e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT
PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
|
|
|
(Mark One)
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2008
|
or
|
o
|
|
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)
|
|
(IRS Employer
Identification No.)
|
2 Tech Drive, Suite 201, Andover, Massachusetts
|
|
01810
|
(Address of Principal Executive
Offices)
|
|
(Zip Code)
|
Registrants
Telephone Number, including area code
(978) 645-5500
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Class
|
|
Name of Each Exchange on Which Registered
|
|
Common Stock, no par value
|
|
NASDAQ Global Market
|
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant as of
June 30, 2008 based on the closing price of the
registrants Common Stock on such date as reported by the
Nasdaq Global Market: $1,045,692,807.
Number of shares outstanding of the issuers Common Stock,
no par value, as of February 18, 2009: 49,536,699
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for MKS Annual
Meeting of Stockholders to be held on May 4, 2009 are
incorporated by reference into Part III of this
Form 10-K.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
2
|
|
|
|
|
|
Risk Factors
|
|
|
8
|
|
|
|
|
|
Unresolved Staff Comments
|
|
|
16
|
|
|
|
|
|
Properties
|
|
|
16
|
|
|
|
|
|
Legal Proceedings
|
|
|
17
|
|
|
|
|
|
Submission of Matters to a Vote of Security
Holders
|
|
|
17
|
|
|
PART II
|
|
|
|
|
Market for the Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
|
|
|
18
|
|
|
|
|
|
Selected Financial Data
|
|
|
21
|
|
|
|
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
|
|
22
|
|
|
|
|
|
Quantitative and Qualitative Disclosures about
Market Risk
|
|
|
35
|
|
|
|
|
|
Financial Statements and Supplementary Data
|
|
|
37
|
|
|
|
|
|
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
|
|
|
71
|
|
|
|
|
|
Controls and Procedures
|
|
|
71
|
|
|
|
|
|
Other Information
|
|
|
72
|
|
|
PART III
|
|
|
|
|
Directors, Executive Officers and Corporate
Governance
|
|
|
72
|
|
|
|
|
|
Executive Compensation
|
|
|
72
|
|
|
|
|
|
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
|
|
|
72
|
|
|
|
|
|
Certain Relationships and Related Transactions,
and Director Independence
|
|
|
72
|
|
|
|
|
|
Principal Accountant Fees and Services
|
|
|
73
|
|
|
PART IV
|
|
|
|
|
Exhibits and Financial Statement Schedules
|
|
|
73
|
|
|
|
|
78
|
|
Ex-10.21 Amendment, dated November 10, 2008, to Employment Agreement between Leo Berlinghieri and the Registrant, dated July 1, 2005, as amended on November 13, 2007 |
Ex-10.23 Amendment, dated November 10, 2008, to Employment Agreement between Ronald C. Weigner and the Registrant, dated July 1, 2005 |
Ex-10.26 Amendment, dated November 10, 2008, to Employment Agreement between John Smith and the Registrant, dated July 30, 2004 |
Ex-10.28 Amendment, dated November 10, 2008, to Employment Agreement between Gerald Colella and the Registrant, dated April 25, 2005 |
Ex-10.30 Summary of Compensatory Arrangements with Non-Employee Directors |
Ex-10.34 Fourth Amendment, dated July 31, 2008, to HSBC Note |
Ex-21.1 Subsidiaries of the Registrant |
Ex-23.1 Consent of PricewaterhouseCoopers LLP |
Ex-31.1 Section 302 Certification of CEO |
Ex-31.2 Section 302 Certification of CFO |
Ex-32.1 Section 906 Certification of CEO & CFO |
1
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
MKS management believes that this Annual Report on
Form 10-K
contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act. When used herein, the words
believe, anticipate, plan,
expect, estimate, intend,
may, see, will,
would and similar expressions are intended to
identify forward-looking statements. These forward-looking
statements reflect managements current opinions and are
subject to certain risks and uncertainties that could cause
actual results to differ materially from those stated or
implied. MKS assumes no obligation to update this information.
Risks and uncertainties include, but are not limited to, those
discussed in the section entitled Risk Factors of
this annual report on
Form 10-K.
PART I
MKS Instruments, Inc. (the Company or
MKS) was founded in 1961 as a Massachusetts
corporation. We are a leading worldwide provider of instruments,
subsystems and process control solutions that measure, control,
power, monitor and analyze critical parameters to improve
process performance and productivity of advanced manufacturing
processes. We also provide services relating to the maintenance
and repair of our products, software maintenance, installation
services and training.
We are managed as one operating segment. We group our products
into three product groups: Instruments and Control Systems,
Power and Reactive Gas Products and Vacuum Products. Our
products are derived from our core competencies in pressure
measurement and control, materials delivery, gas composition
analysis, electrostatic charge management, control and
information technology, power and reactive gas generation and
vacuum technology.
Our products are used in diverse markets, applications and
processes. Our primary served markets are manufacturers of
capital equipment for semiconductor devices and for other thin
film applications including flat panel displays, solar cells,
data storage media and other advanced coatings. We also leverage
our technology in other markets with advanced manufacturing
applications including medical equipment, pharmaceutical
manufacturing and energy generation and environmental monitoring.
For over 45 years, we have focused on satisfying the needs
of our customers by establishing long-term, collaborative
relationships. We have a diverse base of customers that includes
manufacturers of semiconductor capital equipment and
semiconductor devices, thin film capital equipment used in the
manufacture of flat panel displays, solar cells, data storage
media and other coating applications; and other industrial,
medical and manufacturing companies, and university, government
and industrial research laboratories. Our top 10 customers for
the year ended December 31, 2008 were Applied Materials,
DNS Electronics, Hitachi, Lam Research, Phillips, Novellus
Systems, Sharp, Siemens, Tokyo Electron and Ulvac Technologies.
We file reports, proxy statements and other documents with the
Securities and Exchange Commission. You may read and copy any
document we file at the SEC Headquarters at Office of Investor
Education and Assistance, 100 F Street, NE,
Washington, D.C. 20549. You should call
1-800-SEC-0330
for more information on the public reference room. Our SEC
filings are also available to you on the SECs internet
site at
http://www.sec.gov.
Our internet address is www.mksinstruments.com. We are not
including the information contained in our website as part of,
or incorporating it by reference into, this annual report on
Form 10-K.
We make available free of charge through our web site our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, as soon as reasonably
practicable after we electronically file such materials with the
Securities and Exchange Commission.
2
Markets
and Applications
We are focused on improving process performance and productivity
by measuring, controlling, powering, monitoring and analyzing
advanced manufacturing processes in semiconductor, thin film and
other market sectors. We estimate that approximately 57%, 68%
and 70% of our net sales for the years ended December 31,
2008, 2007 and 2006, respectively, were to semiconductor capital
equipment manufacturers and semiconductor device manufacturers.
Approximately 43%, 32% and 30% of our net sales in the years
ended December 31, 2008, 2007 and 2006, respectively, were
for other advanced manufacturing applications. These include,
but are not limited to, thin-film processing equipment
applications such as flat panel displays, solar cells, data
storage media, and other thin film coatings as well as medical
equipment; energy generation and environmental monitoring
processes; pharmaceutical and other industrial manufacturing;
and university, government and industrial research laboratories.
We estimate that approximately 43%, 39% and 34% of our net sales
for the years ended December 31, 2008, 2007 and 2006,
respectively, were to customers located in international
markets. International sales include sales by our foreign
subsidiaries, but exclude direct export sales.
Semiconductor
Manufacturing Applications
The majority of our sales are derived from products sold to
semiconductor capital equipment manufacturers and semiconductor
device manufacturers. Our products are used in the major
semiconductor processing steps such as depositing thin films of
material onto silicon wafer substrates and etching and cleaning
circuit patterns. In addition, we provide specialized
instruments and software to monitor and analyze process
performance.
We anticipate that the semiconductor manufacturing market will
continue to account for a substantial portion of our sales.
While the semiconductor device manufacturing market is global,
major semiconductor capital equipment manufacturers are
concentrated in Japan and the United States.
Other
Advanced Manufacturing Applications
Our products are used in the manufacture of flat panel displays,
data storage media, solar cells and other coatings including
architectural glass that require the same or similar thin film
deposition processes as semiconductor manufacturing.
Flat
Panel Display Manufacturing
Flat panel displays are used in electronic hand-held devices,
laptop computers, desktop computer monitors, and television
sets. We sell products to flat panel display equipment
manufacturers and to end-users in the flat panel display market.
Major manufacturers of flat panel displays are concentrated in
Japan, Korea and Taiwan, and major manufacturers of flat panel
display equipment are concentrated in Japan and the United
States. The transition to larger panel sizes and higher display
resolution is driving the need for improved process control to
reduce defects.
Solar
Cells
Our products are used in crystalline silicon and emerging thin
film processes to manufacture photovoltaic (PV) cells.
Crystalline silicon technology requires wafer based deposition
systems and is currently the dominant manufacturing technology.
Thin film deposition on a non-silicon substrate, such as glass,
is the emerging technology.
Data
Storage Media
Our products are used to manufacture storage media which store
and read data magnetically; optical storage media which store
and read data using laser technology; hard disks; data storage
devices; and digital video discs.
The transition to higher density storage capacity requires
manufacturing processes incorporating tighter process controls.
Major manufacturers of storage media are concentrated in Japan
and the Asia Pacific region, and major manufacturers of storage
media capital equipment are concentrated in Europe, Japan and
the United States.
3
Other
Advanced Coatings
Thin film coatings for diverse applications such as
architectural glass and packaging are deposited using processes
similar to those used in semiconductor manufacturing. Thin film
processing manufacturers are concentrated in Europe, Japan and
the United States.
Other
Advanced Applications
Our products are used in other energy generation and
environmental monitoring processes such as nuclear fuel
processing, fuel cell research, greenhouse gas monitoring, and
chemical agent detection; medical instrument sterilization;
consumable medical supply manufacturing and pharmaceutical
manufacturing. Our power delivery products are also incorporated
into other end-market products such as medical imaging
equipment. In addition, our products are sold to government,
university and industrial laboratories for vacuum applications
involving research and development in materials science,
physical chemistry and electronics materials. Major equipment
and process providers and research laboratories are concentrated
in Europe, Japan and the United States.
Product
Groups
We group our products into three product groups: Instruments and
Control Systems, Power and Reactive Gas Products and Vacuum
Products.
|
|
1.
|
Instruments
and Control Systems
|
This product group includes pressure measurement and control,
materials delivery, gas composition analysis, electrostatic
charge management and control and information technology
products.
Pressure Measurement and Control
Products. Each of our pressure measurement
and control product lines consists of products that are designed
for a variety of pressure ranges and accuracies.
Baratron®
Pressure Measurement Products. These products are
typically used to measure the pressure of the gases being
distributed upstream of the process chambers, to measure process
chamber pressures and to measure pressures between process
chambers, vacuum pumps and exhaust lines. We believe we offer
the widest range of gas pressure measurement instruments in the
semiconductor and advanced thin-film materials processing
industries.
Automatic Pressure and Vacuum Control
Products. These products enable precise control
of process pressure by electronically actuating valves that
control the flow of gases in and out of the process chamber to
minimize the difference between desired and actual pressure in
the chamber.
In most cases, Baratron pressure measurement instruments provide
the pressure input to the automatic pressure control device.
Together, these components create an integrated automatic
pressure control subsystem. Our pressure control products can
also accept inputs from other measurement instruments, enabling
the automatic control of gas input or exhaust based on
parameters other than pressure.
Materials Delivery Products. Each of
our materials delivery product lines consists of products that
are designed for a variety of flow ranges and accuracies.
Flow Measurement and Control Products. Flow
measurement products include gas and vapor flow measurement
products based upon thermal conductivity, pressure and direct
liquid injection technologies. The flow control products combine
the flow measurement device with valve control elements based
upon solenoid, piezo-electric and piston pump technologies.
These products measure and automatically control the mass flow
rate of gases and vapors into the process chamber.
Gas Composition Analysis Products. Gas
composition analysis instruments are sold to a variety of
industries including the semiconductor industry.
Mass Spectrometry-Based Gas Composition Analysis
Instruments. These products are based on
quadrupole mass spectrometer sensors that separate gases based
on molecular weight. These sensors include built-in electronics
and are provided with software that analyzes the composition of
background and process gases in the process
4
chamber. These instruments are provided both as portable
laboratory systems and as process gas monitoring systems used in
the diagnosis of semiconductor manufacturing process systems.
Fourier Transform Infra-Red (FTIR) Based Gas Composition
Analysis Products. FTIR-based products provide
information about the composition of gases by measuring the
absorption of infra-red light as it passes through the sample
being measured. Gas analysis applications include measuring the
compositions of mixtures of reactant gases; measuring the purity
of individual process gases; measuring the composition of
process exhaust gas streams to determine process health;
monitoring gases to ensure environmental health and safety and
monitoring combustion exhausts. These instruments are provided
as portable laboratory systems and as process gas monitoring
systems used in the diagnosis of manufacturing processes.
Mass spectrometry-based and FTIR-based gas monitoring systems
can indicate out-of-bounds conditions, such as the presence of
undesirable contaminant gases and water vapor or
out-of-tolerance amounts of specific gases in the process, which
alert operators to diagnose and repair faulty equipment.
Leak Detection Products. Helium leak detection
is used in a variety of industries including semiconductor,
HVAC, automotive and aerospace to ensure the leak integrity of
both manufactured products and manufacturing equipment. We
believe that our products are the smallest mass
spectrometer-based helium leak detectors currently available.
Electrostatic Charge Management
Products. Semiconductor, flat panel display
and data storage industries are vulnerable to electrostatic
charge-related contamination and yield problems. We design and
manufacture products to control electrostatic attraction,
electrostatic discharge and electromagnetic interference. In
high throughput industrial applications such as plastics
manufacture and printing, ionization is used to improve process
control and productivity.
Control and Information Technology
Products. We design and manufacture a suite
of products that allow semiconductor and other manufacturing
customers to better control their processes through
computer-controlled automation. These products include digital
control network products, process chamber and system
controllers, connectivity products and data analysis/information
products.
Control Products. Digital control network
products are used to connect sensors, actuators and subsystems
to the chamber and system control computers. They support a
variety of industry-standard connection methods as well as
conventional discrete digital and analog signals. Chamber and
system control computers process these signals in real time and
allow customers to precisely manage the process conditions.
Connecting sensors, chambers and tools to the factory network is
essential for improving quality and productivity. Our
connectivity products allow information to flow from the process
sensors and subsystems and from the process tool control
computer to the factory network. By enabling this information
flow, we believe that we help customers optimize their processes
through Advanced Process Control (APC), and diagnose
equipment problems from a remote location
(e-diagnostics).
Information Technology Products. We design
on-line and off-line software products to analyze data to
improve the quality and yield of semiconductor, thin film,
biopharmaceutical, injection molding and other manufacturing
processes.
|
|
2.
|
Power
and Reactive Gas Products
|
This product group includes power delivery products and reactive
gas generation products used in semiconductor and other thin
film applications, including solar and in medical imaging
equipment applications.
Power Delivery Products. We design and
manufacture microwave, DC and RF power delivery systems as well
as RF matching networks and metrology products. In the
semiconductor and thin film markets, our power supplies are used
to provide energy to various etching, stripping and deposition
processes. Our power amplifiers are also used in medical imaging
equipment.
Reactive Gas Generation Products. Reactive
gases are used to process and clean substrates and to clean
process chambers to reduce particle contamination. A reactive
gas is created when energy is added to a stable gas to
5
break apart its molecules. When the resulting dissociated gas
comes into contact with other matter it produces rapid chemical
reactions which result in processing of thin films (deposition
of films, etching and cleaning of films and surface
modifications) or equipment cleaning.
Processing Thin Films. Our reactive gas
products include ozone generators and subsystems used for
deposition of insulators onto semiconductor devices, ozonated
water delivery systems for advanced semiconductor wafer and flat
panel display cleaning, microwave plasma based products for
photo resist removal and a new line of remote plasma generators
which provide reactive gases for a wide range of semiconductor,
flat panel and other thin film process applications.
Equipment Cleaning. As materials are deposited
on wafers, films, or solar cells, the deposited material also
accumulates on the walls of the vacuum process chamber. Our
atomic fluorine generators are used to clean the process
chambers between deposition steps to reduce particulates and
contamination caused by accumulated build up on the chamber
walls.
This product group consists of vacuum technology products,
including vacuum containment components, vacuum gauges, vacuum
valves, effluent management subsystems and custom stainless
steel chambers, vessels, biopharmaceutical process equipment
(BPE) hardware and housings.
Vacuum Gauging Products. We offer a wide range
of vacuum instruments consisting of vacuum measurement sensors
and associated power supply and readout units as well as
transducers where the sensor and electronics are integrated
within a single package. These gauges complement our Baratron
capacitance manometers for medium and high vacuum ranges. Our
indirect gauges use thermal conductivity and ionization gauge
technologies to measure pressure and vacuum, and our direct
gauges use the pressure measurement technology of a MEMS-based
piezo sensor.
Vacuum Valves, Stainless Steel Components, Process Solutions
and Custom Stainless Steel Hardware. Our vacuum
valves are used for vacuum isolation of vacuum lines, load
locks, vacuum chambers and pumps for chamber isolation and
vacuum containment. Our vacuum process solutions consist of
vacuum fittings, traps and heated lines that are used downstream
from the semiconductor process chamber to control process
effluent gasses by preventing condensable materials from
depositing particles near or back into the process chamber.
Custom Manufactured Components. Our design and
manufacturing facilities build high purity chambers for material
and thin film coating, ALD, lithography and all semiconductor
and solar processes. We design and build custom panels,
weldments, ASME (American Society of Manufacturing Engineers)
vessels and housings, as well as a line of BPE certified
components for biopharmaceutical processes.
Customers
Our largest customers include leading semiconductor capital
equipment manufacturers such as Applied Materials, Lam Research,
Novellus Systems, and Tokyo Electron. Sales to our top ten
customers accounted for approximately 38%, 46% and 49% of net
sales for the years ended December 31, 2008, 2007 and 2006,
respectively. Applied Materials accounted for approximately 19%,
20% and 21% of our net sales for the years ended
December 31, 2008, 2007 and 2006, respectively.
Sales,
Marketing, Service and Support
Our worldwide sales, marketing, service and support organization
is critical to our strategy of maintaining close relationships
with semiconductor capital equipment manufacturers and
semiconductor device manufacturers. We sell our products
primarily through our direct sales force. As of
December 31, 2008, we had 195 sales employees worldwide,
located in China, France, Germany, Japan, Korea, the
Netherlands, Singapore, Sweden, Taiwan, the United Kingdom and
the United States. We also maintain sales representatives and
agents in a number of countries, which supplement this direct
sales force. We maintain a marketing staff that identifies
customer requirements, assists in product planning and
specifications, and focuses on future trends in semiconductor
and other markets.
6
As semiconductor device manufacturers have become increasingly
sensitive to the significant costs of system downtime, they have
required that suppliers offer comprehensive local repair service
and close customer support. Manufacturers require close support
to enable them to repair, modify, upgrade and retrofit their
equipment to improve yields and adapt new materials or
processes. To meet these market requirements, we maintain a
worldwide sales and support organization in 17 countries.
Technical support is provided from offices in China, France,
Germany, Japan, Korea, the Netherlands, Singapore, Taiwan, the
United Kingdom and the United States. Repair and calibration
services are provided at 25 service depots located worldwide. We
typically provide warranties from one to three years, depending
upon the type of product.
Research
and Development
Our products incorporate sophisticated technologies to power,
measure, control and monitor increasingly complex gas-related
semiconductor manufacturing processes, thereby enhancing uptime,
yield and throughput for our semiconductor device manufacturing
customers. Our products have continuously advanced as we strive
to meet our customers evolving needs. We have developed,
and continue to develop, new products to address industry
trends, such as the shrinking of integrated circuit critical
dimensions to 65 nanometers and below. In addition, we have
developed, and continue to develop, products that support the
migration to new classes of materials and ultra-thin layers,
such as copper for low resistance conductors, high-k dielectric
materials for capacitors and gates and low-k dielectric
materials for low loss insulators that are used in small
geometry manufacturing. We have undertaken an initiative to
involve our marketing, engineering, manufacturing and sales
personnel in the concurrent development of new products in order
to reduce the time to market for new products. Our employees
also work closely with our customers development personnel
helping us to identify and define future technical needs on
which to focus research and development efforts. We support
research at academic institutions targeted at advances in
materials science and semiconductor process development. As of
December 31, 2008, we had 467 research and development
employees, primarily located in the United States. Our research
and development expenses were $78.5 million,
$74.6 million and $72.2 million for the years ended
December 31, 2008, 2007 and 2006, respectively. Our
research and development efforts include numerous projects, none
of which are individually material, and generally have a
duration of 12 to 30 months.
Manufacturing
Our manufacturing facilities are located in China, Germany,
Israel, Japan, Mexico, the United Kingdom and the United States.
Manufacturing activities include the assembly and testing of
components and subassemblies, which are integrated into our
products. We outsource some of our subassembly work. We purchase
a wide range of electronic, mechanical and electrical
components, some of which are designed to our specifications. We
consider our lean manufacturing techniques and responsiveness to
customers significantly fluctuating product demands to be
a competitive advantage.
Competition
The market for our products is highly competitive. Principal
competitive factors include:
|
|
|
|
|
historical customer relationships;
|
|
|
|
product quality, performance and price;
|
|
|
|
breadth of product line;
|
|
|
|
manufacturing capabilities; and
|
|
|
|
customer service and support.
|
Although we believe that we compete favorably with respect to
these factors, there can be no assurance that we will continue
to do so.
We encounter substantial competition in most of our product
lines, although no single competitor competes with us across all
product lines. Certain of our competitors may have greater
financial and other resources than us. In some cases,
competitors are smaller than we are, but well established in
specific product niches. Celerity offers
7
products that compete with our pressure and materials delivery
products. Advanced Energy and Horiba offer materials delivery
products that compete with our product line of mass flow
controllers. Nor-Cal Products and VAT offer products that
compete with our vacuum components. Inficon offers products that
compete with our vacuum measurement and gas analysis products.
Brooks Automation and Inficon offer products that compete with
our vacuum gauging products. Advanced Energy offers products
that compete with our power delivery and reactive gas generator
products.
