note 7)		3,920			642
Asset impairment (Note 8)		6,719			5,000
Gain on sale of business (Note 9)		(74,856	)		-
Net proceeds from an insurance policy (Note 10)		-			(1,323	)
Other adjustments		3,244			2,312
Adjusted EBITDA	$	529,398		$	297,421

Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded a charge in cost of sales related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition during the twelve months ended December 31, 2016.

Note 3: We recorded legal, consulting and compensation related expenses related to the sale of a business, during the twelve months ended December 31, 2017.

Note 4: We recorded excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants during the twelve months ended December 31, 2017.

Note 5: We recorded fees and expenses related to re-pricings of our Term Loan Credit Agreement.

Note 6: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 7: We recorded restructuring costs related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices during the twelve months ended December 31, 2017. We recorded restructuring costs related to one of our international facilities during the twelve months ended December 31, 2016.

Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants during the twelve months ended December 31, 2017. We recorded an impairment charge related to a minority interest investment in a privately held company during the twelve months ended December 31, 2016.

Note 9: We recorded a gain on the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.

Note 10: We recorded net proceeds from a Company owned life insurance policy during the twelve months ended December 31, 2016.

Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.

Note 12: We recorded a windfall tax benefit on the vesting of stock-based compensation relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09) during the twelve months ended December 31, 2017.

Note 13: We recorded a withholding tax on intercompany dividends during the twelve months ended December 31, 2016.

Note 14: We recorded a tax benefit related to a legal entity restructuring during the twelve months ended December 31, 2016.

Note 15*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017.

Note 16*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017.

Note 17*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017.

*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.

MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)

	Three Months Ended
	December 31,			December 31,			September 30,
		2017			2016			2017
Cash flows from operating activities:
Net income	$	77,638		$	45,487		$	75,994
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,006			22,169			20,130
Amortization of debt issuance costs and original issue discount		4,314			2,812			2,643
Stock-based compensation		4,544			5,402			4,845
Provision for excess and obsolete inventory		4,864			4,994			4,347
Provision for doubtful accounts		175			943			139
Deferred income taxes		(16,528	)		(29,255	)		(1,157	)
Excess tax benefit from stock-based compensation		-			(790	)		-
Asset impairment		-			5,000			-
Other		(7	)		131			36
Changes in operating assets and liabilities		(14,220	)		(4,172	)		(8,014	)

Net cash provided by operating activities		80,786			52,721			98,963

Cash flows from investing activities:
Purchases of investments		(30,545	)		(152,383	)		(129,430	)
Sales of investments		9,993			1,404			18,252
Maturities of investments		40,563			12,311			31,545
Purchases of property, plant and equipment		(13,431	)		(7,164	)		(8,118	)
Other		66			232			-

Net cash provided by (used in) investing activities		6,646			(145,600	)		(87,751	)

Cash flows from financing activities:
Restricted cash		(177	)		316			5,163
Payments of short-term borrowings		(16,435	)		(3,453	)		(4,020	)
Proceeds from short and long-term borrowings		15,394			4,438			4,522
Payments of long-term borrowings		(50,000	)		(41,570	)		(125,000	)
Dividend payments		(9,775	)		(9,112	)		(9,500	)
Excess tax benefit from stock-based compensation		-			790			-
Net proceeds related to employee stock awards		2,504			1,186			(1,306	)

Net cash used in financing activities		(58,489	)		(47,405	)		(130,141	)

Effect of exchange rate changes on cash and cash equivalents		(1,152	)		2,033			2,076

Increase (decrease) in cash and cash equivalents		27,791			(138,251	)		(116,853	)

Cash and cash equivalents at beginning of period		305,977			366,874			422,830

Cash and cash equivalents at end of period	$	333,768		$	228,623		$	305,977

MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)

	Twelve Months Ended
	December 31,			December 31,
		2017			2016
Cash flows from operating activities:
Net income	$	339,132		$	104,809
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		82,556			65,926
Amortization of inventory step-up adjustment to fair value		-			15,090
Amortization of debt issuance costs and original issue discount		10,699			9,265
Stock-based compensation		24,378			25,228
Provision for excess and obsolete inventory		20,213			16,039
Provision for doubtful accounts		825			1,109
Deferred income taxes		(9,886	)		(38,822	)
Excess tax benefit from stock-based compensation		-			(1,468	)
Asset impairment		6,719			5,000
Gain on sale of business		(74,856	)		-
Other		824			256
Changes in operating assets and liabilities		(45,382	)		(22,334	)