Patents
and Other Intellectual Property Rights
We rely on a combination of patent, copyright, trademark and
trade secret laws and license agreements to establish and
protect our proprietary rights. As of December 31, 2008, we
owned 336 U.S. patents, 235 foreign patents and had 127
pending U.S. patent applications. Foreign counterparts of
certain of these applications have been filed or may be filed at
the appropriate time.
We require each of our employees, including our executive
officers, to enter into standard agreements pursuant to which
the employee agrees to keep confidential all of our proprietary
information and to assign to us all inventions while they are
employed by us.
For a discussion of litigation relating to our intellectual
property, see Legal Proceedings of this annual
report on
Form 10-K.
Employees
As of December 31, 2008, we employed 2,631 persons. We
believe that our ongoing success depends upon our continued
ability to attract and retain highly skilled employees for whom
competition is intense. None of our employees are represented by
a labor union or are party to a collective bargaining agreement.
We believe that our employee relations are good.
Acquisitions
We completed one acquisition in 2007. On November 7, 2007,
we acquired Yield Dynamics, Inc. (YDI), a provider
of yield management technology located in Sunnyvale, California.
YDIs data and yield management software, along with
MKS portfolio of sensors that control critical processes,
data collection and integration hardware, and real-time fault
detection and classification software, provides a comprehensive
offering for generating, collecting and analyzing process sensor
data and correlating the data to wafers, chambers and tools
across the semiconductor fab as well as other thin film
manufacturing processes.
We completed three acquisitions in 2006. On October 11,
2006, we completed our acquisition of Novx Corp.
(Novx), a provider of electrostatic charge
monitoring technology for semiconductor, data storage,
telecommunication, medical device and other markets. Novxs
technology expands our capability to monitor, detect and control
electrostatic charge in advanced process environments, such as
semiconductor and hard disk drive manufacturing. On
January 3, 2006, we completed our acquisition of Ion
Systems, Inc. (Ion), a leading provider of
electrostatic management solutions located in Alameda,
California. Ions ionization technology monitors
electrostatic charges to reduce process contamination and
improve yields, which complements our process monitoring and
control technologies. Additionally, on January 3, 2006, we
completed our acquisition of Umetrics, AB
(Umetrics), a leader in multivariate data analysis
and modeling software located in Umea, Sweden. Umetrics
multivariate data analysis and modeling software converts
process data into useable information for yield improvement,
when linked with our open and modular platform of process
sensors and data collection, integration, data storage, and
visualization capabilities.
The following factors could materially affect MKS
business, financial condition or results of operations and
should be carefully considered in evaluating the Company and its
business, in addition to other information presented elsewhere
in this report.
8
Our
business depends substantially on capital spending in the
semiconductor industry which is characterized by periodic
fluctuations that may cause a reduction in demand for our
products.
We estimate that approximately 57%, 68% and 70% of our net sales
for the years ended December 31, 2008, 2007 and 2006,
respectively, were to semiconductor capital equipment
manufacturers and semiconductor device manufacturers, and we
expect that sales to such customers will continue to account for
a substantial portion of our sales. Our business depends upon
the capital expenditures of semiconductor device manufacturers,
which in turn depend upon the demand for semiconductors.
Historically, the semiconductor market has been highly cyclical
and has experienced periods of overcapacity, resulting in
significantly reduced demand for capital equipment which may
result in lower gross margins due to reduced absorption of
manufacturing overhead. In addition, many semiconductor
manufacturers have operations and customers in Asia, a region
that in past years has experienced serious economic problems
including currency devaluations, debt defaults, lack of
liquidity and recessions. Recent reductions in demand for the
products manufactured by semiconductor capital equipment
manufacturers and semiconductor device manufacturers have
adversely affected our business. Our product sales during the
year ended December 31, 2008 to these customers have
decreased by 35%. As we enter 2009, global economic uncertainty
is prolonging a steep downturn in semiconductor capital
equipment spending and adversely affecting our business,
financial condition and results of operations. We cannot be
certain of the timing or magnitude of future semiconductor
industry downturns. A decline in the level of orders as a result
of any downturn or slowdown in the semiconductor capital
equipment industry could have a material adverse effect on our
business, financial condition and results of operations.
Although we cannot predict when demand from these customers will
rebound, we expect further decreases in demand from these
customers during 2009 and as a result we are estimating lower
sequential revenues for the quarter ended March 31, 2009
compared to December 31, 2008.
MKS is
exposed to risks associated with the ongoing financial crisis
and weakening global economy.
The recent severe tightening of the credit markets, turmoil in
the financial markets, and weakening global economy are
contributing to slowdowns in the industries in which MKS
operates, which slowdowns are expected to worsen if these
economic conditions are prolonged or deteriorate further. The
markets for semiconductors and flat panel displays in particular
depend largely on consumer spending. Economic uncertainty
exacerbates negative trends in consumer spending and may cause
certain MKS customers to push out, cancel, or refrain from
placing equipment or service orders, which may affect MKS
ability to convert backlog to sales and may reduce our net
sales. Difficulties in obtaining capital and deteriorating
market conditions may also lead to the inability of some
customers to obtain affordable financing, resulting in lower
sales for MKS. Customers with liquidity issues may lead to
additional bad debt expense for MKS. These conditions may also
similarly affect key suppliers, which could affect their ability
to deliver parts and result in delays for MKS products.
Further, these conditions and uncertainty about future economic
conditions make it challenging for MKS to forecast its operating
results, make business decisions, and identify the risks that
may affect its business, financial condition and results of
operations. If MKS is not able to timely and appropriately adapt
to changes resulting from the difficult macroeconomic
environment, MKS business, financial condition or results
of operations may be materially and adversely affected.
We anticipate that international sales will continue to account
for a significant portion of our net sales. In addition, certain
of our key domestic customers derive a significant portion of
their revenues from sales in international markets. Therefore,
our sales and results of operations could be adversely affected
by economic slowdowns, such as the current global economic
crisis, and other risks associated with international sales.
International sales include sales by our foreign subsidiaries,
but exclude direct export sales. International sales accounted
for approximately 43%, 39% and 34%, of net sales for the years
ended December 31, 2008, 2007 and 2006, respectively, a
significant portion of which were sales to Japan.
Our
quarterly operating results have fluctuated, and are likely to
continue to vary significantly, which may result in volatility
in the market price of our common stock.
A substantial portion of our shipments occurs shortly after an
order is received and therefore we operate with a low level of
backlog. As a result, a decrease in demand for our products from
one or more customers could occur
9
with limited advance notice and could have a material adverse
effect on our results of operations in any particular period. A
significant percentage of our expenses is relatively fixed and
based in part on expectations of future net sales. The inability
to adjust spending quickly enough to compensate for any
shortfall would magnify the adverse impact of a shortfall in net
sales on our results of operations. Factors that could cause
fluctuations in our net sales include:
|
|
|
|
|
the timing of the receipt of orders from major customers;
|
|
|
|
shipment delays;
|
|
|
|
disruption in sources of supply;
|
|
|
|
seasonal variations in capital spending by customers;
|
|
|
|
production capacity constraints; and
|
|
|
|
specific features requested by customers.
|
In addition, our quarterly operating results may be adversely
affected due to charges incurred in a particular quarter, for
example, relating to inventory obsolescence, warranty or asset
impairments.
As a result of the factors discussed above, it is likely that we
may in the future experience quarterly or annual fluctuations
and that, in one or more future quarters, our operating results
may fall below the expectations of public market analysts or
investors. In any such event, the price of our common stock
could fluctuate or decline significantly.
The
loss of net sales to any one of our major customers would likely
have a material adverse effect on us.
Our top ten customers accounted for approximately 38%, 46% and
49% of our net sales for the years ended December 31, 2008,
2007 and 2006, respectively. The loss of a major customer or any
reduction in orders by these customers, including reductions due
to market or competitive conditions, would likely have a
material adverse effect on our business, financial condition and
results of operations. During the years ended December 31,
2008, 2007 and 2006, one customer, Applied Materials, accounted
for approximately 19%, 20% and 21%, respectively, of our net
sales. None of our significant customers, including Applied
Materials, has entered into an agreement requiring it to
purchase any minimum quantity of our products. The demand for
our products from our semiconductor capital equipment customers
depends in part on orders received by them from their
semiconductor device manufacturer customers.
Attempts to lessen the adverse effect of any loss or reduction
of net sales through the rapid addition of new customers could
be difficult because prospective customers typically require
lengthy qualification periods prior to placing volume orders
with a new supplier. Our future success will continue to depend
upon:
|
|
|
|
|
our ability to maintain relationships with existing key
customers;
|
|
|
|
our ability to attract new customers;
|
|
|
|
our ability to introduce new products in a timely manner for
existing and new customers; and
|
|
|
|
the successes of our customers in creating demand for their
capital equipment products that incorporate our products.
|
As
part of our business strategy, we have entered into and may
enter into or seek to enter into business combinations and
acquisitions that may be difficult and costly to integrate, may
be disruptive to our business, may dilute stockholder value or
may divert management attention.
We made several acquisitions in the years 2000 through 2002 and,
more recently in 2006 and 2007. As a part of our business
strategy, we may enter into additional business combinations and
acquisitions. Acquisitions are typically accompanied by a number
of risks, including the difficulty of integrating the
operations, technology and personnel of the acquired companies,
the potential disruption of our ongoing business and distraction
of management, possible internal control weaknesses of the
acquired companies, expenses related to the acquisition and
10
potential unknown liabilities associated with acquired
businesses. If we are not successful in completing acquisitions
that we may pursue in the future, we may be required to
reevaluate our growth strategy, and we may incur substantial
expenses and devote significant management time and resources in
seeking to complete proposed acquisitions that will not generate
benefits for us.
In addition, with future acquisitions, we could use substantial
portions of our available cash as all or a portion of the
purchase price. We could also issue additional securities as
consideration for these acquisitions, which could cause
significant stockholder dilution without achieving the desired
accretion to our business. Further, our prior acquisitions and
any future acquisitions may not ultimately help us achieve our
strategic goals and may pose other risks to us.
As a result of our previous acquisitions, we have added several
different decentralized operating and accounting systems,
resulting in a complex reporting environment. We will need to
continue to modify our accounting policies, internal controls,
procedures and compliance programs to provide consistency across
all our operations. In order to increase efficiency and
operating effectiveness and improve corporate visibility into
our decentralized operations, we are currently implementing a
worldwide Enterprise Resource Planning (ERP) system.
We expect to continue to implement the ERP system in phases over
the next few years. Any future implementations may risk
potential disruption of our operations during the conversion
periods and the implementations could require significantly more
management time and higher implementation costs than currently
estimated.
An
inability to convince semiconductor device manufacturers to
specify the use of our products to our customers that are
semiconductor capital equipment manufacturers would weaken our
competitive position.
The markets for our products are highly competitive. Our
competitive success often depends upon factors outside of our
control. For example, in some cases, particularly with respect
to mass flow controllers, semiconductor device manufacturers may
direct semiconductor capital equipment manufacturers to use a
specified suppliers product in their equipment.
Accordingly, for such products, our success will depend in part
on our ability to have semiconductor device manufacturers
specify that our products be used at their semiconductor
fabrication facilities. In addition, we may encounter
difficulties in changing established relationships of
competitors that already have a large installed base of products
within such semiconductor fabrication facilities.
If our
products are not designed into successive generations of our
customers products, we will lose significant net sales
during the lifespan of those products.
New products designed by semiconductor capital equipment
manufacturers typically have a lifespan of five to ten years.
Our success depends on our products being designed into new
generations of equipment for the semiconductor industry. We must
develop products that are technologically advanced so that they
are positioned to be chosen for use in each successive
generation of semiconductor capital equipment. If customers do
not choose our products, our net sales may be reduced during the
lifespan of our customers products. In addition, we must
make a significant capital investment to develop products for
our customers well before our products are introduced and before
we can be sure that we will recover our capital investment
through sales to the customers in significant volume. We are
thus also at risk during the development phase that our products
may fail to meet our customers technical or cost
requirements and may be replaced by a competitive product or
alternative technology solution. If that happens, we may be
unable to recover our development costs.
The
semiconductor industry is subject to rapid demand shifts which
are difficult to predict. As a result, our inability to expand
our manufacturing capacity in response to these rapid shifts may
cause a reduction in our market share.
Our ability to increase sales of certain products depends in
part upon our ability to expand our manufacturing capacity for
such products in a timely manner. If we are unable to expand our
manufacturing capacity on a timely basis or to manage such
expansion effectively, our customers could implement our
competitors products and, as a result, our market share
could be reduced. Because the semiconductor industry is subject
to rapid demand shifts which are difficult to foresee, we may
not be able to increase capacity quickly enough to respond to a
rapid increase
11
in demand. Additionally, capacity expansion could increase our
fixed operating expenses and if sales levels do not increase to
offset the additional expense levels associated with any such
expansion, our business, financial condition and results of
operations could be materially adversely affected.
A
material amount of our assets represents goodwill and intangible
assets, and our net income will be reduced if our goodwill or
intangible assets become impaired.
As of December 31, 2008, our goodwill and intangible
assets, net, represented approximately $358.8 million, or
36.4%, of our total assets. Goodwill is generated in our
acquisitions when the cost of an acquisition exceeds the fair
value of the net tangible and identifiable intangible assets we
acquire. Goodwill is subject to an impairment analysis at least
annually based on the fair value of the reporting unit.
Intangible assets, which relate primarily to the customer
technologies, relationships and patents and trademarks acquired
by us as part of our acquisitions of other companies, are
subject to an impairment analysis whenever events or changes in
circumstances exist that indicate that the carrying value of the
intangible asset might not be recoverable. During the year ended
December 31, 2008, we recorded non-cash impairment charges
of $6.1 million related to intangible assets. Due to the
ongoing uncertainty in market conditions, which may continue to
negatively impact our financial performance, we will continue to
monitor and evaluate the carrying value of goodwill and
intangible assets. If market and economic conditions or business
performance deteriorate further, this could increase the
likelihood of the Company recording an impairment charge, which
could materially and adversely affect our results of operations.
We
operate in a highly competitive industry.
The market for our products is highly competitive. Principal
competitive factors include:
|
|
|
|
|
historical customer relationships;
|
|
|
|
product quality, performance and price;
|
|
|
|
breadth of product line;
|
|
|
|
manufacturing capabilities; and
|
|
|
|
customer service and support.
|
Although we believe that we compete favorably with respect to
these factors, we may not be able to continue to do so. We
encounter substantial competition in most of our product lines.
Certain of our competitors may have greater financial and other
resources than we have. In some cases, competitors are smaller
than we are, but well established in specific product niches. We
may encounter difficulties in changing established relationships
of competitors with a large installed base of products at such
customers fabrication facilities. In addition, our
competitors can be expected to continue to improve the design
and performance of their products. Competitors may develop
products that offer price or performance features superior to
those of our products. If our competitors develop superior
products, we may lose existing customer and market share.
We
have significant foreign operations, and outsource certain
operations offshore, which pose significant risks.
We have significant international sales, service, engineering
and manufacturing operations in Europe, Israel and Asia, and
have outsourced a portion of our manufacturing to Mexico. We may
expand the level of manufacturing and certain other operations
that we do offshore in order to take advantage of cost
efficiencies available to us in those countries. However, we may
not achieve the significant cost savings or other benefits that
we anticipate from this program. These foreign operations expose
us to operational and political risks that may harm our
business, including:
|
|
|
|
|
political and economic instability;
|
|
|
|
fluctuations in the value of currencies and high levels of
inflation, particularly in Asia and Europe;
|
|
|
|
changes in labor conditions and difficulties in staffing and
managing foreign operations, including, but not limited to,
labor unions;
|
12
|
|
|
|
|
reduced or less certain protection for intellectual property
rights;
|
|
|
|
greater difficulty in collecting accounts receivable and longer
payment cycles;
|
|
|
|
burdens and costs of compliance with a variety of foreign laws;
|
|
|
|
increases in duties and taxation;
|
|
|
|
costs associated with compliance programs for import and export
regulations;
|
|
|
|
imposition of restrictions on currency conversion or the
transfer of funds;
|
|
|
|
changes in export duties and limitations on imports or exports;
|
|
|
|
expropriation of private enterprises; and
|
|
|
|
unexpected changes in foreign regulations.
|
If any of these risks materialize, our operating results may be
adversely affected.
Unfavorable
currency exchange rate fluctuations may lead to lower operating
margins or may cause us to raise prices, which could result in
reduced sales.
Currency exchange rate fluctuations could have an adverse effect
on our net sales and results of operations and we could
experience losses with respect to our hedging activities.
Unfavorable currency fluctuations could require us to increase
prices to foreign customers, which could result in lower net
sales by us to such customers. Alternatively, if we do not
adjust the prices for our products in response to unfavorable
currency fluctuations, our results of operations could be
adversely affected. In addition, most sales made by our foreign
subsidiaries are denominated in the currency of the country in
which these products are sold and the currency they receive in
payment for such sales could be less valuable at the time of
receipt as a result of exchange rate fluctuations. We enter into
forward foreign exchange contracts and may enter into local
currency purchased options to reduce currency exposure arising
from intercompany sales of inventory. However, we cannot be
certain that our efforts will be adequate to protect us against
significant currency fluctuations or that such efforts will not
expose us to additional exchange rate risks.
Changes
in tax rates or tax liabilities could affect results of
operations.
As a global company, MKS is subject to taxation in the United
States and various other countries. Significant judgment is
required to determine and estimate worldwide tax liabilities.
MKS future annual and quarterly tax rates could be
affected by numerous factors, including changes in the:
(1) applicable tax laws; (2) composition of pre-tax
income in countries with differing tax rates; or
(3) valuation of MKS deferred tax assets and
liabilities. In addition, MKS is subject to regular examination
by the Internal Revenue Service and other tax authorities. MKS
regularly assesses the likelihood of favorable or unfavorable
outcomes resulting from these examinations to determine the
adequacy of its provision for income taxes. Although MKS
believes its tax estimates are reasonable, there can be no
assurance that any final determination will not be materially
different from the treatment reflected in MKS historical
income tax provisions and accruals, which could materially and
adversely affect MKS financial condition and results of
operations.
Key
personnel may be difficult to attract and retain.
Our success depends to a large extent upon the efforts and
abilities of a number of key employees and officers,
particularly those with expertise in the semiconductor
manufacturing and similar industrial manufacturing industries.
The loss of key employees or officers could have a material
adverse effect on our business, financial condition and results
of operations. We believe that our future success will depend in
part on our ability to attract and retain highly skilled
technical, financial, managerial and marketing personnel. We
cannot be certain that we will be successful in attracting and
retaining such personnel.
13
Our
proprietary technology is important to the continued success of
our business. Our failure to protect this proprietary technology
may significantly impair our competitive position.
As of December 31, 2008, we owned 336 U.S. patents,
235 foreign patents and had 127 pending U.S. patent
applications. Although we seek to protect our intellectual
property rights through patents, copyrights, trade secrets and
other measures, we cannot be certain that:
|
|
|
|
|
we will be able to protect our technology adequately;
|
|
|
|
competitors will not be able to develop similar technology
independently;
|
|
|
|
any of our pending patent applications will be issued;
|
|
|
|
domestic and international intellectual property laws will
protect our intellectual property rights; or
|
|
|
|
third parties will not assert that our products infringe patent,
copyright or trade secrets of such parties.
|
Protection
of our intellectual property rights may result in costly
litigation.
Litigation may be necessary in order to enforce our patents,
copyrights or other intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of
infringement. We are, from time to time, involved in lawsuits
enforcing or defending our intellectual property rights and may
be involved in such litigation in the future. Such litigation
could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial
condition and results of operations.
We may need to expend significant time and expense to protect
our intellectual property regardless of the validity or
successful outcome of such intellectual property claims. If we
lose any litigation, we may be required to seek licenses from
others or change, stop manufacturing or stop selling some of our
products.
The
market price of our common stock has fluctuated and may continue
to fluctuate for reasons over which we have no
control.
The stock market has from time to time experienced, and is
likely to continue to experience, extreme price and volume
fluctuations. Prices of securities of technology companies have
been especially volatile and have often fluctuated for reasons
that are unrelated to the operating performance of the
companies. The market price of shares of our common stock has
fluctuated greatly since our initial public offering and could
continue to fluctuate due to a variety of factors. In the past,
companies that have experienced volatility in the market price
of their stock have been the objects of securities class action
litigation. If we were the object of securities class action
litigation, it could result in substantial costs and a diversion
of our managements attention and resources.
Our
dependence on sole, limited source suppliers, and international
suppliers, could affect our ability to manufacture products and
systems.
We rely on sole, limited source suppliers and international
suppliers for a few of our components and subassemblies that are
critical to the manufacturing of our products. This reliance
involves several risks, including the following:
|
|
|
|
|
the potential inability to obtain an adequate supply of required
components;
|
|
|
|
reduced control over pricing and timing of delivery of
components; and
|
|
|
|
the potential inability of our suppliers to develop
technologically advanced products to support our growth and
development of new systems.
|
We believe that in time we could obtain and qualify alternative
sources for most sole, limited source and international supplier
parts. Seeking alternative sources of the parts could require us
to redesign our systems, resulting in increased costs and likely
shipping delays. We may be unable to redesign our systems, which
could result in further costs and shipping delays. These
increased costs would decrease our profit margins if we could
not
14
pass the costs to our customers. Further, shipping delays could
damage our relationships with current and potential customers
and have a material adverse effect on our business and results
of operations.
We are
subject to governmental regulations. If we fail to comply with
these regulations, our business could be harmed.
We are subject to federal, state, local and foreign regulations,
including environmental regulations and regulations relating to
the design and operation of our products. We must ensure that
the affected products meet a variety of standards, many of which
vary across the countries in which our systems are used. For
example, the European Union has published directives
specifically relating to power supplies. In addition, the
European Union has issued directives relating to regulation of
recycling and hazardous substances, which may be applicable to
our products, or to which some customers may voluntarily elect
to adhere to. In addition, China has adopted, and certain other
Asian countries have indicated an intention to adopt, similar
regulations. We must comply with any applicable regulation
adopted in connection with these types of directives in order to
ship affected products into countries that adopt these types of
regulations. We believe we are in compliance with current
applicable regulations, directives and standards and have
obtained all necessary permits, approvals, and authorizations to
conduct our business. However, compliance with future
regulations, directives and standards, or customer demands
beyond such requirements, could require us to modify or redesign
certain systems, make capital expenditures or incur substantial
costs. If we do not comply with current or future regulations,
directives and standards:
|
|
|
|
|
we could be subject to fines;
|
|
|
|
our production could be suspended; or
|
|
|
|
we could be prohibited from offering particular systems in
specified markets.
|
Some
provisions of our restated articles of organization, as amended,
our amended and restated by-laws and Massachusetts law could
discourage potential acquisition proposals and could delay or
prevent a change in control of us.
Anti-takeover provisions could diminish the opportunities for
stockholders to participate in tender offers, including tender
offers at a price above the then current market price of the
common stock. Such provisions may also inhibit increases in the
market price of the common stock that could result from takeover
attempts. For example, while we have no present plans to issue
any preferred stock, our board of directors, without further
stockholder approval, may issue preferred stock that could have
the effect of delaying, deterring or preventing a change in
control of us. The issuance of preferred stock could adversely
affect the voting power of the holders of our common stock,
including the loss of voting control to others. In addition, our
amended and restated by-laws provide for a classified board of
directors consisting of three classes. The classified board
could also have the effect of delaying, deterring or preventing
a change in control of the Company.
Changes
in financial accounting standards may adversely affect our
reported results of operations.
A change in accounting standards or practices could have a
significant effect on our reported results and may even affect
our reporting of transactions completed before the change was
effective. New accounting pronouncements and varying
interpretations of existing accounting pronouncements have
occurred and may occur in the future. Such changes may adversely
affect our reported financial results or may impact our related
business practice.
For example, Statement on Financial Accounting Standards
No. 123R Share-Based Payment
(SFAS 123R), which requires us to measure all
employee stock-based compensation awards using a fair value
method and record such expense in our consolidated financial
statements, was adopted in the first quarter of 2006, and had a
material adverse impact on our consolidated financial statements
as reported under generally accepted accounting principles in
the United States for the first quarter of 2006 and adversely
impacted our consolidated financial statements for fiscal 2006.
15
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
The following table provides information concerning MKS
principal and certain other owned and leased facilities as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
Lease
|
Location
|
|
Sq. Ft.
|
|
|
Activity
|
|
Manufactured
|
|
Expires
|
|
Alameda, California
|
|
|
50,000
|
|
|
Manufacturing and Research & Development
|
|
Electrostatic Management Programs and Systems
|
|
March 31, 2011
|
Akishima, Japan
|
|
|
26,300
|
|
|
Manufacturing, Customer Support and Research & Development
|
|
Materials and Power Delivery Products
|
|
September 11, 2018
|
Andover, Massachusetts
|
|
|
118,000
|
|
|
Manufacturing, Research & Development and Corporate
Headquarters
|
|
Pressure Measurement and Control Products
|
|
(5)
|
Austin, Texas
|
|
|
20,880
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Control & Information Management Products
|
|
May 31, 2012
|
Berlin, Germany
|
|
|
20,750
|
|
|
Manufacturing, Customer Support, Service and Research &
Development
|
|
Reactive Gas Generation Products
|
|
December, 13, 2010
|
Boulder, Colorado
|
|
|
124,000
|
|
|
Manufacturing, Customer Support, Service and Research &
Development
|
|
Vacuum Products
|
|
(2)
|
Carmiel, Israel
|
|
|
11,800
|
|
|
Manufacturing and Research & Development
|
|
Control & Information Management Products
|
|
December 31, 2009
|
Cheshire, United Kingdom
|
|
|
16,000
|
|
|
Manufacturing, Sales, Customer Support and Service
|
|
Materials Delivery Products
|
|
(3)
|
Colorado Springs, Colorado
|
|
|
24,000
|
|
|
Research & Development
|
|
Power Delivery Products
|
|
(1)
|
Filderstadt, Germany
|
|
|
9,300
|
|
|
Sales & Service
|
|
Not applicable
|
|
July 31, 2009
|
Fukuoka, Japan
|
|
|
9,300
|
|
|
Customer Support and Service
|
|
Pressure Measurement and Control Products
|
|
October 19, 2010
|
Lawrence, Massachusetts
|
|
|
40,000
|
|
|
Manufacturing
|
|
Pressure Measurement and Control Products
|
|
(1)
|
Lod, Israel
|
|
|
10,500
|
|
|
Customer Support and Research & Development
|
|
Pressure Measurement and Control Products
|
|
May 31, 2010
|
Methuen, Massachusetts
|
|
|
85,000
|
|
|
Manufacturing, Customer Support, Service and Research &
Development
|
|
Pressure Measurement and Control Products; Materials Delivery
Products
|
|
(1)
|
Munich, Germany
|
|
|
14,000
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Pressure Measurement and Control Products; Materials Delivery
Products
|
|
(1)
|
Nogales, Mexico
|
|
|
67,700
|
|
|
Manufacturing
|
|
Pressure Measurement and Control Products; Reactive Gas
Generation Products
|
|
March 31, 2014
|
Richardson, Texas
|
|
|
8,800
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
November 30, 2012
|
Rochester, New York
|
|
|
156,000
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Power Delivery Products
|
|
(1)
|
San Jose, California
|
|
|
32,000
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
April 30, 2011
|
Seoul, Korea
|
|
|
18,000
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
(6)
|
Shenzhen, China
|
|
|
242,000
|
|
|
Manufacturing
|
|
Power Delivery Products
|
|
May 31, 2017
|
Shropshire, United Kingdom
|
|
|
25,000
|
|
|
Manufacturing
|
|
Control & Information Management Products
|
|
October 18, 2010
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
Lease
|
Location
|
|
Sq. Ft.
|
|
|
Activity
|
|
Manufactured
|
|
Expires
|
|
Singapore
|
|
|
6,100
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
July 7, 2010
|
Sunnyvale, California
|
|
|
10,000
|
|
|
Vacant
|
|
Not applicable
|
|
July 7, 2010
|
Taiwan
|
|
|
21,400
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
August 25, 2010
|
Tianjin, China
|
|
|
12,917
|
|
|
Research & Development
|
|
Not applicable
|
|
August 1, 2011
|
Tokyo, Japan
|
|
|
63,300
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Materials Delivery Products
|
|
(4)
|
Umea, Sweden
|
|
|
7,000
|
|
|
Sales, Customer Support and Research & Development
|
|
Control & Information Management Products
|
|
August 31, 2009
|
Wilmington, Massachusetts
|
|
|
118,000
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Reactive Gas Generation Products; Power Delivery Products
|
|
(1)
|
|
|
|
(1) |
|
This facility is owned by MKS. |
|
(2) |
|
MKS leases two facilities, one has 39,000 square feet of
space and the other has 38,000 square feet of space. Both
leases expire on May 31, 2015. MKS also owns a third and
fourth facility with 27,000 and 20,000 square feet of
space, respectively. |
|
(3) |
|
MKS leases two facilities, one has 5,000 square feet of
space and a lease term which expires November 6, 2018 and
the second has 11,000 square feet of space with a lease
term which expires November 6, 2018. |
|
(4) |
|
MKS leases three facilities, one has 19,800 square feet of
space with a lease term that expires December 31, 2010 the
second has 10,600 square feet of space with a lease term
that expires on March 19, 2009 and the third has
26,300 square feet of space with a lease term that expires
September 11, 2018. MKS owns a fourth facility of
6,600 square feet. |
|
(5) |
|
MKS owns one facility with 82,000 square feet of space used
for manufacturing and research and development and leases
36,000 square feet of space used for its corporate
headquarters with a lease term which expires January 1,
2018. |
|
(6) |
|
MKS leases two facilities, one has 7,700 square feet of
space and one has 10,300 square feet of space. Both leases
expire on May 29, 2009. |
In addition to manufacturing and other operations conducted at
the foregoing leased or owned facilities, MKS provides worldwide
sales, customer support and services from various other leased
facilities throughout the world not listed in the table above.
See Business Sales, Marketing and
Support.
|
|
Item 3.
|
Legal
Proceedings
|
We filed suit against Celerity, Inc. in federal district court
in Texas on September 8, 2008 for infringement of two of
our patents relating to our PiMFC technology. The complaint was
amended on September 9, 2008 to include a claim of
infringement for one additional related MKS patent, which had
issued earlier that day. We dismissed the suit without prejudice
on February 6, 2009.
We are also subject to various other legal proceedings and
claims, which have arisen in the ordinary course of business. In
the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on our results
of operations, financial condition or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2008 through the solicitation of proxies
or otherwise.
17
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
Our common stock is traded on the NASDAQ Global Market under the
symbol MKSI. On February 18, 2009, the closing price of our
common stock, as reported on the NASDAQ Global Market, was
$14.62 per share. The following table sets forth for the periods
indicated the high and low bid prices per share of our common
stock as reported by the NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Price Range of Common Stock
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
22.24
|
|
|
$
|
15.90
|
|
|
$
|
26.00
|
|
|
$
|
21.11
|
|
Second Quarter
|
|
|
25.88
|
|
|
|
20.91
|
|
|
|
28.47
|
|
|
|
25.46
|
|
Third Quarter
|
|
|
25.00
|
|
|
|
19.00
|
|
|
|
28.15
|
|
|
|
18.91
|
|
Fourth Quarter
|
|
|
19.79
|
|
|
|
11.76
|
|
|
|
21.71
|
|
|
|
16.94
|
|
On February 18, 2009, we had approximately 572 stockholders
of record.
Dividend
Policy
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain earnings, if any, to
support our growth strategy and do not anticipate paying cash
dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including
our financial condition, operating results and current and
anticipated cash needs.
18
Comparative
Stock Performance
The following graph compares the cumulative total shareholder
return (assuming reinvestment of dividends) from investing $100
on December 31, 2003, and plotted at the last trading day
of each of the fiscal years ended December 31, 2004, 2005,
2006, 2007 and 2008, in each of (i) the Companys
Common Stock; (ii) an industry group index of semiconductor
equipment/material manufacturers (the Hemscott Group
Index), compiled by Hemscott Data (Hemscott),
a business owned by Morningstar, Inc.; and (iii) the NASDAQ
Market Index of companies (the NASDAQ Market Index).
The graph was compiled by Hemscott. The stock price performance
on the graph below is not necessarily indicative of future price
performance. The Companys Common Stock is listed on the
NASDAQ Global Market under the ticker symbol MKSI.
Performance
Graph
COMPARISON OF CUMULATIVE TOTAL RETURN OF
ONE OR MORE COMPANIES, PEER GROUPS,
INDUSTRY INDEXES AND/OR BROAD MARKETS
Assumes $100 invested on Dec. 31, 2003
Assumes dividend reinvested
Fiscal Year Ending Dec. 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
2004
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
MKS Instruments, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
63.97
|
|
|
|
$
|
61.69
|
|
|
|
$
|
77.86
|
|
|
|
$
|
66.00
|
|
|
|
$
|
51.00
|
|
Hemscott Group Index
|
|
|
$
|
100.00
|
|
|
|
$
|
78.48
|
|
|
|
$
|
82.52
|
|
|
|
$
|
92.91
|
|
|
|
$
|
88.36
|
|
|
|
$
|
47.01
|
|
NASDAQ Market Index
|
|
|
$
|
100.00
|
|
|
|
$
|
108.41
|
|
|
|
$
|
110.79
|
|
|
|
$
|
122.16
|
|
|
|
$
|
134.29
|
|
|
|
$
|
79.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information included under the heading Performance
Graph in Item 5 of this Annual Report on
Form 10-K
is furnished and not filed and shall not
be deemed to be soliciting material or subject to
Regulation 14A, shall not be deemed filed for
purposes of Section 18 of the Exchange Act, or otherwise
subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act.
19
Purchases
of Equity Securities
On February 12, 2007, our Board of Directors approved a
share repurchase program (the Program) for the
repurchase of up to $300 million of our outstanding stock
over the next two years. The repurchases were made from time to
time on the open market or through privately negotiated
transactions. The timing and amount of any shares repurchased
under the Program were dependent upon a variety of factors,
including price, corporate and regulatory requirements, capital
availability, and other market conditions. During the year ended
December 31, 2008, we repurchased 5,667,000 shares of
common stock for $116 million for an average price of
$20.42 per share. The Program expired on February 11, 2009
with no additional share repurchases in 2009. The following
table provides information about purchases by the Company during
the quarter ended December 31, 2008 of equity securities
that are registered by the Company pursuant to Section 12
of the Exchange Act:
PURCHASES
OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
since Adoption of
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
Program as
|
|
|
Shares that May Yet Be
|
|
|
|
Total Number of
|
|
|
|
|
|
Part of Publicly
|
|
|
Purchased
|
|
|
|
Shares Purchased
|
|
|
Average Price
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
during Period(1)
|
|
|
Paid per Share
|
|
|
or Programs(2)
|
|
|
Programs
|
|
|
10/01/08-10/31/08
|
|
|
|
|
|
|
|
|
|
|
10,446,097
|
|
|
$
|
83,119,596
|
|
11/01/08-11/30/08
|
|
|
|
|
|
|
|
|
|
|
10,446,097
|
|
|
$
|
83,119,596
|
|
12/01/08-12/31/08
|
|
|
|
|
|
|
|
|
|
|
10,446,097
|
|
|
$
|
83,119,596
|
|
|
|
|
(1) |
|
We repurchased an aggregate of 10,446,097 shares of our
common stock pursuant to the repurchase program that we publicly
announced on February 12, 2007 (the Program).
We did not repurchase any of our common shares during the three
months ended December 31, 2008. |
|
(2) |
|
Our Board of Directors approved the repurchase by us of up to an
aggregate of $300 million of our common stock pursuant to
the Program. The Program expired on February 11, 2009 with
no additional share repurchases in 2009. |
20
|
|
Item 6.
|
Selected
Financial Data
|
Selected
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
646,994
|
|
|
$
|
780,487
|
|
|
$
|
782,801
|
|
|
$
|
509,294
|
|
|
$
|
555,080
|
|
Gross profit
|
|
|
259,943
|
|
|
|
331,487
|
|
|
|
338,122
|
|
|
|
200,434
|
|
|
|
219,371
|
|
Income from operations(1)
|
|
|
35,533
|
|
|
|
106,985
|
|
|
|
122,541
|
|
|
|
40,548
|
|
|
|
59,913
|
|
Net income(2)
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
$
|
94,235
|
|
|
$
|
34,565
|
|
|
$
|
69,839
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
$
|
1.70
|
|
|
$
|
0.64
|
|
|
$
|
1.30
|
|
Diluted
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
$
|
1.68
|
|
|
$
|
0.63
|
|
|
$
|
1.28
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
119,261
|
|
|
$
|
223,968
|
|
|
$
|
215,208
|
|
|
$
|
220,573
|
|
|
$
|
138,389
|
|
Short-term investments
|
|
|
159,608
|
|
|
|
99,797
|
|
|
|
74,749
|
|
|
|
72,046
|
|
|
|
97,511
|
|
Working capital
|
|
|
452,793
|
|
|
|
514,235
|
|
|
|
461,541
|
|
|
|
410,060
|
|
|
|
347,700
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
2,816
|
|
|
|
857
|
|
|
|
4,775
|
|
Total assets
|
|
|
984,939
|
|
|
|
1,076,260
|
|
|
|
1,043,720
|
|
|
|
863,740
|
|
|
|
828,677
|
|
Short-term obligations
|
|
|
18,678
|
|
|
|
20,203
|
|
|
|
23,021
|
|
|
|
18,886
|
|
|
|
24,509
|
|
Long-term obligations, less current portion
|
|
|
396
|
|
|
|
5,871
|
|
|
|
6,113
|
|
|
|
6,152
|
|
|
|
6,747
|
|
Stockholders equity
|
|
$
|
886,698
|
|
|
$
|
954,009
|
|
|
$
|
901,219
|
|
|
$
|
762,843
|
|
|
$
|
726,634
|
|
|
|
|
(1) |
|
Income from operations for the years ended December 31,
2008, 2007 and 2006 includes stock-based compensation of
$15.3 million, $12.9 million and $13.1 million,
respectively, as a result of adopting SFAS 123R in 2006.
Income from operations for the year ended December 31, 2008
includes an impairment charge of $6.1 million related to
the write down of intangible assets. |
|
(2) |
|
Net income for the years ended December 31, 2008, 2007 and
2006 includes stock-based compensation of $9.9 million,
$8.4 million and $8.7 million, net of tax,
respectively. Net income for the year ended December 31,
2004 includes a gain from the collection of a note receivable of
$5.0 million and a deferred tax benefit of
$10.2 million related to a reduction in a valuation
allowance against net deferred tax assets. |
21
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are a leading worldwide provider of instruments, subsystems
and process control solutions that measure, control, power,
monitor and analyze critical parameters to improve process
performance and productivity of advanced manufacturing processes.
We are managed as one operating segment. We group our products
into three product groups: Instruments and Control Systems,
Power and Reactive Gas Products and Vacuum Products. Our
products are derived from our core competencies in pressure
measurement and control, materials delivery, gas composition
analysis, electrostatic charge management, control and
information technology, power and reactive gas generation and
vacuum technology. Our products are used in diverse markets,
applications and processes. Our primary served markets are
manufacturers of capital equipment for semiconductor devices,
and for other thin film applications including flat panel
displays, solar cells, data storage media and other advanced
coatings. We also leverage our technology in other markets with
advanced manufacturing applications including medical equipment,
pharmaceutical manufacturing, and energy generation and
environmental monitoring.
We have a diverse base of customers that includes manufacturers
of semiconductor capital equipment and semiconductor devices,
thin film capital equipment used in the manufacture of flat
panel displays, solar cells, data storage media, and other
coating applications; and other industrial, medical and
manufacturing companies, and university, government and
industrial research laboratories. During the years ended
December 31, 2008, 2007 and 2006, we estimate that
approximately 57%, 68% and 70% of our net sales, respectively,
were to semiconductor capital equipment manufacturers and
semiconductor device manufacturers. We expect that sales to
semiconductor capital equipment manufacturers and semiconductor
device manufacturers will continue to account for a substantial
portion of our sales.
Our product revenues sold to our other markets, which exclude
semiconductor capital equipment and semiconductor device product
applications, increased by 8.3% for the year ended
December 31, 2008. This is mainly due to increased sales to
the solar market, which is one of our fastest growing markets.
We continued to penetrate the solar market in 2008 which was
demonstrated by several product design wins for our technologies
and the increase in our solar customer base.
Recent reductions in demand for the products manufactured by
semiconductor capital equipment manufacturers and semiconductor
device manufacturers have adversely affected our business. Our
product sales during the year ended December 31, 2008 to
these customers have decreased by 35%. However, the
semiconductor capital equipment industry is subject to rapid
demand shifts, which are difficult to predict, and we are
uncertain how long these sales levels may be maintained or the
timing or extent of any future downturn or upturn in the
semiconductor capital equipment industry. As we enter 2009,
global economic uncertainty is prolonging a steep downturn in
semiconductor capital equipment spending and adversely affecting
our business, financial condition and results of operations.
Although we cannot predict when demand from these customers will
rebound, we expect further decreases in demand from these
customers during 2009 and as a result we are estimating lower
sequential revenues for the quarter ended March 31, 2009
compared to December 31, 2008 as a result of the continuing
downturn.
A significant portion of our net sales is to operations in
international markets. International net sales include sales by
our foreign subsidiaries, but exclude direct export sales.
International net sales accounted for approximately 43%, 39% and
34% of net sales for the years ended December 31, 2008,
2007 and 2006, respectively, a significant portion of which were
sales in Japan. We expect that international net sales will
continue to represent a significant percentage of our total net
sales.
Recent
Acquisitions
On November 7, 2007, we acquired Yield Dynamics, Inc.
(YDI), a provider of yield management technology
located in Sunnyvale, California. YDIs data and yield
management software, along with MKS portfolio of sensors
that control critical processes, data collection and integration
hardware, and real-time fault detection and classification
software, provides a comprehensive offering for generating,
collecting and analyzing process sensor data and correlating the
data to wafers, chambers and tools across the semiconductor fab
as well as
22
other thin film manufacturing processes. The purchase price
consisted of $23.7 million in cash, net of
$0.7 million in cash acquired, and $0.4 million in
acquisition related costs. The purchase agreement includes
contingent payments of up to $10.0 million based upon
achieving specific annual and cumulative revenue targets between
2008 and 2010. There were no contingent payments earned in 2008.
On October 11, 2006, we completed our acquisition of Novx
Corp. (Novx), a provider of electrostatic charge
monitoring technology for semiconductor, data storage,
telecommunication, medical device and other markets. Novxs
technology expands our capability to monitor, detect and control
electrostatic charge in advanced process environments, such as
semiconductor and hard disk drive manufacturing. The total
purchase price was $2.6 million.
On January 3, 2006, we completed our acquisition of Ion
Systems, Inc. (Ion), a leading provider of
electrostatic management solutions located in Alameda,
California, pursuant to an Agreement and Plan of Merger dated
November 25, 2005. Ions ionization technology
monitors electrostatic charges to reduce process contamination
and improve yields, which complements our process monitoring and
control technologies. The aggregate purchase price consisted of
$68.1 million in cash, net of $5.1 million in cash
acquired, and $0.8 million in acquisition related costs.
Additionally, on January 3, 2006, we completed our
acquisition of Umetrics, AB (Umetrics), a leader in
multivariate data analysis and modeling software located in
Umea, Sweden, pursuant to a Sale and Purchase Agreement dated
December 15, 2005. Umetrics multivariate data
analysis and modeling software converts process data into
useable information for yield improvement, when linked with our
open and modular platform of process sensors and data
collection, integration, data storage, and visualization
capabilities. The purchase price consisted of $27.4 million
in cash, net of $2.6 million in cash acquired, and
$0.4 million in acquisition related costs.
Critical
Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition
and Results of Operations discusses our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue
recognition and allowance for doubtful accounts, inventory,
warranty costs, stock-based compensation expense, intangible
assets, goodwill and other long-lived assets, in-process
research and development and income taxes. We base our estimates
and judgments on historical experience and on various other
factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect the
most significant judgments, assumptions and estimates we use in
preparing our consolidated financial statements:
Revenue Recognition and Accounts Receivable
Allowances. Revenue from product sales is
recorded upon transfer of title and risk of loss to the customer
provided that there is evidence of an arrangement, the sales
price is fixed or determinable, and collection of the related
receivable is reasonably assured. In most transactions, we have
no obligations to our customers after the date products are
shipped other than pursuant to warranty obligations. In some
instances, we provide installation, training, support and
services to customers after the product has been shipped. We
defer the fair value of any undelivered elements until the
undelivered element is delivered. Fair value is the price
charged when the element is sold separately. Shipping and
handling fees billed to customers, if any, are recognized as
revenue. The related shipping and handling costs are recognized
in cost of sales.