Net cash provided by operating activities		355,222			180,098

Cash flows from investing activities:
Net proceeds from the sale of a business		72,509			-
Acquisition of business, net of cash acquired		-			(939,591	)
Purchases of investments		(229,557	)		(268,458	)
Sales of investments		53,564			338,996
Maturities of investments		157,342			160,917
Purchases of property, plant and equipment		(31,287	)		(19,123	)
Other		66			273

Net cash provided by (used in) investing activities		22,637			(726,986	)

Cash flows from financing activities:
Restricted cash		4,835			(5,860	)
Payments of short-term borrowings		(29,711	)		(11,742	)
Proceeds from short-term borrowings		28,360			18,964
Payments of long-term borrowings		(228,141	)		(153,395	)
Proceeds from long-term borrowings		191			744,653
Repurchases of common stock		-			(1,545	)
Dividend payments		(38,178	)		(36,361	)
Excess tax benefit from stock-based compensation		-			1,468
Net proceeds related to employee stock awards		(12,215	)		(1,922	)

Net cash (used in) provided by financing activities		(274,859	)		554,260

Effect of exchange rate changes on cash and cash equivalents		2,145			(6,323	)

Increase in cash and cash equivalents		105,145			1,049

Cash and cash equivalents at beginning of year		228,623			227,574

Cash and cash equivalents at end of year	$	333,768		$	228,623


MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)

	Three Months Ended December 31, 2017									Three Months Ended September 30, 2017
	Income Before			Provision (benefit)			Effective			Income Before			Provision (benefit)			Effective
	Income Taxes			for Income Taxes			Tax Rate			Income Taxes			for Income Taxes			Tax Rate

GAAP	$	110,997		$	33,359			30.1	%	$	101,371		$	25,377		25.0	%

Adjustments:
Acquisition and integration costs (Note 1)		634			-						2,466			-
Fees and expenses relating to re-pricing of term loan (Note 5)		-			-						492			-
Amortization of debt issuance costs (Note 6)		3,983			-						2,314			-
Restructuring (Note 7)		1,324			-						10			-
Amortization of intangible assets		10,797			-						10,977			-
Windfall tax benefit on stock-based compensation (Note 10)		-			658						-			594
Deferred tax adjustment (Note 15)		-			24,546						-			-
Transition tax on accumulated foreign earnings (Note 16)		-			(28,658	)					-			-
Accrued tax on MKS subsidiary distribution (Note 17)		-			(14,000	)					-			-
Tax adjustment related to the sale of a business (Note 11)		-			12,131						-			-
Tax effect of pro-forma adjustments		-			5,083						-			5,789

Non-GAAP	$	127,735		$	33,119			25.9	%	$	117,630		$	31,760		27.0	%


	Three Months Ended December 31, 2016
	Income Before			Provision (benefit)			Effective
	Income Taxes			for Income Taxes			Tax Rate

GAAP	$	49,556		$	4,069			8.2	%

Adjustments:
Acquisition and integration costs (Note 1)		2,089			-
Fees and expenses relating to re-pricing of term loan (Note 5)		526			-
Amortization of debt issuance costs (Note 6)		2,430			-
Restructuring (Note 7)		618			-
Asset impairment (Note 8)		5,000			-
Amortization of intangible assets		12,691			-
Taxes related to a legal entity restructuring (Note 13)		-			6,570
Withholding tax on dividends (Note 14)		-			(1,362	)
Tax effect of pro-forma adjustments		-			6,437

Non-GAAP	$	72,910		$	15,714			21.6	%


	Twelve Months Ended December 31, 2017									Twelve Months Ended December 31, 2016
	Income Before			Provision (benefit)			Effective			Income Before			Provision (benefit)			Effective
	Income Taxes			for Income Taxes			Tax Rate			Income Taxes			for Income Taxes			Tax Rate

GAAP	$	447,625		$	108,493			24.2	%	$	127,977		$	23,168		18.1	%

Adjustments:
Acquisition and integration costs (Note 1)		5,332			-						27,279			-
Acquisition inventory step-up (Note 2)		-			-						15,090			-
Expenses related to the sale of a business (Note 3)		859			-						-			-
Excess and obsolete inventory charge (Note 4)		1,160			-						-			-
Fees and expenses relating to re-pricing of term loan (Note 5)		492			-						1,239			-
Amortization of debt issuance costs (Note 6)		9,405			-						6,897			-
Restructuring (Note 7)		3,920			-						642			-
Asset impairment (Note 8)		6,719			-						5,000			-
Gain on sale of business (Note 9)		(74,856	)		-						-			-
Amortization of intangible assets		45,743			-						35,681			-
Windfall tax benefit on stock-based compensation (Note 10)		-			11,071						-			-
Taxes related to the sale of a business (Note 11)		-			(2,876	)					-			-
Net proceeds from an insurance policy (Note 12)		-			-						(1,323	)		-
Taxes related to a legal entity restructuring (Note 13)		-			-						-			5,038
Withholding tax on dividends (Note 14)		-			-						-			(1,362	)
Deferred tax adjustment (Note 15)		-			24,546						-			-
Transition tax on accumulated foreign earnings (Note 16)		-			(28,658	)					-			-
Accrued tax on MKS subsidiary distribution (Note 17)		-			(14,000	)					-			-
Tax effect of pro-forma adjustments		-			19,639						-			27,617

Non-GAAP	$	446,399		$	118,215			26.5	%	$	218,482		$	54,461		24.9	%

Note 1: Acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016.