We monitor and track the amount of product returns, provide for
accounts receivable allowances and reduce revenue at the time of
shipment for the estimated amount of such future returns, based
on historical experience. While product returns have
historically been within our expectations and the provisions
established, there is no assurance that we will continue to
experience the same return rates that we have in the past. Any
significant increase
23
in product return rates could have a material adverse impact on
our operating results for the period or periods in which such
returns materialize.
While we maintain a credit approval process, significant
judgments are made by management in connection with assessing
our customers ability to pay at the time of shipment.
Despite this assessment, from time to time, our customers are
unable to meet their payment obligations. We continuously
monitor our customers credit worthiness, and use our
judgment in establishing a provision for estimated credit losses
based upon our historical experience and any specific customer
collection issues that we have identified. While such credit
losses have historically been within our expectations and the
provisions established, there is no assurance that we will
continue to experience the same credit loss rates that we have
in the past. A significant change in the liquidity or financial
position of our customers could have a material adverse impact
on the collectability of accounts receivable and our future
operating results.
Inventory. We value our inventory at the lower
of cost
(first-in,
first-out method) or market. We regularly review inventory
quantities on hand and record a provision to write down excess
and obsolete inventory to our estimated net realizable value, if
less than cost, based primarily on our estimated forecast of
product demand. Demand for our products can fluctuate
significantly. A significant increase in the demand for our
products could result in a short-term increase in the cost of
inventory purchases as a result of supply shortages or a
decrease in the cost of inventory purchases as a result of
volume discounts, while a significant decrease in demand could
result in an increase in the charges for excess inventory
quantities on hand. In addition, our industry is subject to
technological change, new product development and product
technological obsolescence that could result in an increase in
the amount of obsolete inventory quantities on hand. Therefore,
any significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our
inventory and our reported operating results. Due to a sharp
decrease in demand during the fourth quarter of 2008, we took a
charge for excess and obsolete inventory of $6.5 million.
For the twelve months ended December 31, 2008, our total
charges for excess and obsolete inventory totaled
$11.4 million.
Warranty costs. We provide for the estimated
costs to fulfill customer warranty obligations upon the
recognition of the related revenue. We provide warranty coverage
for our products ranging from 12 to 36 months, with the
majority of our products ranging from 12 to 24 months. We
estimate the anticipated costs of repairing our products under
such warranties based on the historical costs of the repairs and
any known specific product issues. The assumptions we use to
estimate warranty accruals are reevaluated periodically in light
of actual experience and, when appropriate, the accruals are
adjusted. Our determination of the appropriate level of warranty
accrual is based upon estimates. Should product failure rates
differ from our estimates, actual costs could vary significantly
from our expectations.
Stock-Based Compensation Expense. We account
for share-based compensation expense in accordance with
SFAS 123R, which requires the measurement and recognition
of compensation expense for all share-based payment awards made
to employees and directors based on estimated fair values. We
have estimated the fair value of share-based options on the date
of grant using the Black Scholes pricing model, which is
affected by our stock price as well as assumptions regarding a
number of complex and subjective variables. These variables
include our expected stock price volatility over the term of the
awards, actual and projected employee option exercise behaviors,
risk free interest rate and expected dividends. We are also
required to estimate forfeitures at the time of grant and revise
those estimates in subsequent periods if actual forfeitures
differ from those estimates.
Management determined that blended volatility, a combination of
historical and implied volatility, is more reflective of market
conditions and a better indicator of expected volatility than
historical or implied volatility. The assumptions used in
calculating the fair value of share-based payment awards
represent managements best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be
materially different in the future.
Intangible assets, goodwill and other long-lived
assets. As a result of our acquisitions, we have
identified intangible assets and generated significant goodwill.
Intangible assets are valued based on estimates of future cash
flows and amortized over their estimated useful life. Goodwill
is subject to annual impairment testing as well as testing upon
the occurrence of any event that indicates a potential
impairment. Intangible assets and other long-lived
24
assets are subject to an impairment test if there is an
indicator of impairment. The carrying value and ultimate
realization of these assets is dependent upon estimates of
future earnings and benefits that we expect to generate from
their use. If our expectations of future results and cash flows
are significantly diminished, intangible assets and goodwill may
be impaired and the resulting charge to operations may be
material. When we determine that the carrying value of
intangibles or other long-lived assets may not be recoverable
based upon the existence of one or more indicators of
impairment, we use the projected undiscounted cash flow method
to determine whether an impairment exists, and then measure the
impairment using discounted cash flows. To measure impairment
for goodwill, we compare the fair value of our reporting units
by measuring discounted cash flows to the book value of the
reporting units. Goodwill would be impaired if the resulting
implied fair value of goodwill was less than the recorded book
value of the goodwill.
During the fourth quarter of 2008, we incurred an intangible
asset impairment charge of $6.1 million related to the
acquired Yield Dynamics (YDI) customer technologies,
relationships, and patents and trademarks. The impairment charge
was primarily related to lower than previously estimated
revenues from our YDI management software due to the
macroeconomic environment and industry downturn.
The estimation of useful lives and expected cash flows require
us to make significant judgments regarding future periods that
are subject to some factors outside of our control. Changes in
these estimates can result in significant revisions to the
carrying value of these assets and may result in material
charges to the results of operations.
We have elected to perform our annual goodwill impairment
testing as required under FAS 142 on October 31 of each
fiscal year, or more often if events or circumstances indicate
that there may be impairment. Reporting units are defined as
operating segments or one level below an operating segment,
referred to as a component. We have determined that our
reporting units are components of our one operating segment. We
allocate goodwill to reporting units at the time of acquisition
and base that allocation on which reporting units will benefit
from the acquired assets and liabilities. The estimated fair
values of our reporting units were based on discounted cash flow
models derived from internal earnings and external market
forecasts. Assumptions in estimating future cash flows are
subject to a high degree of judgment and complexity. We make
every effort to forecast these future cash flows as accurately
as possible with the information available at the time the
forecast is developed. Based on current results and expectations
and our analysis, we have determined that the fair values of our
reporting units continue to exceed their carrying values.
Therefore, we determined that no goodwill impairment charge was
required as of December 31, 2008. Due to the ongoing
uncertainty in market conditions, which may continue to
negatively impact the financial performance of our reporting
units, we will continue to monitor and evaluate the carrying
value of goodwill. Earnings forecasts relating to our reporting
units have generally declined over the past few quarters. If
market and economic conditions or business performance
deteriorate further, this could increase the likelihood of us
recording an impairment charge.
In-process research and development. We value
tangible and intangible assets acquired through our business
acquisitions, including in-process research and development
(IPR&D), at fair value. We determine IPR&D
through established valuation techniques for various projects
for the development of new products and technologies and expense
IPR&D when technical feasibility is not reached. The value
of IPR&D is determined using the income approach, which
discounts expected future cash flows from projects under
development to their net present value. Each project is analyzed
and estimates and judgments are made to determine the
technological innovations included in the utilization of core
technology, the complexity, cost and time to complete
development, any alternative future use or current technological
feasibility and the stage of completion. If we acquire other
companies with IPR&D in the future, we will value the
IPR&D through established valuation techniques and will
incur future IPR&D charges if those products under
development have not reached technical feasibility.
Income taxes. We evaluate the realizability of
our net deferred tax assets and assess the need for a valuation
allowance on a quarterly basis. The future benefit to be derived
from our deferred tax assets is dependent upon our ability to
generate sufficient future taxable income to realize the assets.
We record a valuation allowance to reduce our net deferred tax
assets to the amount that may be more likely than not to be
realized. To the extent we established a valuation allowance, an
expense is recorded within the provision for income taxes line
in the statement of operations. In future periods, if we were to
determine that it was more likely than not that we would not be
able to
25
realize the recorded amount of our remaining net deferred tax
assets, an adjustment to the valuation allowance would be
recorded as an increase to income tax expense in the period such
determination was made.
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48) as of January 1, 2007.
FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance
with SFAS No. 109, Accounting for Income
Taxes. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will
be sustained upon audit, including resolutions of related
appeals or litigation processes, if any. The second step is to
measure the tax benefit as the largest amount that is more than
50% likely of being realized upon ultimate settlement. We
reevaluate these uncertain tax positions on a quarterly basis.
This evaluation is based on factors including, but not limited
to, changes in facts or circumstances, changes in tax law,
effectively settled issues under audit and new audit activity.
Any change in these factors could result in the recognition of a
tax benefit or an additional charge to the tax provision.
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage of total net sales of certain line items included in
our consolidated statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
59.8
|
|
|
|
57.5
|
|
|
|
56.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
40.2
|
|
|
|
42.5
|
|
|
|
43.2
|
|
Research and development
|
|
|
12.2
|
|
|
|
9.6
|
|
|
|
9.2
|
|
Selling, general and administrative
|
|
|
20.2
|
|
|
|
17.0
|
|
|
|
16.0
|
|
Amortization of acquired intangible assets
|
|
|
1.4
|
|
|
|
2.1
|
|
|
|
2.2
|
|
Purchase of in-process technology
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Impairment of purchased intangibles
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5.5
|
|
|
|
13.7
|
|
|
|
15.7
|
|
Interest income, net
|
|
|
1.0
|
|
|
|
1.9
|
|
|
|
1.0
|
|
Impairment of investments
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6.4
|
|
|
|
15.4
|
|
|
|
16.7
|
|
Provision for income taxes
|
|
|
1.7
|
|
|
|
4.3
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.7
|
%
|
|
|
11.1
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended 2008 Compared to 2007 and 2006
Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
% Change
|
|
|
% Change
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
in 2008
|
|
|
in 2007
|
|
|
Product
|
|
$
|
560.9
|
|
|
$
|
708.5
|
|
|
$
|
720.7
|
|
|
|
(20.8
|
)
|
|
|
(1.7
|
)
|
Service
|
|
|
86.1
|
|
|
|
72.0
|
|
|
|
62.1
|
|
|
|
19.5
|
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
647.0
|
|
|
$
|
780.5
|
|
|
$
|
782.8
|
|
|
|
(17.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues decreased $147.6 million or 20.8% during
the year ended December 31, 2008 mainly due to a decrease
in worldwide demand from our semiconductor capital equipment
manufacturer and semiconductor device manufacturer customers
compared to the same period for the prior year. Product revenues
related to these customers decreased $166.3 million or
34.5% compared to the same period for the prior year. This
decrease was partially offset by an $18.7 million or 8.3%
increase in revenues related to other markets, mainly solar. Our
domestic product
26
revenues decreased by $114.8 million or 25.6% mainly due to
a high concentration of sales to the semiconductor capital
equipment and device manufacturer customers. Our international
product revenues decreased $32.8 million or 12.6% during
the year ended December 31, 2008. This decrease consists of
a $59.0 million decrease in product revenues from our
semiconductor customers offset by an increase of
$26.2 million related to other markets, mainly solar.
Product revenues decreased $12.2 million or 1.7% during the
year ended December 31, 2007 mainly due to a decrease in
demand from our semiconductor capital equipment manufacturer
customers compared to the same period for the prior year.
Product revenues related to these customers decreased
$26.4 million or 5.2% compared to the same period for the
prior year. This decrease was partially offset by a
$14.2 million or 6.7% increase in revenues related to other
markets. Our domestic product revenues decreased by
$39.8 million or 8.2% mainly due to a high concentration of
sales to the semiconductor capital equipment and device
manufacturer customers. Our international product revenues
increased $27.6 million or 11.9% during the year ended
December 31, 2007. This increase is mainly due to increased
demand from our semiconductor capital equipment manufacturer
customers.
Service revenues consisted mainly of fees for services related
to the maintenance and repair of our products, software
maintenance, installation services and training. Service
revenues increased $14.1 million and $9.9 million for
the years ended 2008 and 2007, respectively. The increases are
mainly due to a higher installed base of products and increased
software maintenance fees.
Total international net revenues were $281.3 million for
the year ended December 31, 2008 or 43.5% of net sales
compared to $302.7 million for the same period of 2007 or
38.8% of net sales and $266.9 million or 34.1% of net sales
for the year ended December 31, 2006.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Points
|
|
|
% Points
|
|
|
|
Year Ended December 31,
|
|
|
Change in
|
|
|
Change in
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
Product
|
|
|
40.7
|
%
|
|
|
43.4
|
%
|
|
|
43.8
|
%
|
|
|
(2.7
|
)%
|
|
|
(0.4
|
)%
|
Service
|
|
|
36.5
|
%
|
|
|
33.5
|
%
|
|
|
36.1
|
%
|
|
|
3.0
|
%
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
40.2
|
%
|
|
|
42.5
|
%
|
|
|
43.2
|
%
|
|
|
(2.3
|
)%
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit on product revenues decreased by
2.7 percentage points for the year ended December 31,
2008 compared to the prior year. The decrease consists of
approximately 3.2 lower percentage points from decreased revenue
volumes, 0.4 percentage points from unfavorable foreign
currency fluctuations and 0.8 percentage points from
additional excess and obsolete inventory charges. These
decreases were offset by 1.7 percentage points from lower
overhead spending due to lower sales volumes and favorable
product mix.
Gross profit on product revenues decreased by
0.4 percentage points for the year ended December 31,
2007 compared to the prior year. The decrease is mainly due to
higher overhead costs offset by lower warranty costs in 2007.
Cost of service revenues consists primarily of costs of
providing services for repair and training which includes
salaries and related expenses and other fixed costs. Service
gross profit increased by 3.0 percentage points for the
year ended December 31, 2008 compared to the prior year.
The increase is a result of increased revenue volumes partly
related to our Yield Dynamics acquisition (Yield
acquisition) in the fourth quarter of 2007. Gross profit
decreased 2.6 percentage points for the year ended
December 31, 2007 primarily due to increased material costs.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2008
|
|
2007
|
|
2006
|
|
in 2008
|
|
in 2007
|
|
Research and development expenses
|
|
$
|
78.5
|
|
|
$
|
74.6
|
|
|
$
|
72.2
|
|
|
|
5.2
|
|
|
|
3.3
|
|
Our research and development is primarily focused on developing
and improving our instruments, components, subsystems and
process control solutions to improve process performance and
productivity.
27
We have hundreds of products and our research and development
efforts primarily consist of a large number of projects related
to these products, none of which is individually material to us.
Current projects typically have a duration of 12 to
30 months depending upon whether the product is an
enhancement of existing technology or a new product. Our current
initiatives include projects to enhance the performance
characteristics of older products, to develop new products and
to integrate various technologies into subsystems. These
projects support in large part the transition in the
semiconductor industry to larger wafer sizes and smaller
integrated circuit geometries, which require more advanced
process control technology. Research and development expenses
consist primarily of salaries and related expenses for personnel
engaged in research and development, fees paid to consultants,
material costs for prototypes and other expenses related to the
design, development, testing and enhancement of our products as
well as legal costs associated with maintaining and defending
our intellectual property.
Research and development expense increased $3.9 million
during the year ended December 31, 2008 compared to the
prior year, mainly due to $3.7 million in expenses related
to the Yield acquisition and $1.0 million in other research
and development costs, primarily patent legal fees. These
increases were offset by $0.8 million in lower compensation
expenses as a result of decreased staffing levels.
Research and development expense increased $2.4 million
during the year ended December 31, 2007 mainly due to
$1.9 million in increased compensation, resulting from
increased headcount, and $1.8 million in consulting
expenses, primarily offset by $0.8 million in lower project
material costs as compared to the same period in the prior year.
We believe that the continued investment in research and
development and ongoing development of new products are
essential to the expansion of our markets, and expect to
continue to make significant investment in research and
development activities. We are subject to risks if products are
not developed in a timely manner, due to rapidly changing
customer requirements and competitive threats from other
companies and technologies. Our success primarily depends on our
products being designed into new generations of equipment for
the semiconductor industry. We develop products that are
technologically advanced so that they are positioned to be
chosen for use in each successive generation of semiconductor
capital equipment. If our products are not chosen to be designed
into our customers products, our net sales may be reduced
during the lifespan of those products.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2008
|
|
2007
|
|
2006
|
|
in 2008
|
|
in 2007
|
|
Selling, general and administrative expenses
|
|
$
|
130.8
|
|
|
$
|
132.8
|
|
|
$
|
125.2
|
|
|
|
(1.5
|
)
|
|
|
6.1
|
|
Selling, general and administrative expenses decreased
$2.0 million during the year ended December 31, 2008
compared to the prior year. The decrease includes a
$5.6 million decrease in consulting and professional fees
and a $2.3 million decrease in foreign exchange costs.
These decreases were partially offset by a $5.3 million
increase related to the Yield acquisition and a
$1.0 million increase in facilities costs related to the
relocated corporate headquarters. The decrease in consulting and
professional fees was due primarily to lower IT infrastructure
spending. The foreign exchange gains during the year ended
December 31, 2008 were primarily attributable to the
settlement of cash and intercompany loans at different foreign
exchange rates in connection with a legal entity consolidation
in the first quarter of 2008 between some of our foreign
subsidiaries.
Selling, general and administrative expenses increased
$7.6 million during the year ended December 31, 2007
primarily due to $3.8 million of increased IT spending to
support current and future initiatives including the
implementation of an ERP system, $0.7 million in increased
compensation, an $0.9 million increase in costs of
operating facilities mainly in Asia, and by $1.1 million in
foreign currency exchange losses as compared to the same period
in the prior year.
Amortization
of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2008
|
|
2007
|
|
2006
|
|
in 2008
|
|
in 2007
|
|
Amortization of acquired intangible assets
|
|
$
|
9.0
|
|
|
$
|
16.2
|
|
|
$
|
17.4
|
|
|
|
(44.4
|
)
|
|
|
(6.9
|
)
|
28
Amortization expense for the year ended December 31, 2008
decreased $7.2 million primarily related to intangible
assets from earlier acquisitions that became fully amortized
during the year ended December 31, 2008.
Amortization expense for the year ended December 31, 2007
decreased $1.2 million primarily related to intangible
assets from earlier acquisitions that became fully amortized
during the year ended December 31, 2007.
Purchase
of in-process technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Purchase of in-process technology
|
|
$
|
|
|
|
$
|
0.9
|
|
|
$
|
0.8
|
|
In-process research and development amounts related to our
acquisition of YDI in 2007 and Ion and Umetrics in 2006. The
purchase price of the acquisitions was allocated to the assets
acquired, including intangible assets, based on estimated fair
values. The intangible assets included acquired in-process
technology for projects, generally expected to have durations of
12 months, which did not have alternative future uses.
Accordingly, these costs were expensed in the year of
acquisition.
Interest
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2008
|
|
2007
|
|
2006
|
|
in 2008
|
|
in 2007
|
|
Interest income, net
|
|
$
|
6.4
|
|
|
$
|
14.5
|
|
|
$
|
8.4
|
|
|
|
(55.7
|
)
|
|
|
72.5
|
|
Net interest income decreased $8.1 million during the year
ended December 31, 2008 compared to the prior year mainly
related to lower average outstanding cash and investment
balances in 2008 and lower average rates. The lower cash and
investment balances were mainly a result of our stock repurchase
program.
Net interest income increased $6.1 million during the year
ended December 31, 2007 compared to the prior year mainly
related to higher average outstanding cash and investment
balances in 2007 and higher average rates.
Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Impairment of investments
|
|
$
|
(0.9
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
|
|
Impairment of purchased intangibles
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2008, we incurred an intangible
asset impairment charge of $6.1 million related to the
acquired Yield customer technologies, relationships, and patents
and trademarks. The impairment charge was primarily related to
lower than previously estimated revenues from our YDI management
software due to the macroeconomic environment and industry
downturn. The lower estimated future cash flows were based on
the amount by which the carrying value of the intangible assets
exceeded the estimated fair value. Fair value was determined
based on a discounted estimate of future cash flows expected to
be derived from the intangible assets.
During the fourth quarter of 2007, we determined that declines
in the fair value of our investments in certain commercial paper
were other-than-temporary. This commercial paper was issued by
two structured investment vehicles (SIVs) that entered into
receivership during the fourth quarter of 2007 and they failed
to make payments at maturity. Due to the mortgage-related assets
these issuers held, they were exposed to adverse market
conditions that affected the value of their collateral and their
ability to access short-term funding. These investments are not
currently trading on active markets, and therefore, have no
readily determinable market value. As a result of our evaluation
as of December 31, 2007, we recorded a $1.5 million
impairment charge to earnings, based upon receiving
contemporaneous quotes from established third-party pricing
services.
For the year ended December 31, 2008, we recorded
additional net impairment charges of $0.9 million related
to these two investments. We liquidated our position in these
two impaired investments during the third quarter of 2008, one
by sale and the other by a structured payment. We received a
combined total of $3.4 million from the
29
settlement of these investments during 2008. The liquidation of
these two impaired investments leaves the remaining portfolio
consisting of direct U.S. Government and Agency obligations
and high quality, liquid, short term corporate debt obligations.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Provision for income taxes
|
|
$
|
10.9
|
|
|
$
|
33.7
|
|
|
$
|
36.7
|
|
The provision for income taxes in 2008, 2007 and 2006 are
comprised of federal, state and foreign income taxes.
Our effective tax rate for the years ended December 31,
2008, 2007 and 2006 was 26.6%, 28.0% and 28.0%, respectively.
The effective tax rate in 2008 is less than the statutory tax
rate primarily due to the benefit from federal research and
development credits, the profits of our international
subsidiaries being taxed at rates lower than the
U.S. statutory tax rate, and discrete reserve releases.
The effective tax rate in 2007 is less than the statutory tax
rate primarily due to the benefit from the federal research and
development credits and the profits of our international
subsidiaries being taxed at rates lower than the
U.S. statutory tax rate.
The effective tax rate in 2006 is less than the statutory tax
rate primarily due to certain discrete tax matters related to
our international operations, the benefit from the federal
research and development credits, the reduction in the valuation
allowance for state tax credits, and the profits of our
international subsidiaries being taxed at rates lower than the
U.S. statutory tax rate.
We adopted FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes (FIN 48), as of January 1,
2007. At December 31, 2007, the total amount of gross
unrecognized tax benefits, which excludes interest and penalties
discussed below, was approximately $16.1 million. If these
benefits were recognized in a future period, the timing of which
is not estimable, the net unrecognized tax benefit of
$13.2 million would impact our effective tax rate. The
total amount of gross unrecognized tax benefits at
December 31, 2008 was approximately $14.7 million,
excluding penalties and interest. The decrease from
January 1, 2007 was primarily attributable to the close of
U.S. statute of limitations on the 2004 tax year. At
December 31, 2008, if these benefits were recognized in a
future period, the timing of which is not estimable, the net
unrecognized tax benefit of approximately $11.8 million,
excluding penalties and interest, would impact our effective tax
rate.
MKS and its subsidiaries are subject to U.S. federal income
tax as well as the income tax of multiple state and foreign
jurisdictions. We have concluded all U.S. federal income
tax matters for years through 2002. While the U.S. 2004
federal tax year is closed, the 2003 federal tax year remains
open to the extent of the loss carryforward to 2005. As of
December 31, 2008 and currently, we are under a federal
audit for the 2005 and 2006 tax years, as well as other ongoing
audits in various other tax jurisdictions for various years.
Over the next 12 months it is reasonably possible that we
may recognize $8.0 million to $8.5 million of
previously unrecognized tax benefits related to various federal,
state and foreign tax positions as a result of the conclusion of
various audits and the expiration of the statute of limitations.
The following tax years, in the major tax jurisdictions noted,
are open for assessment or refund: U.S. Federal: 2003, 2005
to 2007, Germany: 2001 to 2007, Korea: 2006 to 2007, Japan: 2001
to 2007, and the United Kingdom: 2006 and 2007.
We accrue interest and penalties, if applicable, for any
uncertain tax positions. This interest and penalty expense is a
component of income tax expense. At December 31, 2008 and
at December 31, 2007, we had $1.7 million and
$1.5 million, respectively, accrued for interest on
unrecognized tax benefits.
On a quarterly basis, we evaluate both positive and negative
evidence that bears on the realizability of net deferred tax
assets and assesses the need for a valuation allowance. The
future benefit to be derived from its deferred tax assets is
dependent upon its ability to generate sufficient future taxable
income to realize the assets. During the year ended
December 31, 2008, we increased our valuation allowance by
$3.3 million for state tax credit carryforwards and
$0.8 million for federal capital loss carryforwards, as we
determined it is more likely than
30
not that the deferred tax assets related to these attributes
will not be realized. In addition, we recorded a benefit to
income tax expense of $3.0 million due to discrete reserve
releases primarily related to the close of statute of
limitations.
During the year ended December 31, 2007, we amended prior
federal tax returns to reflect revised estimates for qualifying
federal research and development costs that allowed us to claim
additional research tax credits. As a result of this claim, we
recorded a benefit to income tax expense of $1.8 million.
During the year ended December 31, 2006, we received a
notification letter from the Israeli Ministry of Industry Trade
and Labor (MITL) indicating that our Israeli
operations were in compliance with requirements relating to the
tax holiday granted to our manufacturing operations in Israel in
2001. This tax holiday is anticipated to expire in 2011 and is
subject to meeting continued investment, employment and other
requirements under the guidelines of the MITL. Additionally, we
recorded the impact of both a change in German tax rules
allowing interest deductions on certain loans and an adjustment
relating to transfer pricing. As a result of these items we
recorded a net benefit to income tax expense of
$1.6 million for the year ended December 31, 2006.
Liquidity
and Capital Resources
Cash, cash equivalents and short-term marketable securities
totaled $278.9 million at December 31, 2008 compared
to $323.8 million at December 31, 2007. This decrease
was mainly due to $115.7 million of cash used to repurchase
common stock and $13.5 million of cash used to purchase
property, plant and equipment offset by an increase of
$89.8 million of cash provided by operations. The primary
driver in our current and anticipated future cash flows is and
will continue to be cash generated from operations, consisting
mainly of our net income and changes in operating assets and
liabilities. In periods when our sales are growing, higher sales
to customers will result in increased trade receivables, and
inventories will generally increase as we build products for
future sales. This may result in lower cash generated from
operations. Conversely, in periods when our sales are declining,
our trade accounts receivable and inventory balances will
generally decrease, resulting in increased cash from operations.
Net cash provided by operating activities was $89.8 million
for the year ended December 31, 2008 and resulted mainly
from net income of $30.1 million, a $38.3 million
decrease in operating assets, non-cash charges of
$30.5 million for depreciation, amortization and
impairments, a $15.3 million charge for stock-based
compensation, a decrease in net operating liabilities of
$16.8 million and a deferred tax benefit of
$5.0 million. The decrease in operating assets consisted of
a $23.6 million decrease in accounts receivable as a result
of lower sales in the last two months of 2008 compared to 2007
and an $18.5 million decrease in inventories due to lower
ordering levels and additional charges for excess and obsolete
inventory. The decrease in operating liabilities is mainly
caused by a decrease of $9.2 million in accounts payable
primarily as a result of lower inventory procurement activities
and a decrease of $4.4 million in accrued expenses and
other current liabilities primarily as a result of lower accrued
compensation.
Net cash provided by operating activities was
$119.1 million for the year ended December 31, 2007
and resulted mainly from net income of $86.4 million, a
$26.1 million decrease in operating liabilities and
non-cash charges of $30.6 million for depreciation and
amortization and $12.9 million for stock-based
compensation, and a decrease in net operating assets of
$20.2 million and a deferred tax benefit of
$10.3 million. The $26.1 million net decrease in
operating liabilities is mainly caused by a decrease of
$18.9 million in accounts payable primarily as a result of
inventory procurement activities and a decrease of
$6.6 million in accrued expenses and other current
liabilities primarily as a result of lower accrued compensation
and warranty costs. The $20.2 million decrease in operating
assets consisted primarily of an $18.3 million decrease in
accounts receivable as a result of lower sales in the last two
months of 2007 compared to 2006.
Net cash used in investing activities was $74.1 million for
the year ended December 31, 2008 and resulted primarily
from the net purchases of $60.7 million of available for
sale investments and purchases of property, plant and equipment
of $13.5 million. The purchases of property, plant and
equipment relate to leasehold improvements in Japan to
facilitate a consolidation of facilities, IT hardware to reduce
system operating costs in the future and test equipment. Net
cash used in investing activities of $60.9 million for the
year ended December 31, 2007, resulted primarily from the
purchase of one technology company for $24.0 million,
purchases of property, plant and
31
equipment of $15.1 million, including approximately
$6.3 million related to our new China facility and net
purchases of $23.7 million of available for sale
investments.
Net cash used in financing activities of $114.8 million for
the year ended December 31, 2008, resulted from
$115.7 million used to repurchase common stock,
$4.8 million in net repayment of short-term borrowings and
$6.3 million in principal payments on capital lease
obligations and long-term debt, primarily to retire a
$5.0 million industrial development revenue bond, offset by
$8.9 million in proceeds from the exercise of stock options
and purchases under our employee stock purchase plan. Net cash
used in financing activities of $58.7 million for the year
ended December 31, 2007, resulted from $101.2 million
used to repurchase common stock and $4.1 million in net
repayment of short-term borrowings, offset primarily by
$45.3 million in proceeds from the exercises of stock
options and purchases under our employee stock purchase plan.
On August 1, 2008, we renewed an unsecured short-term LIBOR
based loan agreement with a bank to be utilized primarily by our
Japanese subsidiary for short-term liquidity purposes. The
credit line, which expires on July 31, 2009, allows us to
borrow, in multiple currencies, up to an equivalent of
$35.0 million U.S. dollars. At December 31, 2008,
we had outstanding borrowings of $1.1 million
U.S. dollars, payable on demand, at an interest rate of
1.65%, with $33.9 million available for future borrowings.
Our Japanese subsidiary also has credit lines and short-term
borrowing arrangements with a financial institution, which
provide for aggregate borrowings as of December 31, 2008 of
up to $27.5 million, which generally expire and are renewed
in three-month intervals. At December 31, 2008, total
borrowings outstanding under these arrangements were
$16.7 million, at interest rates ranging from 1.20% to
1.68%, with $10.8 million available for future borrowings.
On January 26, 2009, we committed to a plan of termination
with respect to approximately 10% of our workforce. This
decision was based on the overall economic slowdown,
particularly in the semiconductor capital equipment industry. As
a result, we expect to incur approximately $2.5 million in
cash expenditures for severance and related costs, which we
expect to record in the quarter ending March 31, 2009. We
expect annual compensation-related savings of approximately
$19.0 million as a result of these reductions.
We have provided financial guarantees for certain unsecured
borrowings and have standby letters of credit, some of which do
not have fixed expiration dates. At December 31, 2008, our
maximum exposure as a result of these standby letters of credit
and performance bonds was approximately $1.0 million.
Future payments due under debt, lease and purchase commitment
obligations as of December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due By Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Contractual Obligations (In thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Other
|
|
|
Operating lease obligations
|
|
$
|
38,194
|
|
|
$
|
8,652
|
|
|
$
|
12,825
|
|
|
$
|
8,592
|
|
|
$
|
8,125
|
|
|
$
|
|
|
Purchase obligations(1)
|
|
|
96,298
|
|
|
|
90,155
|
|
|
|
6,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
1,266
|
|
|
|
870
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities reflected on the Balance Sheet under
GAAP(2)
|
|
|
21,910
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
10,044
|
|
|
|
11,756
|
|
Contingent purchase consideration in connection with
acquisitions(3)
|
|
|
7,500
|
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
165,168
|
|
|
$
|
102,287
|
|
|
$
|
24,364
|
|
|
$
|
8,592
|
|
|
$
|
18,169
|
|
|
$
|
11,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The majority of the outstanding inventory purchase commitments
of approximately $76.9 million at December 31, 2008
are to be purchased within the next 12 months.
Additionally, approximately $14.9 million represents a
commitment, as of December 31, 2008, to a third party
engaged to provide certain computer equipment, IT network
services and IT support. This contract is for a period of
approximately six years that began in September 2004 and has a
significant penalty for early termination. The actual timing of
payments and amounts may vary based on equipment deployment
dates. However, the amount noted represents our expected
obligation based on anticipated deployment. |
32
|
|
|
(2) |
|
The majority of this balance relates to income taxes payable and
accrued compensation for certain executives related to
supplemental retirement benefits. |
|
(3) |
|
In connection with the YDI acquisition, additional purchase
consideration may be payable upon the achievement of specific
annual and cumulative revenue targets between 2009 and 2010. |
We believe that our working capital, together with the cash
anticipated to be generated from operations, will be sufficient
to satisfy our estimated working capital and planned capital
expenditure requirements through at least the next
12 months.
On February 12, 2007, our Board of Directors approved a
share repurchase program (the Program) for the
repurchase of up to $300.0 million of our outstanding stock
over the next two years. The repurchases were made from time to
time on the open market or through privately negotiated
transactions. The timing and amount of any shares repurchased
under the Program were dependent upon a variety of factors,
including price, corporate and regulatory requirements, capital
availability and other market conditions. During the year ended
December 31, 2008, we repurchased 5,667,000 shares of
common stock for $115.7 million for an average price of
$20.42 per share. There were no share repurchases during 2009
and the Program expired on February 11, 2009.
To the extent permitted by Massachusetts law, our Restated
Articles of Organization, as amended, require us to indemnify
any of our current or former officers or directors or any person
who has served or is serving in any capacity with respect to any
of our employee benefit plans. Because no claim for
indemnification has been pursued by any person covered by the
relevant provisions of our Restated Articles of Organization, we
believe that the estimated exposure for these indemnification
obligations is currently minimal. Accordingly, we have no
liabilities recorded for these requirements as of
December 31, 2008.
We also enter into agreements in the ordinary course of business
which include indemnification provisions. Pursuant to these
agreements, we indemnify, hold harmless and agree to reimburse
the indemnified party, generally our customers, for losses
suffered or incurred by the indemnified party in connection with
certain patent or other intellectual property infringement
claims, and, in some instances, other claims, by any third party
with respect to our products. The terms of these indemnification
obligations are generally perpetual after execution of the
agreements. The maximum potential amount of future payments we
could be required to make under these indemnification agreements
is, in some instances, not contractually limited. We have never
incurred costs to defend lawsuits or settle claims related to
these indemnification obligations. As a result, we believe the
estimated fair value of these obligations is minimal.
Accordingly, we have no liabilities recorded for these
obligations as of December 31, 2008.
When, as part of an acquisition, we acquire all of the stock or
all of the assets and liabilities of another company, we assume
liability for certain events or occurrences that took place
prior to the date of acquisition. The maximum potential amount
of future payments we could be required to make for such
obligations is undeterminable at this time. Other than
obligations recorded as liabilities at the time of the
acquisitions, historically we have not made significant payments
for these indemnifications. Accordingly, no liabilities have
been recorded for these obligations.
In conjunction with certain asset sales, we may provide routine
indemnifications whose terms range in duration and often are not
explicitly defined. Where appropriate, an obligation for such
indemnifications is recorded as a liability. Because the amounts
of liability under these types of indemnifications are not
explicitly stated, the overall maximum amount of the obligation
under such indemnifications cannot be reasonably estimated.
Other than obligations recorded as liabilities at the time of
the asset sale, historically we have not made significant
payments for these indemnifications.
Derivatives
We conduct our operations globally. Consequently, the results of
our operations are exposed to movements in foreign currency
exchange rates. We hedge a portion of our forecasted foreign
currency denominated intercompany sales of inventory, over a
maximum period of 15 months, using forward foreign exchange
contracts (forward exchange contracts) primarily
related to Japanese, Korean and European currencies. These
derivatives are designated as cash-flow hedges, and changes in
their fair value are carried in accumulated other comprehensive
income in our consolidated statements of stockholders
equity until the hedged transaction affects earnings. When
33
the hedged transaction affects earnings, the appropriate gain or
loss from the derivative designated as a hedge of the
transaction is reclassified from accumulated other comprehensive
income to cost of sales in the consolidated statements of
operations. As of December 31, 2008, the unrealized gain
that will be reclassified from accumulated other comprehensive
income to cost of sales over the next twelve months is
$0.7 million. The ineffective portions of the derivatives
are recorded in selling, general and administrative costs and
were immaterial in 2008, 2007 and 2006, respectively.
We also hedge certain intercompany and other payables with
forward exchange contracts. Typically, as these derivatives
hedge existing amounts that are denominated in foreign
currencies, the derivatives do not qualify for hedge accounting.
The foreign exchange gain or loss on these derivatives was a
gain of $2.7 million in 2008 and was immaterial in 2007 and
2006.
Realized and unrealized gains and losses on forward exchange
contracts that do not qualify for hedge accounting are
recognized immediately in earnings. The cash flows resulting
from forward exchange contracts are classified in our
consolidated statements of cash flows as part of cash flows from
operating activities. We do not hold or issue derivative
financial instruments for trading purposes.
We had forward exchange contracts with notional amounts totaling
$30.6 million outstanding at December 31, 2008 of
which $17.3 million were outstanding to exchange Japanese
yen for U.S. dollars. We had forward exchange contracts
with notional amounts totaling $66.7 million outstanding at
December 31, 2007, of which $39.9 million were
outstanding to exchange Japanese yen for U.S. dollars. We
had forward exchange contracts with notional amounts totaling
$20.3 million outstanding at December 31, 2006, of
which $14.6 million were outstanding to exchange Japanese
yen for U.S. dollars.
Gains and losses on forward exchange contracts that qualify for
hedge accounting are classified in cost of goods sold, which
totaled a loss of $1.2 million, gains of $1.3 million
and $1.9 million for the years ended December 31,
2008, 2007 and 2006, respectively.
Off-Balance
Sheet Arrangements
We do not have any financial partnerships with unconsolidated
entities, such as entities often referred to as structured
finance, special purpose entities or variable interest entities
which are often established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes. Accordingly, we are not exposed to any
financing, liquidity, market or credit risk that could arise if
we had such relationships.
Recently
Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141R), which replaces
SFAS No. 141. This revised standard requires assets,
liabilities and non-controlling interests acquired to be
measured at fair value and requires that costs incurred to
effect the acquisition be recognized separately from the
business combination. In addition, this statement expands the
scope to include all transactions and other events in which one
entity obtains control over one or more businesses. This
statement is effective for all business combinations for which
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. We are in the process of evaluating whether the adoption
of this standard will have a material effect on our consolidated
financial results.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51
(SFAS No. 160). This statement establishes
accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement is effective for fiscal years
beginning on or after December 15, 2008. This statement
does not have a material impact on our consolidated financial
statements, as we do not have any minority interests.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS 161). This statement is intended to
improve transparency in financial reporting by requiring
enhanced disclosures of an entitys derivative instruments
and hedging activities and their effects on the entitys
financial position, financial performance, and cash flows.
SFAS 161 applies to all derivative instruments within the
scope of SFAS 133, Accounting for Derivative
34
Instruments and Hedging Activities
(SFAS 133). Entities with instruments subject
to SFAS 161 must provide more robust qualitative
disclosures and expanded quantitative disclosures. SFAS 161
is effective prospectively for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are
currently evaluating the disclosure implications of this
statement.
In April 2008, the FASB issued FASB Staff Position
(FSP)
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142, Goodwill and Other Intangible Assets.
This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets
in business combinations and asset acquisitions.
FSP 142-3
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008.
Early adoption is prohibited. We are currently evaluating the
potential impact of the implementation of
FSP 142-3
on our financial position and results of operations.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market
Risk and Sensitivity Analysis
Our primary exposures to market risks include fluctuations in
interest rates on our investment portfolio, short and long-term
debt as well as fluctuations in foreign currency exchange rates.
Foreign
Exchange Rate Risk
We enter into forward exchange contracts to reduce currency
exposure arising from intercompany sales of inventory.
There were forward exchange contracts with notional amounts
totaling $30.6 million and $66.7 million outstanding
at December 31, 2008 and 2007, respectively. Of such
forward exchange contracts, $17.3 million and
$39.9 million, respectively, were outstanding to exchange
Japanese yen for U.S. dollars with the remaining amounts
relating to contracts to exchange the British pound, Korean Won
and Euro for U.S. dollars. The potential fair value loss
for a hypothetical 10% adverse change in the currency exchange
rate on our forward exchange contracts at December 31, 2008
and 2007 would be $3.1 million and $6.7 million,
respectively. The potential losses in 2008 and 2007 were
estimated by calculating the fair value of the forward exchange
contracts at December 31, 2008 and 2007 and comparing that
with those calculated using the hypothetical forward currency
exchange rates.
At December 31, 2008 and 2007 we had $0.6 million and
$134.3 million, respectively, in loans outstanding between
subsidiaries that were subject to foreign exchange exposure. The
majority of the intercompany loans were related to our UK
subsidiary, which were incurred in late December 2007 and were
repaid in January 2008. At December 31, 2008 and 2007 a
hypothetical 10% adverse change in foreign exchange rates would
result in a net transaction loss of $0.1 million and
$14.9 million, respectively, which would be recorded in
current earnings.
At December 31, 2008 and 2007, we had $17.8 million
and $19.0 million, respectively, related to short-term
borrowings and current portion of long-term debt denominated in
Japanese yen. The carrying value of these short-term borrowings
approximates fair value due to their short period to maturity.
Assuming a hypothetical 10% adverse change in the Japanese yen
to U.S. dollar year-end exchange rate, the fair value of
these short-term borrowings would increase by $2.0 million
and $2.1 million, respectively. The potential increase in
fair value was estimated by calculating the fair value of the
short-term borrowings at December 31, 2008 and 2007,
respectively, and comparing that with the fair value using the
hypothetical year-end exchange rate.
Interest
Rate Risk
Due to its short-term duration, the fair value of our cash and
investment portfolio at December 31, 2008 and 2007
approximated its carrying value. Interest rate risk was
estimated as the potential decrease in fair value resulting from
a hypothetical 10% increase in interest rates for securities
contained in the investment portfolio. The resulting
hypothetical fair value was not materially different from the
year-end carrying values.
35
Our total long-term debt outstanding, including the current
portion, at December 31, 2008 and 2007 was $0.0 and
$5.0 million, respectively, and consisted of a mortgage
note and industrial development revenue bond. The interest rate
on these debt instruments was 4.0% at December 31, 2007. We
repaid the entire debt agreement on July 1, 2008.
From time to time, MKS has outstanding short-term borrowings
with variable interest rates, primarily denominated in Japanese
yen. At December 31, 2008 and 2007, we had
$17.8 million and $19.0 million, respectively,
outstanding related to these short-term borrowings at interest
rates ranging from 1.20% to 1.68% and 1.24% to 1.88%,
respectively. Due to the short-term nature and amount of this
short-term debt, a hypothetical change of 10% in interest rates
would not have a material effect on our near-term financial
condition or results of operations.