Note 2: We recorded a charge in cost of sales related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition, during the twelve months ended December 31, 2016.

Note 3: We recorded expenses related to the sale of a business, during the twelve months ended December 31, 2017.

Note 4: We recorded excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants, during the twelve months ended December 31, 2017.

Note 5: We recorded fees and expenses related to the re-pricing of our Term Loan Credit Agreement, during the three months ended September 30, 2017 and December 31, 2016 and the twelve months ended December 31, 2017 and 2016.

Note 6: Amortization of debt issuance costs are affiliated with our Term Loan Credit Agreement and ABL Facility.

Note 7: We recorded restructuring costs primarily related to the consolidation of two manufacturing plants and costs related to a restructuring of one of our international facilities and the consolidation of sales offices during the three and twelve months ended December 31, 2017. We recorded restructuring costs related to the restructuring of one of our international facilities during the twelve months ended December 31, 2016.

Note 8: We recorded an asset impairment charge, during the twelve months ended December 31, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants. We recorded an impairment charge during the three and twelve months ended December 31, 2016, related to a minority interest investment in a privately held company.

Note 9: We recorded a gain on the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.

Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).

Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017. The three months ended December 31, 2017 includes a tax adjustment related to the sale of our Data Analytics Solutions business resulting from U.S. tax reform legislation.

Note 12: We recorded net proceeds from a Company owned life insurance policy during the twelve months ended December 31, 2016.

Note 13: We recorded a tax expense related to a legal entity restructuring during the twelve months ended December 31, 2016.

Note 14: We recorded withholding tax on intercompany dividends during the three and twelve months ended December 31, 2016.

Note 15*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.

Note 16*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.

Note 17*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.

*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.


MKS Instruments, Inc.
Reconciliation of Q1-18 Guidance - GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)

	Three Months Ended March 31, 2018
	Low Guidance						High Guidance
	$ Amount			$ Per Share			$ Amount			$ Per Share

GAAP net income	$	93,200		$	1.68		$	108,100		$	1.95

Amortization		11,000			0.20			11,000			0.20

Deferred financing costs		900			0.02			900			0.02

Tax effect of adjustments (Note 1)		(2,200	)		(0.04	)		(2,300	)		(0.04	)

Non-GAAP net earnings	$	102,900		$	1.86		$	117,700		$	2.12

Q1 -18 forecasted shares					55,400						55,400

Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates.

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)




	December 31,		December 31,
	2017		2016

ASSETS

Cash and cash equivalents	$	333,768	$	228,623
Restricted cash		119		5,287
Short-term investments		209,434		189,463
Trade accounts receivable, net		300,308		248,757
Inventories		339,081		275,869
Other current assets		53,543		50,770

Total current assets		1,236,253		998,769

Property, plant and equipment, net		171,782		174,559
Goodwill		591,047		588,585
Intangible assets, net		366,398		408,004
Long-term investments		10,655		9,858
Other assets		37,883		32,467

Total assets	$	2,414,018	$	2,212,242


LIABILITIES AND STOCKHOLDERS' EQUITY

Short-term debt	$	2,972	$	10,993
Accounts payable		82,518		69,337
Accrued compensation		96,147		67,728
Income taxes payable		25,106		22,794
Deferred revenue		12,842		14,463
Other current liabilities		73,945		51,985
Total current liabilities		293,530		237,300

Long-term debt, net		389,993		601,229
Non-current deferred taxes		56,516		66,446
Non-current accrued compensation		51,700		44,714
Other liabilities		33,372		20,761
Total liabilities		825,111		970,450

Stockholders' equity:
Common stock		113		113
Additional paid-in capital		789,644		777,482
Retained earnings		795,698		494,744
Accumulated other comprehensive loss		3,452		(30,547	)
Total stockholders' equity		1,588,907		1,241,792

Total liabilities and stockholders' equity	$	2,414,018	$	2,212,242

Source: MKS Instruments, Inc.

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MKS Instruments Reports Fourth Quarter and Full Year 2017 Financial Results