36
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Shareholders of
MKS Instruments, Inc.:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of MKS
Instruments, Inc. and its subsidiaries at December 31, 2008
and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 12 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions in 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Boston, Massachusetts
February 27, 2009
37
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
119,261
|
|
|
$
|
223,968
|
|
Short-term investments
|
|
|
159,608
|
|
|
|
99,797
|
|
Trade accounts receivable, net of allowances of $2,148 and
$2,379 at December 31, 2008 and 2007, respectively
|
|
|
85,350
|
|
|
|
107,504
|
|
Inventories
|
|
|
131,519
|
|
|
|
150,731
|
|
Deferred income taxes
|
|
|
19,058
|
|
|
|
17,984
|
|
Other current assets
|
|
|
13,932
|
|
|
|
9,996
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
528,728
|
|
|
|
609,980
|
|
Property, plant and equipment, net
|
|
|
82,017
|
|
|
|
81,365
|
|
Goodwill
|
|
|
337,765
|
|
|
|
337,473
|
|
Acquired intangible assets, net
|
|
|
21,069
|
|
|
|
36,141
|
|
Other assets
|
|
|
15,360
|
|
|
|
11,301
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
984,939
|
|
|
$
|
1,076,260
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
17,808
|
|
|
$
|
18,967
|
|
Current portion of capital lease obligations
|
|
|
870
|
|
|
|
1,236
|
|
Accounts payable
|
|
|
19,320
|
|
|
|
28,683
|
|
Accrued compensation
|
|
|
13,768
|
|
|
|
17,842
|
|
Income taxes payable
|
|
|
|
|
|
|
3,649
|
|
Other accrued expenses
|
|
|
24,169
|
|
|
|
25,368
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,935
|
|
|
|
95,745
|
|
Long-term debt
|
|
|
|
|
|
|
5,000
|
|
Long-term portion of capital lease obligations
|
|
|
396
|
|
|
|
871
|
|
Other liabilities
|
|
|
21,910
|
|
|
|
20,635
|
|
Commitments and contingencies (Note 19)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common Stock, no par value, 200,000,000 shares authorized;
49,275,975 and 54,261,947 shares issued and outstanding at
December 31, 2008 and 2007, respectively
|
|
|
113
|
|
|
|
113
|
|
Additional paid-in capital
|
|
|
637,938
|
|
|
|
685,465
|
|
Retained earnings
|
|
|
241,428
|
|
|
|
255,244
|
|
Accumulated other comprehensive income
|
|
|
7,219
|
|
|
|
13,187
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
886,698
|
|
|
|
954,009
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
984,939
|
|
|
$
|
1,076,260
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
38
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
560,888
|
|
|
$
|
708,456
|
|
|
$
|
720,743
|
|
Services
|
|
|
86,106
|
|
|
|
72,031
|
|
|
|
62,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
646,994
|
|
|
|
780,487
|
|
|
|
782,801
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
|
|
|
332,366
|
|
|
|
401,119
|
|
|
|
405,028
|
|
Cost of service
|
|
|
54,685
|
|
|
|
47,881
|
|
|
|
39,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
387,051
|
|
|
|
449,000
|
|
|
|
444,679
|
|
Gross profit
|
|
|
259,943
|
|
|
|
331,487
|
|
|
|
338,122
|
|
Research and development
|
|
|
78,540
|
|
|
|
74,628
|
|
|
|
72,240
|
|
Selling, general and administrative
|
|
|
130,800
|
|
|
|
132,791
|
|
|
|
125,165
|
|
Amortization of acquired intangible assets
|
|
|
9,001
|
|
|
|
16,183
|
|
|
|
17,376
|
|
Purchase of in-process technology
|
|
|
|
|
|
|
900
|
|
|
|
800
|
|
Impairment of purchased intangibles
|
|
|
6,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
35,533
|
|
|
|
106,985
|
|
|
|
122,541
|
|
Interest expense
|
|
|
(577
|
)
|
|
|
(806
|
)
|
|
|
(974
|
)
|
Interest income
|
|
|
7,002
|
|
|
|
15,294
|
|
|
|
9,374
|
|
Impairment of investments
|
|
|
(906
|
)
|
|
|
(1,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
41,052
|
|
|
|
120,016
|
|
|
|
130,941
|
|
Provision for income taxes
|
|
|
10,935
|
|
|
|
33,656
|
|
|
|
36,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
$
|
94,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
49,717
|
|
|
|
56,349
|
|
|
|
55,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
50,754
|
|
|
|
57,173
|
|
|
|
55,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
39
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (loss)
|
|
|
Income (loss)
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at December 31, 2005
|
|
|
54,397,267
|
|
|
$
|
113
|
|
|
$
|
639,152
|
|
|
$
|
116,642
|
|
|
$
|
6,936
|
|
|
|
|
|
|
$
|
762,843
|
|
Net issuance under stock-based plans
|
|
|
2,274,358
|
|
|
|
|
|
|
|
23,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,255
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
13,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,143
|
|
Tax benefit from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
4,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,614
|
|
Comprehensive income (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,235
|
|
|
|
|
|
|
|
94,235
|
|
|
|
94,235
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges and unrealized (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
(43
|
)
|
|
|
(43
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,172
|
|
|
|
3,172
|
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
56,671,625
|
|
|
$
|
113
|
|
|
$
|
680,164
|
|
|
$
|
210,877
|
|
|
$
|
10,065
|
|
|
|
|
|
|
$
|
901,219
|
|
Net issuance under stock-based plans
|
|
|
2,368,954
|
|
|
|
|
|
|
|
45,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,266
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
12,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,918
|
|
Tax benefit from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
5,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,712
|
|
Stock purchases
|
|
|
(4,778,632
|
)
|
|
|
|
|
|
|
(59,165
|
)
|
|
|
(41,993
|
)
|
|
|
|
|
|
|
|
|
|
|
(101,158
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
570
|
|
Comprehensive income (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,360
|
|
|
|
|
|
|
|
86,360
|
|
|
|
86,360
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges and unrealized (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(622
|
)
|
|
|
(622
|
)
|
|
|
(622
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,744
|
|
|
|
3,744
|
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
54,261,947
|
|
|
$
|
113
|
|
|
$
|
685,465
|
|
|
$
|
255,244
|
|
|
$
|
13,187
|
|
|
|
|
|
|
$
|
954,009
|
|
Net issuance under stock-based plans
|
|
|
681,493
|
|
|
|
|
|
|
|
8,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,861
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
15,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,176
|
|
Tax benefit from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
Stock purchases
|
|
|
(5,667,465
|
)
|
|
|
|
|
|
|
(71,790
|
)
|
|
|
(43,933
|
)
|
|
|
|
|
|
|
|
|
|
|
(115,723
|
)
|
Comprehensive income (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,117
|
|
|
|
|
|
|
|
30,117
|
|
|
|
30,117
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
203
|
|
|
|
203
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,171
|
)
|
|
|
(6,171
|
)
|
|
|
(6,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
49,275,975
|
|
|
$
|
113
|
|
|
$
|
637,938
|
|
|
$
|
241,428
|
|
|
$
|
7,219
|
|
|
|
|
|
|
$
|
886,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
40
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
$
|
94,235
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,524
|
|
|
|
30,644
|
|
|
|
31,348
|
|
Stock-based compensation
|
|
|
15,274
|
|
|
|
12,918
|
|
|
|
13,143
|
|
Tax benefit from stock-based compensation
|
|
|
226
|
|
|
|
5,712
|
|
|
|
4,614
|
|
Excess tax benefit from stock-based compensation
|
|
|
(3,250
|
)
|
|
|
(2,688
|
)
|
|
|
(4,469
|
)
|
Deferred taxes
|
|
|
(4,975
|
)
|
|
|
(10,283
|
)
|
|
|
(11,518
|
)
|
Impairment of investments
|
|
|
906
|
|
|
|
1,457
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
6,069
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
394
|
|
|
|
888
|
|
|
|
562
|
|
Changes in operating assets and liabilities, net of effects of
businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
23,565
|
|
|
|
18,263
|
|
|
|
(33,555
|
)
|
Inventories
|
|
|
18,489
|
|
|
|
1,206
|
|
|
|
(46,013
|
)
|
Other current assets
|
|
|
(3,730
|
)
|
|
|
708
|
|
|
|
2,213
|
|
Accrued expenses
|
|
|
(4,384
|
)
|
|
|
(6,615
|
)
|
|
|
15,437
|
|
Accounts payable
|
|
|
(9,175
|
)
|
|
|
(18,855
|
)
|
|
|
5,731
|
|
Income taxes payable
|
|
|
(3,273
|
)
|
|
|
(596
|
)
|
|
|
6,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
89,777
|
|
|
|
119,119
|
|
|
|
78,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
|
|
|
(24,021
|
)
|
|
|
(98,671
|
)
|
Purchases of short-term and long-term available-for-sale
investments
|
|
|
(324,375
|
)
|
|
|
(183,927
|
)
|
|
|
(108,944
|
)
|
Maturities and sales of short-term and long-term
available-for-sale investments
|
|
|
263,715
|
|
|
|
160,269
|
|
|
|
104,302
|
|
Purchases of property, plant and equipment
|
|
|
(13,457
|
)
|
|
|
(15,090
|
)
|
|
|
(10,690
|
)
|
Proceeds from sale of assets
|
|
|
336
|
|
|
|
370
|
|
|
|
578
|
|
Other
|
|
|
(273
|
)
|
|
|
1,451
|
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(74,054
|
)
|
|
|
(60,948
|
)
|
|
|
(114,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
155,922
|
|
|
|
137,656
|
|
|
|
89,547
|
|
Payments on short-term borrowings
|
|
|
(160,771
|
)
|
|
|
(141,749
|
)
|
|
|
(84,381
|
)
|
Repurchases of common stock
|
|
|
(115,723
|
)
|
|
|
(101,158
|
)
|
|
|
|
|
Payments on long-term debt
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(1,667
|
)
|
Principal payments on capital lease obligations
|
|
|
(1,330
|
)
|
|
|
(1,426
|
)
|
|
|
(754
|
)
|
Proceeds from exercise of stock options and employee stock
purchase plan
|
|
|
8,861
|
|
|
|
45,266
|
|
|
|
23,255
|
|
Excess tax benefit from stock-based compensation
|
|
|
3,250
|
|
|
|
2,688
|
|
|
|
4,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(114,791
|
)
|
|
|
(58,723
|
)
|
|
|
30,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(5,639
|
)
|
|
|
9,312
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(104,707
|
)
|
|
|
8,760
|
|
|
|
(5,365
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
223,968
|
|
|
|
215,208
|
|
|
|
220,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
119,261
|
|
|
$
|
223,968
|
|
|
$
|
215,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
649
|
|
|
$
|
830
|
|
|
$
|
880
|
|
Income taxes
|
|
$
|
11,625
|
|
|
$
|
27,116
|
|
|
$
|
35,922
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment capital leases
|
|
$
|
489
|
|
|
$
|
1,244
|
|
|
$
|
1,638
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
41
MKS
INSTRUMENTS, INC.
(Tables
in thousands, except share and per share data)
|
|
1)
|
Description
of Business
|
MKS Instruments, Inc. was founded in 1961 and is a leading
worldwide provider of instruments, subsystems and process
control solutions that measure, control, power, monitor and
analyze critical parameters to improve process performance and
productivity of advanced manufacturing processes. MKS is managed
as one operating segment which is organized around three product
groups: Instruments and Control Systems, Power and Reactive Gas
Products and Vacuum Products. MKS products are derived
from its core competencies in pressure measurement and control,
materials delivery, gas composition analysis, electrostatic
change management, control and information technology, power and
reactive gas generation and vacuum technology.
|
|
2)
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation
The consolidated financial statements include the accounts of
MKS Instruments, Inc. and its wholly owned subsidiaries
(collectively, the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of
Estimates
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including
those related to revenue recognition, stock-based compensation,
inventory, intangible assets, goodwill, and other long-lived
assets, in-process research and development, income taxes and
investments. Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Reclassifications
The Company recorded $3.3 million in legal costs associated
with defending and maintaining its intellectual property in
research and development expenses for the year ended
December 31, 2008. These costs were previously recorded in
selling, general and administrative expenses in the amount of
$2.5 million and $2.5 million during the years 2007
and 2006, respectively. The 2007 and 2006 patent legal costs
have subsequently been classified as research and development
expenses.
Revenue
Recognition and Accounts Receivable Allowances
Revenue from product sales is recorded upon transfer of title
and risk of loss to the customer provided that there is evidence
of an arrangement, the sales price is fixed or determinable, and
collection of the related receivable is reasonably assured. In
most transactions, the Company has no obligations to customers
after the date products are shipped other than pursuant to
warranty obligations. In some instances, the Company provides
installation, training, support and services to customers after
the product has been shipped. For revenue arrangements with
multiple deliverables, the Company defers the fair value related
to any undelivered elements until the undelivered element is
delivered. Fair value is the price charged when the element is
sold separately. The Company provides for the estimated costs to
fulfill customer warranty obligations upon the recognition of
the related revenue. Shipping and handling fees, if any, billed
to customers are recognized as revenue. The related shipping and
handling costs are
42
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
recognized in cost of sales. Accounts receivable allowances
include sales returns and bad debt allowances. The Company
monitors and tracks the amount of product returns and reduces
revenue at the time of shipment for the estimated amount of such
future returns, based on historical experience. The Company
makes estimates evaluating its allowance for doubtful accounts.
The Company continuously monitors collections and payments from
its customers and maintains a provision for estimated credit
losses based upon its historical experience and any specific
customer collection issues that it has identified.
Research
and Development
Research and development costs are expensed as incurred and
consist mainly of compensation related expenses and project
materials. The Companys research and development efforts
include numerous projects, which generally have duration of 12
to 30 months.
In-Process
Research and Development
The Company values tangible and intangible assets acquired
through its business acquisitions at fair value including
in-process research and development (IPR&D).
The Company determines IPR&D through established valuation
techniques for various projects for the development of new
products and technologies and expenses IPR&D when technical
feasibility is not reached.
Advertising
Costs
Advertising costs are expensed as incurred and were immaterial
in 2008, 2007 and 2006.
Stock-Based
Compensation
The Company accounts for share-based compensation expense in
accordance with SFAS 123R, which requires the measurement
and recognition of compensation expense for all share-based
payment awards made to employees and directors based on
estimated fair values. The Company has estimated the fair value
of share-based options on the date of grant using the Black
Scholes pricing model, which is affected by the Companys
stock price as well as assumptions regarding a number of complex
and subjective variables. These variables include the
Companys expected stock price volatility over the term of
the awards, actual and projected employee option exercise
behaviors, risk free interest rate and expected dividends. The
Company is also required to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates.
Management determined that blended volatility, a combination of
historical and implied volatility, is more reflective of market
conditions and a better indicator of expected volatility than
historical or implied volatility. The assumptions used in
calculating the fair value of share-based payment awards
represent managements best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses
different assumptions, its stock-based compensation expense
could be materially different in the future.
Net
Income Per Share
Basic earnings per share is based on the weighted average number
of common shares outstanding, and diluted earnings per share is
based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares
outstanding. The dilutive effect of options is determined under
the treasury stock method using the average market price for the
period. Common equivalent shares are included in the per share
calculations when the effect of their inclusion would be
dilutive.
43
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Cash and
Cash Equivalents and Investments
All highly liquid investments with a maturity date of three
months or less at the date of purchase are considered to be cash
equivalents. The appropriate classification of investments in
securities is determined at the time of purchase. Debt
securities that the Company does not have the intent and ability
to hold to maturity are classified as
available-for-sale and are carried at fair value.
Unrealized gains and losses on securities classified as
available-for-sale are included in accumulated other
comprehensive income in consolidated stockholders equity.
The Company reviews its investment portfolio on a monthly basis
to identify and evaluate individual investments that have
indications of possible impairment. The factors considered in
determining whether a loss is other-than-temporary include: the
length of time and extent to which fair market value has been
below the cost basis, the financial condition and near-term
prospects of the issuer, credit quality, and the Companys
ability to hold the investment for a period of time sufficient
to allow for any anticipated recovery in fair value.
Inventories
The Company values its inventory at the lower of cost
(first-in,
first-out method) or market. The Company regularly reviews
inventory quantities on hand and records a provision to write
down excess and obsolete inventory to its estimated net
realizable value, if less than cost, based primarily on its
estimated forecast of product demand.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost. Equipment
acquired under capital leases is recorded at the present value
of the minimum lease payments required during the lease period.
Expenditures for major renewals and betterments that extend the
useful lives of property, plant and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense
as incurred. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from
the accounts and any resulting gain or loss is recognized in
earnings.
Depreciation is provided on the straight-line method over the
estimated useful lives of twenty to thirty-one and one-half
years for buildings and three to seven years for machinery and
equipment and furniture and fixtures and office equipment, which
includes ERP software. Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life of
the leased asset.
Intangible
Assets
Intangible assets resulting from the acquisitions of entities
accounted for using the purchase method of accounting are
estimated by management based on the fair value of assets
acquired. These include acquired customer lists, technology,
patents, trade name and covenants not to compete. Intangible
assets are amortized from two to eight years on a straight-line
basis which represents the estimated periods of benefit.
Goodwill
Goodwill is the amount by which the cost of acquired net assets
exceeded the fair value of those net assets on the date of
acquisition. The Company allocates goodwill to reporting units
at the time of acquisition and base that allocation on which
reporting units will benefit from the acquired assets and
liabilities. Reporting units are defined as operating segments
or one level below an operating segment, referred to as a
component. The Company has determined that its reporting units
are components of its one operating segment. The Company
assesses goodwill for impairment on an annual basis as required
under FAS 142 on October 31 or more frequently when events
and circumstances occur indicating that the recorded goodwill
may be impaired. If the book value of a reporting unit exceeds
its fair value, the implied fair value of goodwill is compared
with the carrying amount of goodwill. If the carrying amount of
goodwill exceeds the implied fair value, an impairment loss is
recorded equal to that excess.
44
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Impairment
of Long-Lived Assets
The Company evaluates the recoverability of its long-lived
assets, in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144)
whenever events and changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. This
periodic review may result in an adjustment of estimated
depreciable lives or asset impairment. When indicators of
impairment are present, the carrying values of the asset are
evaluated in relation to their operating performance and future
undiscounted cash flows of the underlying business. If the
future undiscounted cash flows are less than their book value,
impairment exists. The impairment is measured as the difference
between the book value and the fair value of the underlying
asset. Fair values are based on estimates of market prices and
assumptions concerning the amount and timing of estimated future
cash flows and assumed discount rates, reflecting varying
degrees of perceived risk.
Foreign
Exchange
The functional currency of the majority of the Companys
foreign subsidiaries is the applicable local currency. For those
subsidiaries, assets and liabilities are translated to
U.S. dollars at year-end exchange rates. Income and expense
accounts are translated at the average exchange rates prevailing
during the year. The resulting translation adjustments are
included in accumulated other comprehensive income in
consolidated stockholders equity. Foreign exchange
transaction gains and losses, which arise from transaction
activity, are reflected in the statement of operations.
Income
Taxes
The Company records income taxes using the asset and liability
method. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective income tax
bases, and operating loss and tax credit carryforwards. On a
quarterly basis, the Company evaluates both the positive and
negative evidence that bears on the realizability of net
deferred tax assets and assesses the need for valuation
allowance. The future benefit to be derived from its deferred
tax assets is dependent upon its ability to generate sufficient
future taxable income to realize the assets. The Company records
a valuation allowance to reduce its net deferred tax assets to
the amount that is more likely than not to be realized. To the
extent the Company establishes a valuation allowance, an expense
will be recorded within the provision for income taxes line on
the statement of operations. The valuation allowance at
December 31, 2006 was $317,000, relating to the remaining
state tax credits acquired with the purchase of Ion. During
2007, the Company increased the valuation allowance for the
state tax loss carryforwards and state tax credits acquired in
the purchase of Yield Dynamics (YDI). Thus, the
valuation allowance was $534,000 at December 31, 2007.
During 2008, the Company increased the valuation allowance by
$3,303,000 for state tax credit carryforwards and $816,000 for
federal capital loss carryforwards, as the Company has
determined it is more likely than not that both of these tax
attributes will not be realized. As a result, the valuation
allowance is $4,653,000 at December 31, 2008.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48) as of January 1,
2007. FIN 48 contains a two-step approach to recognizing
and measuring uncertain tax positions accounted for in
accordance with SFAS No. 109, Accounting for
Income Taxes. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates that it is more likely than not
that the position will be sustained upon audit, including
resolutions of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon
ultimate settlement. The Company reevaluates these uncertain tax
positions on a quarterly basis. This evaluation is based on
factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues
under audit and new audit activity. Any change in these factors
could result in the recognition of a tax benefit or an
additional charge to the tax provision.
45
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
New
Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141(R),
Business Combinations (SFAS 141R),
which replaces SFAS No. 141. This revised standard
requires assets, liabilities and non-controlling interests
acquired to be measured at fair value and requires that costs
incurred to effect the acquisition be recognized separately from
the business combination. In addition, this statement expands
the scope to include all transactions and other events in which
one entity obtains control over one or more businesses. This
statement is effective for all business combinations for which
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. The Company is in the process of evaluating whether the
adoption of this standard will have a material effect on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51. This
statement establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement is effective for
fiscal years beginning on or after December 15, 2008. This
statement does not have a material impact on the Companys
consolidated financial statements, as it does not have any
minority interests.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS 161). This statement is intended to
improve transparency in financial reporting by requiring
enhanced disclosures of an entitys derivative instruments
and hedging activities and their effects on the entitys
financial position, financial performance, and cash flows.
SFAS 161 applies to all derivative instruments within the
scope of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133). Entities with instruments subject
to SFAS 161 must provide more robust qualitative
disclosures and expanded quantitative disclosures. SFAS 161
is effective prospectively for financial statements issued for
fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. The
Company is currently evaluating the disclosure implications of
this statement.
In April 2008, the FASB issued FASB Staff Position
(FSP)
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142, Goodwill and Other Intangible Assets.
This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets
in business combinations and asset acquisitions.
FSP 142-3
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008.
Early adoption is prohibited. The Company is evaluating the
potential impact of the implementation of
FSP 142-3
on its financial position and results of operations.
|
|
3)
|
Cash and
Cash Equivalents and Investments
|
The Company reviews its investment portfolio on a monthly basis
to identify and evaluate individual investments that have
indications of possible impairment. The factors considered in
determining whether a loss is other-than-temporary include: the
length of time and extent to which fair market value has been
below the cost basis, the financial condition and near-term
prospects of the issuer, credit quality, and the Companys
ability to hold the investment for a period of time sufficient
to allow for any anticipated recovery in fair value. During this
review, as of December 31, 2007, the Company determined
that declines in the fair value of two of its investments in
certain commercial paper were other-than-temporary. This
commercial paper was issued by two structured investment
vehicles (SIVs) that entered into receivership during the fourth
quarter of 2007 and failed to make payment at maturity. Due to
the mortgage-related assets held by these issuers, they were
exposed to adverse market conditions that affected the value of
their collateral and their ability to access short-term funding.
These investments were not trading on active markets, and
therefore, had no readily determinable market value. As a result
of the Companys evaluation as of December 31, 2007,
it recorded a $1,457,000 impairment charge to earnings based
upon the Company receiving contemporaneous quotes from
established third-party pricing services. This resulted in a new
cost basis for the securities of $4,275,000 at December 31,
2007.
46
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
For the year ended December 31, 2008, the Company recorded
additional net impairment charges of $906,000 related to these
two investments. The Company liquidated its position in these
two impaired investments during the third quarter of 2008, one
by sale and the other by a structured payment. The Company
received a combined total of $3,369,000 from the settlement of
these investments during 2008.
The fair value of short-term available-for-sale investments with
maturities or estimated lives of less than one year consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Federal Government and Government Agency Obligations
|
|
$
|
137,981
|
|
|
$
|
46,813
|
|
Commercial Paper and Corporate Obligations
|
|
|
21,627
|
|
|
|
52,984
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
159,608
|
|
|
$
|
99,797
|
|
|
|
|
|
|
|
|
|
|
The following table shows the gross unrealized gains and losses
aggregated by investment category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Government and Government Agency Obligations
|
|
$
|
126,106
|
|
|
$
|
373
|
|
|
$
|
2
|
|
|
$
|
126,477
|
|
Commercial Paper and Corporate Obligations
|
|
|
2,993
|
|
|
|
87
|
|
|
|
783
|
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
129,099
|
|
|
$
|
460
|
|
|
$
|
785
|
|
|
$
|
128,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Government and Government Agency Obligations
|
|
$
|
13,554
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
13,569
|
|
Commercial Paper and Corporate Obligations
|
|
|
13,853
|
|
|
|
39
|
|
|
|
64
|
|
|
|
13,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,407
|
|
|
$
|
54
|
|
|
$
|
64
|
|
|
$
|
27,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income is accrued as earned. Dividend income is
recognized as income on the date the stock trades
ex-dividend. The cost of marketable securities sold
is determined by the specific identification method and realized
gains or losses are reflected in income and were not material in
2008, 2007 and 2006.
|
|
4)
|
Fair
Value Measurements
|
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115, (SFAS 159) which is
effective for fiscal years beginning after November 15,
2007. This statement permits entities to choose to measure many
financial instruments and certain other items at fair value.
This statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types
of assets and liabilities. Unrealized gains and losses on items
for which the fair value option is elected would be reported in
earnings. On January 1, 2008, the Company adopted
SFAS 159 and has elected not to measure any additional
financial instruments and other items at fair value.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements,
(SFAS 157), which is effective for fiscal years
beginning after November 15, 2007. This statement defines
fair value, establishes a framework for measuring fair value and
expands the related disclosure requirements. This statement
applies under other accounting pronouncements that require or
permit fair value measurements. The statement indicates, among
other things, that a fair value measurement assumes that the
transaction to sell an asset or transfer a liability occurs
47
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for
the asset or liability. SFAS 157 defines fair value based
upon an exit price model.
Relative to SFAS 157, the FASB issued FASB Staff Positions
(FSP)
157-1 and
157-2.
FSP 157-1
amends SFAS 157 to exclude SFAS No. 13,
Accounting for Leases, (SFAS 13)
and its related interpretive accounting pronouncements that
address leasing transactions, while
FSP 157-2
delays the effective date of the application of SFAS 157 to
fiscal years beginning after November 15, 2008 for all
nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis.
The Company adopted SFAS 157 as of January 1, 2008,
with the exception of the application of the statement to
non-recurring nonfinancial assets and nonfinancial liabilities.
The adoption of SFAS 157 did not have a material impact on
the consolidated financial statements. Non-recurring
nonfinancial assets and nonfinancial liabilities for which the
Company has not applied the provisions of SFAS 157 include
those measured at fair value in goodwill impairment testing,
indefinite lived intangible assets measured at fair value for
impairment testing, asset retirement obligations initially
measured at fair value, and those initially measured at fair
value in a business combination.
SFAS 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be
used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or
liabilities as of the reporting date. Active markets are those
in which transactions for the asset and liability occur in
sufficient frequency and volume to provide pricing information
on an ongoing basis. Level 1 assets and liabilities include
debt and equity securities and derivative contracts that are
traded in an active exchange market.
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 2 assets and liabilities include debt securities with
quoted prices that are traded less frequently than
exchange-traded instruments and derivative contracts whose value
is determined using a pricing model with inputs that are
observable in the market or can be derived principally from or
corroborated by observable market data. This category generally
includes certain U.S. Government and agency mortgage-backed debt
securities, corporate debt securities, and non-exchange traded
derivative contracts.
|
Level 3
|
|
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination
of fair value requires significant management judgment or
estimation.
|
Assets and liabilities of the Company measured at fair value on
a recurring basis as of December 31, 2008, are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
12/31/08
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
13,550
|
|
|
$
|
13,550
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale-securities
|
|
|
159,608
|
|
|
|
159,608
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
|
508
|
|
|
|
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
173,666
|
|
|
$
|
173,158
|
|
|
$
|
508
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Cash
Equivalents
Cash equivalents of $13,550,000, consisting of Federal
Government and Government Agency Obligations, Commercial Paper,
and Other Corporate Obligations, are classified within
Level 1 of the fair value hierarchy because they are valued
using quoted market prices in active markets.
Available-For-Sale
Securities
Available-for-sale securities of $159,608,000, consisting of
Federal Government and Government Agency Obligations, Commercial
Paper, and Other Corporate Obligations, are classified within
Level 1 of the fair value hierarchy because they are valued
using quoted market prices in active markets.
Derivatives
As a result of the Companys global operating activities,
the Company is exposed to market risks from changes in foreign
currency exchange rates, which may adversely affect its
operating results and financial position. When deemed
appropriate, the Company minimizes its risks from foreign
currency exchange rate fluctuations through the use of
derivative financial instruments. The forward foreign currency
exchange contracts are valued using broker quotations, or market
transactions in either the listed or over-the-counter markets.
As such, these derivative instruments are classified within
Level 2.
The table below presents a reconciliation for all assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs within Level 3 for the
period from January 1, 2008 to December 31, 2008.
There were no Level 3 investments at December 31, 2008.
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable
|
|
|
|
Inputs (Level 3)
|
|
|
|
Available-for-sale-Securities
|
|
|
Beginning balance at January 1, 2008
|
|
$
|
4,275
|
|
Total losses (realized)
|
|
|
|
|
Included in earnings (or changes in net assets)
|
|
|
(1,412
|
)
|
Included in other comprehensive income
|
|
|
|
|
Settlements
|
|
|
(490
|
)
|
Transfers out of Level 3 during the second quarter of 2008
|
|
|
(2,373
|
)
|
|
|
|
|
|
Ending balance at December 31, 2008
|
|
$
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in
earnings (or changes in net assets) attributable to the change
in unrealized gains or losses relating to assets still held at
the reporting date
|
|
$
|
|
|
|
|
|
|
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw material
|
|
$
|
58,542
|
|
|
$
|
73,529
|
|
Work in process
|
|
|
22,072
|
|
|
|
26,171
|
|
Finished goods
|
|
|
50,905
|
|
|
|
51,031
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
131,519
|
|
|
$
|
150,731
|
|
|
|
|
|
|
|
|
|
|
49
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
6)
|
Property,
Plant and Equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
12,308
|
|
|
$
|
11,566
|
|
Buildings
|
|
|
65,926
|
|
|
|
64,991
|
|
Machinery and equipment
|
|
|
90,215
|
|
|
|
86,747
|
|
Furniture and fixtures and office equipment
|
|
|
51,574
|
|
|
|
47,165
|
|
Leasehold improvements
|
|
|
16,016
|
|
|
|
13,750
|
|
Construction in progress
|
|
|
5,455
|
|
|
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,494
|
|
|
|
227,458
|
|
Less: accumulated depreciation and amortization
|
|
|
159,477
|
|
|
|
146,093
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,017
|
|
|
$
|
81,365
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
totaled $14,523,000, $14,476,000 and $13,972,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
|
|
7)
|
Goodwill
and Intangible Assets
|
The Company elected to perform its annual goodwill impairment
testing as required under SFAS 142 on October 31 of each
fiscal year, or more often if events or circumstances indicate
that there may be impairment. Reporting units are defined as
operating segments or one level below an operating segment,
referred to as a component. The Company has determined that its
reporting units are components of its one operating segment. The
Company allocates goodwill to reporting units at the time of
acquisition and base that allocation on which reporting units
will benefit from the acquired assets and liabilities. The
estimated fair values of its reporting units were based on
discounted cash flow models derived from internal earnings and
external market forecasts and are compared to its recorded book
value. An excess of book value over fair value indicates that an
impairment of goodwill exists. The Company completed its annual
impairment test for 2008 and 2007 and concluded that no
impairment of goodwill existed.
The changes in the carrying amount of goodwill during the years
ended December 31, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning of year
|
|
$
|
337,473
|
|
|
$
|
323,973
|
|
Goodwill acquired during the year
|
|
|
|
|
|
|
15,407
|
|
Adjustments to previously recorded goodwill
|
|
|
292
|
|
|
|
(1,907
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
337,765
|
|
|
$
|
337,473
|
|
|
|
|
|
|
|
|
|
|
The adjustments to previously recorded goodwill for 2008 relate
mainly to various tax adjustments for previous acquisitions.
50
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Components of the Companys acquired intangible assets are
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
Impairment
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Charges
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
$
|
93,204
|
|
|
$
|
(4,349
|
)
|
|
$
|
(80,685
|
)
|
|
$
|
8,170
|
|
Customer relationships
|
|
|
23,542
|
|
|
|
(1,663
|
)
|
|
|
(12,152
|
)
|
|
|
9,727
|
|
Patents, trademarks, trade names and other
|
|
|
29,729
|
|
|
|
(57
|
)
|
|
|
(26,500
|
)
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,475
|
|
|
$
|
(6,069
|
)
|
|
$
|
(119,337
|
)
|
|
$
|
21,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company determined that the adverse economic and business
climate experienced during the end of the fiscal year ended
December 31, 2008 was a significant event that indicated
that the carrying amount of certain long-lived asset groups
might not be recoverable. A review of future cash flows
identified asset groups within YDI which had carrying values in
excess of future cash flows. The Company reviewed the fair value
of the long-lived assets for these asset groups and determined
that intangible assets related to customer technologies,
relationships, and patents and trademarks had carrying values
that exceeded their estimated fair values. As a result, an
impairment charge of $6,069,000 was recorded. The fair value was
based on the income approach, whereby the Company used the
projected undiscounted cash flow method to determine whether
impairment exists, and then measured the impairment using
discounted cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
Impairment
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Charges
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
$
|
93,204
|
|
|
$
|
|
|
|
$
|
(75,681
|
)
|
|
$
|
17,523
|
|
Customer relationships
|
|
|
23,542
|
|
|
|
|
|
|
|
(9,644
|
)
|
|
|
13,898
|
|
Patents, trademarks, trade names and other
|
|
|
29,729
|
|
|
|
|
|
|
|
(25,009
|
)
|
|
|
4,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,475
|
|
|
$
|
|
|
|
$
|
(110,334
|
)
|
|
$
|
36,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense related to acquired intangibles
for the years ended December 31, 2008, 2007 and 2006 were
$9,001,000, $16,183,000 and $17,376,000, respectively. Estimated
amortization expense related to acquired intangibles for each of
the five succeeding years is as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2009
|
|
$
|
6,915
|
|
2010
|
|
|
5,099
|
|
2011
|
|
|
4,541
|
|
2012
|
|
|
2,337
|
|
2013
|
|
|
2,177
|
|
51
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
8)
|
Other
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
12,743
|
|
|
$
|
8,760
|
|
Other
|
|
|
2,617
|
|
|
|
2,541
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
15,360
|
|
|
$
|
11,301
|
|
|
|
|
|
|
|
|
|
|
Other Accrued Expenses:
|
|
|
|
|
|
|
|
|
Product warranties
|
|
$
|
8,334
|
|
|
$
|
9,497
|
|
Deferred revenue
|
|
|
4,631
|
|
|
|
5,084
|
|
Other
|
|
|
11,204
|
|
|
|
10,787
|
|
|
|
|
|
|
|
|
|
|
Total other accrued expenses
|
|
$
|
24,169
|
|
|
$
|
25,368
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Income tax payable
|
|
$
|
11,756
|
|
|
$
|
12,782
|
|
Accrued compensation
|
|
|
9,567
|
|
|
|
7,621
|
|
Other
|
|
|
587
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
21,910
|
|
|
$
|
20,635
|
|
|
|
|
|
|
|
|
|
|
The Company provides for the estimated costs to fulfill customer
warranty obligations upon the recognition of the related
revenue. While the Company engages in extensive product quality
programs and processes, including actively monitoring and
evaluating the quality of its component suppliers, the
Companys warranty obligation is affected by product
failure rates, utilization levels, material usage, and supplier
warranties on parts delivered to the Company. Should actual
product failure rates, utilization levels, material usage, or
supplier warranties on parts differ from the Companys
estimates, revisions to the estimated warranty liability would
be required.
Product warranty activity for the years ended December 31,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
9,497
|
|
|
$
|
11,549
|
|
Provisions for product warranties
|
|
|
5,345
|
|
|
|
5,992
|
|
Direct charges to the warranty liability
|
|
|
(6,508
|
)
|
|
|
(8,044
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
8,334
|
|
|
$
|
9,497
|
|
|
|
|
|
|
|
|
|
|
Credit
Agreements and Short-Term Borrowings
On July 31, 2008, the Company renewed an unsecured
short-term LIBOR based loan agreement with a bank to be utilized
primarily by its Japanese subsidiary for short-term liquidity
purposes. The credit line, which expires on July 31, 2009,
provides for the Company to borrow in multiple currencies of up
to an equivalent of $35,000,000 U.S. dollars. At
December 31, 2008, the Company had outstanding borrowings
of $1,101,000 U.S. dollars, payable on demand, at an
interest rate of 1.65%.
Additionally, the Companys Japanese subsidiary has lines
of credit and short-term borrowing arrangements with two
financial institutions which provide for aggregate borrowings as
of December 31, 2008 of up to
52
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
an equivalent of $27,536,000 U.S. dollars, which generally
expire and are renewed at three month intervals. At
December 31, 2008 and 2007, total borrowings outstanding
under these arrangements were $16,707,000 and $10,015,000,
respectively, at interest rates ranging from 1.20% to 1.68% at
December 31, 2008 and at an interest rate ranging from
1.24% to 1.88% at December 31, 2007.
Long-Term
Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Mortgage notes
|
|
$
|
|
|
|
$
|
5,000
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt less current portion
|
|
$
|
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
The Company had a long-term debt agreement with the County of
Monroe Industrial Development Agency (COMIDA) for a
manufacturing facility located in Rochester, New York. The terms
were the same as that of the underlying Industrial Development
Revenue Bond which called for payments of interest only through
July 1, 2014, at which time the Bond was repayable in a
lump sum of $5,000,000. Interest was reset annually based on
bond remarketing, with an option by the Company to elect a fixed
rate, subject to a maximum rate of 13.00% per annum. On
July 1, 2008, the Company repaid the entire debt agreement.
|
|
11)
|
Financial
Instruments and Risk Management
|
Foreign
Exchange Risk Management
The Company hedges a portion of its forecasted foreign currency
denominated intercompany sales of inventory, over a maximum
period of fifteen months, using forward exchange contracts
primarily related to Japanese, Korean and European currencies.
These derivatives are designated as cash-flow hedges, and
changes in their fair value are carried in accumulated other
comprehensive income until the hedged transaction affects
earnings. When the hedged transaction affects earnings, the
appropriate gain or loss from the derivative designated as a
hedge of the transaction is reclassified from accumulated other
comprehensive income to cost of sales. As of December 31,
2008, the amount that will be reclassified from accumulated
other comprehensive income to cost of sales over the next twelve
months is $732,000. The ineffective portion of the derivatives
is recorded in cost of sales and was immaterial in 2008, 2007
and 2006.
The Company hedges certain intercompany and other payables with
forward foreign exchange contracts. Since these derivatives
hedge existing amounts that are denominated in foreign
currencies, the derivatives do not qualify for hedge accounting
under SFAS No. 133. The foreign exchange gain or loss
on these derivatives was a gain of $2,669,000 in 2008 and was
immaterial in 2007 and 2006.
Realized and unrealized gains and losses on forward exchange
contracts that do not qualify for hedge accounting are
recognized immediately in earnings. The cash flows resulting
from forward exchange contracts that qualify for hedge
accounting are classified in the consolidated statement of cash
flows as part of cash flows from operating activities. Cash
flows resulting from forward exchange contracts that do not
qualify for hedge accounting are classified in the consolidated
statement of cash flows as investing activities. The Company
does not hold or issue derivative financial instruments for
trading purposes.
There were forward exchange contracts with notional amounts
totaling $30,556,000 outstanding at December 31, 2008 of
which $17,348,000 were outstanding to exchange Japanese yen for
U.S. dollars. There were forward exchange contracts with
notional amounts totaling $66,660,000 outstanding at
December 31, 2007 of which
53
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
$39,925,000 were outstanding to exchange Japanese Yen for
U.S. dollars. There were forward exchange contracts with
notional amounts totaling $20,324,000 outstanding at
December 31, 2006 of which $14,619,000 were outstanding to
exchange Japanese yen for U.S. dollars.
Gains and losses on forward exchange contracts that qualify for
hedge accounting are classified in cost of goods sold and
totaled a loss of $1,176,000, and gains of $1,312,000 and
$1,932,000 for the years ended December 31, 2008, 2007 and
2006 respectively.
The fair values of forward exchange contracts at
December 31, 2008 and 2007, determined by applying period
end currency exchange rates to the notional contract amounts,
amounted to an unrealized gain of $732,000 and $43,000 for the
years ended December 31, 2008 and 2007, respectively.
Foreign exchange transaction gains and losses, which arise from
transaction activity unrelated to the Companys
derivatives, are reflected in the statement of operations. These
foreign exchange transaction gains and losses were immaterial in
2008, 2007 and 2006.
Fair
Value of Financial Instruments
The fair value of the term loans, including the current portion,
approximates its carrying value given its variable rate interest
provisions. The fair value of marketable securities is based on
quoted market prices. For all other balance sheet financial
instruments, the carrying amount approximates fair value because
of the short period to maturity of these instruments.
Concentrations
of Credit Risk
The Companys significant concentrations of credit risk
consist principally of cash and cash equivalents, investments,
forward exchange contracts and trade accounts receivable. The
Company maintains cash and cash equivalents with financial
institutions including some banks with which it has borrowings.
The Company maintains investments primarily in
U.S. Treasury and government agency securities and
corporate debt securities, with minimum rating of A1-P1 or AAA.
The Company enters into forward currency contracts with high
credit-quality financial institutions in order to minimize
credit risk exposure. The Companys customers are primarily
concentrated in the semiconductor industry, and a limited number
of customers account for a significant portion of the
Companys revenues. The Company regularly monitors the
creditworthiness of its customers and believes it has adequately
provided for potential credit loss exposures. Credit is extended
for all customers based primarily on financial condition and
collateral is not required.
A reconciliation of the Companys 2008, 2007 and 2006
effective tax rate to the U.S. federal statutory rate
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. Federal income tax statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Federal and state tax credits
|
|
|
(5.5
|
)
|
|
|
(4.3
|
)
|
|
|
(1.7
|
)
|
State income taxes, net of federal benefit
|
|
|
1.3
|
|
|
|
1.7
|
|
|
|
2.3
|
|
Effect of foreign operations taxed at various rates
|
|
|
(11.0
|
)
|
|
|
(4.9
|
)
|
|
|
(7.1
|
)
|
Extraterritorial income and qualified production activity tax
benefit
|
|
|
(3.9
|
)
|
|
|
(0.7
|
)
|
|
|
(0.9
|
)
|
Deferred tax asset valuation allowance
|
|
|
8.4
|
|
|
|
|
|
|
|
(2.1
|
)
|
Other
|
|
|
2.3
|
|
|
|
1.2
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.6
|
%
|
|
|
28.0
|
%
|
|
|
28.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The components of income before income taxes and the related
provision (benefit) for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(8,201
|
)
|
|
$
|
64,228
|
|
|
$
|
72,276
|
|
Foreign
|
|
|
49,253
|
|
|
|
55,788
|
|
|
|
58,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,052
|
|
|
$
|
120,016
|
|
|
$
|
130,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
7,098
|
|
|
$
|
29,663
|
|
|
$
|
36,056
|
|
State
|
|
|
1,367
|
|
|
|
1,682
|
|
|
|
3,252
|
|
Foreign
|
|
|
11,529
|
|
|
|
12,594
|
|
|
|
8,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,994
|
|
|
|
43,939
|
|
|
|
48,224
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
|
(11,304
|
)
|
|
|
(7,741
|
)
|
|
|
(9,219
|
)
|
State and Foreign
|
|
|
2,245
|
|
|
|
(2,542
|
)
|
|
|
(2,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,059
|
)
|
|
|
(10,283
|
)
|
|
|
(11,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
10,935
|
|
|
$
|
33,656
|
|
|
$
|
36,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, the significant components
of the deferred tax assets and deferred tax liabilities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and credits
|
|
$
|
7,087
|
|
|
$
|
7,604
|
|
Inventory and warranty reserves
|
|
|
16,842
|
|
|
|
14,632
|
|
Accounts receivable and other accruals
|
|
|
1,815
|
|
|
|
2,310
|
|
Depreciation and amortization
|
|
|
5,105
|
|
|
|
6,030
|
|
Stock-based compensation
|
|
|
8,976
|
|
|
|
8,424
|
|
Other
|
|
|
7,461
|
|
|
|
6,346
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
47,286
|
|
|
$
|
45,346
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
|
(10,717
|
)
|
|
|
(17,560
|
)
|
Other
|
|
|
(115
|
)
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(10,832
|
)
|
|
|
(18,068
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(4,653
|
)
|
|
|
(534
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
31,801
|
|
|
$
|
26,744
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007, the Company had
gross Massachusetts research credit carryforwards of
$6,353,000 and $4,477,000, respectively. These credit
carryforwards will expire at various dates through 2023. In
addition, at December 31, 2008, the Company has a federal
capital loss carryforward of $2,332,000 that will expire in 2013.
55
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
At December 31, 2008, as a result of the acquisition of
Yield Dynamics in 2007, the Company has a federal net operating
loss carryforward of $7,170,000 and a federal general business
credit carryforward of $810,000. The Companys intention is
to carryforward both these tax attributes, subject to the
limitations of the Internal Revenue Code. The loss and credit
carryforwards expire at various dates through 2027.
At December 31, 2006, as a result of the acquisition of Ion
Systems, Inc., the Company had a federal net operating loss
carryforward of $1,216,000 and a federal general business credit
carryforward of $71,000. The Company carried both of these tax
attributes to previous Ion tax years and recovered $497,000 of
previously paid taxes.
Although the Company believes that its tax positions are
consistent with applicable U.S. federal, state and
international laws, certain tax reserves are maintained at
December 31, 2008 should these positions be challenged by
the applicable tax authority and additional tax assessed on
audit.
The Company has adopted FASB Interpretation 48, Accounting for
Uncertainty in Income Taxes (FIN 48), as of
January 1, 2007. A reconciliation of the beginning and
ending amount of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
16,123
|
|
|
$
|
11,637
|
|
Increases for prior years
|
|
|
49
|
|
|
|
1,264
|
|
Increases for the current year
|
|
|
1,680
|
|
|
|
3,240
|
|
Reductions related to settlements with taxing authorities
|
|
|
(1,533
|
)
|
|
|
|
|
Reductions related to expiration of statute of limitations
|
|
|
(1,641
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
14,678
|
|
|
$
|
16,123
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, if these benefits were recognized in
a future period, the timing of which is not estimable, the net
unrecognized tax benefit of approximately $11,784,000, excluding
penalties and interest, would impact the Companys
effective tax rate.
MKS and its subsidiaries are subject to U.S. federal income
tax as well as the income tax of multiple state and foreign
jurisdictions. The Company has concluded all U.S. federal
income tax matters for years through 2002. While the
U.S. 2004 federal tax year is closed, the 2003 federal tax
year remains open to the extent of the loss carryforward to
2005. As of December 31, 2008 and currently, we are under a
federal audit for the 2005 and 2006 tax years, as well as other
ongoing audits in various other tax jurisdictions for various
years.
Over the next 12 months it is reasonably possible that the
Company may recognize $8,000,000 to $8,500,000 of previously
unrecognized tax benefits related to various federal, state and
foreign tax positions as a result of the conclusion of various
audits and the expiration of the statute of limitations. The
following tax years, in the major tax jurisdictions noted, are
open for assessment or refund: U.S. Federal: 2003, 2005 to
2007, Germany: 2001 to 2007, Korea: 2006 to 2007, Japan: 2001 to
2007 and the United Kingdom: 2006 and 2007.
The Company accrues interest and penalties, if applicable, for
any uncertain tax positions. Any interest and penalty expense is
a component of income tax expense. At December 31, 2008 and
at December 31, 2007, the Company had $1,730,000 and
$1,500,000, respectively, accrued for interest on unrecognized
tax benefits.
On a quarterly basis, the Company evaluates both positive and
negative evidence that bears on the realizability of net
deferred tax assets and assesses the need for a valuation
allowance. The future benefit to be derived from its deferred
tax assets is dependent upon its ability to generate sufficient
future taxable income to realize the assets. During the year
ended December 31, 2008, the Company increased its
valuation allowance by $3,303,000 for state tax credit
carryforwards and $816,000 for federal capital loss
carryforwards, as the Company has determined it is more likely
than not that the deferred tax assets related to these
attributes will not be realized. In addition, the
56
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Company recorded a benefit to income tax expense of $3,067,000,
due to discrete reserve releases primarily related to the close
of statute of limitations.
For the year ended December 31, 2007, the Company amended
prior federal tax returns to reflect revised estimates for
qualifying research and development costs that allowed the
company to claim additional research tax credits. As a result of
this claim, the Company recorded a benefit to income tax expense
of $1,800,000.
During the year ended December 31, 2006, the Company
received a notification letter from the Israeli Ministry of
Industry Trade and Labor (MITL) indicating that its
Israeli operations were in compliance with requirements relating
to the tax holiday granted to its manufacturing operations in
Israel in 2001. This tax holiday is anticipated to expire in
2011 and is subject to meeting continued investment, employment
and other requirements under the guidelines of the MITL. This
tax holiday resulted in income tax savings of $217,000,
$3,393,000 and $5,125,000 for the years ended December 31,
2008, 2007 and 2006, respectively.
Additionally, for the year ended December 31, 2006, the
Company recorded the impact of both a change in German tax rules
allowing interest deductions on certain loans and adjustments
relating to transfer pricing. As a result of these items the
Company recorded additional income tax benefits of $1,565,000
for the year ended December 31, 2006. The net reduction in
the valuation allowance for the year ended December 31,
2006 resulted from the utilization of tax credit carryovers of
$2,706,000 and the expiration of credits of $474,000 on a merged
subsidiary.
Through December 31, 2008, the Company has not provided
deferred income taxes on the undistributed earnings of its
foreign subsidiaries because such earnings were intended to be
permanently reinvested outside the U.S. Determination of
the potential deferred income tax liability on these
undistributed earnings is not practicable because such
liability, if any, is dependent on circumstances existing if and
when remittance occurs. At December 31, 2008, the Company
had $237,209,000 of undistributed earnings in its foreign
subsidiaries.
Basic earnings per share is based on the weighted average number
of common shares outstanding, and diluted earnings per share is
based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares
outstanding. The dilutive effect of options is determined under
the treasury stock method using the average market price for the
period. Common equivalent shares are included in the per share
calculations when the effect of their inclusion would be
dilutive.
The following is a reconciliation of basic to diluted net income
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
$
|
94,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share basic
|
|
|
49,717,000
|
|
|
|
56,349,000
|
|
|
|
55,395,000
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and employee stock purchase plan
|
|
|
1,037,000
|
|
|
|
824,000
|
|
|
|
566,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share diluted
|
|
|
50,754,000
|
|
|
|
57,173,000
|
|
|
|
55,961,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Options and restricted stock outstanding of 3,152,261, 3,684,435
and 4,789,894 during the years ended December 31, 2008,
2007 and 2006, respectively, are excluded from the calculation
of diluted net income per common share because their inclusion
would be anti-dilutive.
Stock
Repurchase Program
On February 12, 2007, MKS Board of Directors approved
a share repurchase program (the Program) for the
repurchase of up to $300,000,000 of its outstanding stock over
the subsequent two years. The repurchases were made from time to
time on the open market or through privately negotiated
transactions. The timing and amount of any shares repurchased
under the Program was dependent upon a variety of factors,
including price, corporate and regulatory requirements, capital
availability, and other market conditions. During the year ended
December 31, 2008, the Company repurchased
5,667,000 shares of common stock for $115,723,000 for an
average price of $20.42 per share. There were no shares
repurchased in 2009 and the Program ended effective
February 11, 2009.
Stock
Purchase Plans
The Companys Third Amended and Restated 1999 Employee
Stock Purchase Plan (the Purchase Plan) authorizes
the issuance of up to an aggregate of 1,250,000 shares of
Common Stock to participating employees. Offerings under the
Purchase Plan commence on June 1 and December 1 and terminate,
respectively, on November 30 and May 31. Under the Purchase
Plan, eligible employees may purchase shares of Common Stock
through payroll deductions of up to 10% of their compensation.
The price at which an employees option is exercised is the
lower of (1) 85% of the closing price of the Common Stock
on the NASDAQ Global Market on the day that each offering
commences or (2) 85% of the closing price on the day that
each offering terminates. During 2008 and 2007, the Company
issued 201,341 and 166,127 shares, respectively, of Common
Stock to employees who participated in the Purchase Plan at
exercise prices of $15.28 and $12.16 per share in 2008 and
$17.64 and $15.44 per share in 2007, respectively. As of
December 31, 2008, there were 104,104 shares reserved
for future issuance under the Purchase Plan.
The Companys Second Amended and Restated International
Employee Stock Purchase Plan (the Foreign Purchase
Plan) authorizes the issuance of up to an aggregate of
250,000 shares of Common Stock to participating employees.
Offerings under the Foreign Purchase Plan commence on June 1 and
December 1 and terminate, respectively, on November 30 and
May 31. Under the Foreign Purchase Plan, eligible employees
may purchase shares of Common Stock through payroll deductions
of up to 10% of their compensation. The price at which an
employees option is exercised is the lower of (1) 85%
of the closing price of the Common Stock on the NASDAQ Global
Market on the day that each offering commences or (2) 85%
of the closing price on the day that each offering terminates.
During 2008 and 2007, the Company issued 41,391 and 32,803,
respectively, shares of Common Stock to employees who
participated in the Foreign Purchase Plan at exercise prices of
$15.28 and $12.16 per share in 2008 and $17.64 and $15.44 per
share in 2007, respectively. As of December 31, 2008, there
were 41,026 shares reserved for future issuance under the
Foreign Purchase Plan.
Equity
Incentive Plans
The Company has granted options to employees under the 2004
Stock Incentive Plan (the 2004 Plan), the Second
Restated 1995 Stock Incentive Plan (the 1995 Plan),
to directors under the 1997 Director Stock Plan (the
1997 Director Plan) and the 1996 Director
Stock Option Plan (collectively, the Plans). The
Plans are administered by the compensation committee of the
Companys board of directors.
The Companys equity incentive Plans are intended to
attract and retain employees and to provide an incentive for
them to assist the Company to achieve long-range performance
goals and to enable them to participate in the
58
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
long-term growth of the Company. Employees may be granted
restricted stock and restricted stock units (collectively,
restricted stock), options to purchase shares of the
Companys stock and other equity incentives under the Plans.
The Companys 2004 Plan was adopted by the board of
directors on March 4, 2004 and approved by the stockholders
on May 13, 2004. As of December 31, 2008 there were
10,958,496 shares authorized for issuance under the 2004
Plan, which amount shall increase each year by an amount equal
to 5% of the total outstanding shares of the Companys
common stock outstanding on January 1 of such year, provided
that the maximum aggregate number of shares of common stock
which may be issued under the 2004 Plan is
15,000,000 shares (subject to adjustment for certain
changes in MKS capitalization). The Company may grant
options, restricted stock awards, stock appreciation rights and
other stock-based awards to employees, officers, directors,
consultants and advisors under the 2004 Plan. As of
December 31, 2008 there were 9,097,938 shares
available for future grant under the 2004 Plan.
The Companys 1995 Plan expired in November 2005 and no
further awards may be granted under the 1995 Plan, although
there are still outstanding options available for exercise under
this plan.
The Companys 1997 Director Plan expired in February
2007 and no further awards may be granted under the
1997 Director Plan, although there are still outstanding
options available for exercise under this plan.
At December 31, 2008, 9,097,938 shares of the
Companys common stock were available for future grants
under the Plans. Stock options are granted at an exercise price
equal to 100% of the fair value of the Companys common
stock at the date of grant. Generally, stock options granted to
employees under the Plans in 2001 and after, vest 25% after one
year and 6.25% per quarter thereafter, and expire 10 years
after the grant date. Generally, stock options granted under the
Plans prior to 2000 vest 20% after one year and 5% per quarter
thereafter, and expire 10 years after the grant date.
Options granted to directors generally vest at the earliest of
(1) one day prior to the next annual meeting,
(2) 13 months from date of grant, or (3) the
effective date of an acquisition. Restricted stock awards
generally vest three years from the date of grant.
The following table presents the activity for options under the
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding beginning of period
|
|
|
5,123,056
|
|
|
$
|
22.74
|
|
|
|
7,614,655
|
|
|
$
|
21.62
|
|
|
|
9,459,271
|
|
|
$
|
20.36
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,000
|
|
|
$
|
22.94
|
|
Exercised
|
|
|
(425,256
|
)
|
|
$
|
14.32
|
|
|
|
(2,233,303
|
)
|
|
$
|
18.58
|
|
|
|
(1,563,706
|
)
|
|
$
|
13.33
|
|
Forfeited or Expired
|
|
|
(138,962
|
)
|
|
$
|
25.58
|
|
|
|
(258,296
|
)
|
|
$
|
25.59
|
|
|
|
(382,910
|
)
|
|
$
|
24.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of period
|
|
|
4,558,838
|
|
|
$
|
23.44
|
|
|
|
5,123,056
|
|
|
$
|
22.74
|
|
|
|
7,614,655
|
|
|
$
|
21.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
4,535,282
|
|
|
$
|
23.46
|
|
|
|
4,810,516
|
|
|
$
|
23.22
|
|
|
|
6,720,395
|
|
|
$
|
22.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The following table presents the activity for restricted stock
under the Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Non-vested
|
|
|
Weighted
|
|
|
Non-vested
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average Grant
|
|
|
Restricted
|
|
|
Average Grant
|
|
|
|
Stock
|
|
|
Date Fair Value
|
|
|
Stock
|
|
|
Date Fair Value
|
|
|
Non-vested restricted stock beginning of period
|
|
|
1,349,350
|
|
|
$
|
21.98
|
|
|
|
714,125
|
|
|
$
|
22.00
|
|
Granted
|
|
|
709,313
|
|
|
$
|
21.51
|
|
|
|
775,353
|
|
|
$
|
22.06
|
|
Vested
|
|
|
(110,640
|
)
|
|
$
|
22.45
|
|
|
|
(4,527
|
)
|
|
$
|
23.39
|
|
Forfeited or Expired
|
|
|
(123,033
|
)
|
|
$
|
20.43
|
|
|
|
(135,601
|
)
|
|
$
|
22.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock end of period
|
|
|
1,824,990
|
|
|
$
|
21.87
|
|
|
|
1,349,350
|
|
|
$
|
21.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information with respect to
options outstanding and exercisable under the Plans at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Life (In
|
|
|
Value (In
|
|
|
Number of
|
|
|
Exercise
|
|
|
Value (In
|
|
|
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Years)
|
|
|
Thousands)
|
|
|
Shares
|
|
|
Price
|
|
|
Thousands)
|
|
|
|
|
|
$11.15 $13.87
|
|
|
24,311
|
|
|
$
|
12.89
|
|
|
|
3.65
|
|
|
$
|
46
|
|
|
|
24,311
|
|
|
$
|
12.89
|
|
|
$
|
46
|
|
|
|
|
|
$14.00 $19.00
|
|
|
1,375,584
|
|
|
$
|
16.14
|
|
|
|
4.22
|
|
|
|
179
|
|
|
|
1,357,028
|
|
|
$
|
16.12
|
|
|
|
179
|
|
|
|
|
|
$20.02 $29.50
|
|
|
2,438,113
|
|
|
$
|
25.00
|
|
|
|
3.79
|
|
|
|
|
|
|
|
2,433,113
|
|
|
$
|
25.01
|
|
|
|
|
|
|
|
|
|
$29.93 $61.50
|
|
|
720,830
|
|
|
$
|
32.45
|
|
|
|
3.10
|
|
|
|
|
|
|
|
720,830
|
|
|
$
|
32.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,558,838
|
|
|
$
|
23.44
|
|
|
|
3.81
|
|
|
$
|
225
|
|
|
|
4,535,282
|
|
|
$
|
23.46
|
|
|
$
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options
exercisable was 3.79 years at December 31, 2008.
The aggregate intrinsic value in the table above represents the
total pretax intrinsic value, based on the Companys
closing stock price of $14.79 as of December 31, 2008,
which would have been received by the option holders had all
option holders exercised their options as of that date. The
total number of in-the-money options exercisable as of
December 31, 2008 was 543,400.
The total cash received from employees as a result of employee
stock option exercises during the years ended December 31,
2008 and 2007 was approximately $6,088,000 and $42,005,000,
respectively. In connection with these exercises, the net tax
benefits realized by the Company for the years ended
December 31, 2008 and 2007 were approximately $226,000 and
$5,712,000, respectively.
60
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The Company settles employee stock option exercises with newly
issued common shares.
Accumulated
Other Comprehensive Income
The balance of accumulated other comprehensive income (loss) was
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
|
Cumulative
|
|
|
Designated as
|
|
|
Gain
|
|
|
Other
|
|
|
|
Translation
|
|
|
Cash Flow
|
|
|
(Loss) on
|
|
|
Comprehensive
|
|
|
|
Adjustments
|
|
|
Hedges
|
|
|
Investments
|
|
|
Income (Loss)
|
|
|
Balance at December 31, 2006
|
|
$
|
9,466
|
|
|
$
|
445
|
|
|
$
|
154
|
|
|
$
|
10,065
|
|
Foreign currency translation adjustment, net of taxes of $0
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
3,744
|
|
Changes in value of financial instruments designated as cash
flow hedges, net of tax benefit of $423
|
|
|
|
|
|
|
(532
|
)
|
|
|
|
|
|
|
(532
|
)
|
Change in unrealized (loss) on investments, net of tax benefit
of $71
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
13,210
|
|
|
$
|
(87
|
)
|
|
$
|
64
|
|
|
$
|
13,187
|
|
Foreign currency translation adjustment, net of taxes of $0
|
|
|
(6,171
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,171
|
)
|
Changes in value of financial instruments designated as cash
flow hedges, net of tax of $299
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
390
|
|
Change in unrealized (loss) on investments, net of tax benefit
of $143
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
7,039
|
|
|
$
|
303
|
|
|
$
|
(123
|
)
|
|
$
|
7,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15)
|
Stock-Based
Compensation
|
As of January 1, 2006, the Company adopted SFAS 123R
using the modified prospective method. SFAS 123R requires
companies to recognize compensation cost for all stock-based
awards based upon the grant-date fair value of those awards and
to recognize the expense over the requisite service period for
awards expected to vest. Using the modified prospective method
of adopting SFAS 123R, MKS began recognizing compensation
expense for equity-based awards granted after January 1,
2006 plus unvested awards granted prior to January 1, 2006.
Under this method of implementation, prior periods were not
restated. The Company elected to adopt the alternative
transition method for calculating the tax effects of
equity-based compensation. The alternative transition method
included simplified methods to establish the beginning balance
of the additional paid-in capital pool (APIC pool) related to
the tax effects of employee stock-based compensation, and to
determine the subsequent impact on the APIC pool and
consolidated statement of cash flows of the tax effects of
employee equity-based compensation awards that were outstanding
upon the implementation of SFAS 123R. Subsequent to the
initial adoption of SFAS 123R, the Company calculates
potential windfall or shortfall tax benefits under the treasury
stock method by excluding the impact of pro forma deferred tax
assets.
The Company recognized the full impact of its share-based
payment plans in the consolidated statements of operations for
the years ended December 31, 2008, 2007 and 2006 under
SFAS 123R. As of December 31, 2008, the Company
capitalized $471,000 of such cost on its consolidated balance
sheet. As of December 31, 2007, the Company capitalized
$570,000 of such cost on its consolidated balance sheet. The
following table reflects the effect
61
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
of recording stock-based compensation for the years ended
December 31, 2008 and 2007 in accordance with
SFAS 123R:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock-based compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
$
|
1,936
|
|
|
$
|
3,516
|
|
|
$
|
8,521
|
|
Restricted stock
|
|
|
12,210
|
|
|
|
8,481
|
|
|
|
3,862
|
|
Employee stock purchase plan
|
|
|
1,128
|
|
|
|
921
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
15,274
|
|
|
|
12,918
|
|
|
|
13,143
|
|
Tax effect on stock-based compensation
|
|
|
(226
|
)
|
|
|
(5,712
|
)
|
|
|
(4,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income
|
|
$
|
15,048
|
|
|
$
|
7,206
|
|
|
$
|
8,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax effect within the Statement of Operations of
recording stock-based compensation for the years ended
December 31, 2008, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of sales
|
|
$
|
2,272
|
|
|
$
|
1,564
|
|
|
$
|
2,204
|
|
Research and development expense
|
|
|
3,698
|
|
|
|
3,275
|
|
|
|
3,348
|
|
Selling, general and administrative expense
|
|
|
9,304
|
|
|
|
8,079
|
|
|
|
7,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax stock-based compensation expense
|
|
$
|
15,274
|
|
|
$
|
12,918
|
|
|
$
|
13,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Assumptions
In connection with the adoption of SFAS 123R, the Company
reassessed its valuation technique and related assumptions. The
Company determines the fair value of restricted stock based on
the number of shares granted and the closing market price of the
Companys common stock on the date of the award, and
estimates the fair value of stock options and employee stock
purchase rights using the Black-Scholes valuation model. Such
values are recognized as expense on a straight-line basis over
the requisite service periods, net of estimated forfeitures. The
estimation of stock-based awards that will ultimately vest
requires significant judgment. The Company considers many
factors when estimating expected forfeitures, including types of
awards and historical experience. Actual results, and future
changes in estimates, may differ substantially from the
Companys current estimates.
There were no options granted during the years ended
December 31, 2008 and 2007. The weighted average grant date
fair value of options granted during the year ended
December 31, 2006, as determined under SFAS 123R, was
$12.00 per share. The total intrinsic value of options exercised
during the years ended December 31, 2008, 2007 and 2006 was
approximately $3,802,000, $16,462,000 and $14,252,000,
respectively. The fair values of options at
62
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
the date of grant were estimated using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life (years)
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
|
|
|
|
|
|
|
|
4.9
|
%
|
Expected Volatility
|
|
|
|
|
|
|
|
|
|
|
52.0
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
The weighted average fair value of employee stock purchase
rights granted in 2008, 2007 and 2006 was $4.62, $4.88 and
$5.18, respectively. The fair value of the employees
purchase rights was estimated using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Employee stock purchase rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life (years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
|
5.0
|
%
|
|
|
4.8
|
%
|
Expected volatility
|
|
|
47.3
|
%
|
|
|
33.0
|
%
|
|
|
34.6
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatilities for 2008 and 2007 are based on a
combination of implied and historical volatilities of the
Companys common stock and based on historical volatilities
for 2006; the expected life represents the weighted average
period of time that options granted are expected to be
outstanding giving consideration to vesting schedules and the
Companys historical exercise patterns; and the risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant for periods corresponding with the
expected life of the option.
The fair value of stock options and restricted stock awards that
vested during the year ended December 31, 2008, 2007 and
2006 was approximately $2,387,000, $4,876,000 and $8,111,000,
respectively. As of December 31, 2008, the unrecognized
compensation cost related to non-vested stock options and the
unrecognized compensation cost related to restricted stock was
approximately $183,000 and $18,276,000, respectively, and will
be recognized over an estimated weighted average amortization
period of 0.9 years and 1.8 years, respectively.
|
|
16)
|
Employee
Benefit Plans
|
The Company has a 401(k) profit-sharing plan for
U.S. employees meeting certain requirements in which
eligible employees may contribute between 1% and 50% of their
annual compensation to this plan, and, with respect to employees
who are age 50 and older, certain specified additional
amounts, limited by an annual maximum amount determined by the
IRS. The Company, at its discretion, may provide a matching
contribution which will generally match up to the first 2% of
each participants compensation, plus 25% of the next 4% of
compensation. At the discretion of the board of directors, the
Company may also make additional contributions for the benefit
of all eligible employees. The Companys contributions were
$2,755,000, $2,516,000 and $2,385,000 for 2008, 2007 and 2006,
respectively.
The Company maintains a bonus plan which provides cash awards to
key employees, at the discretion of the compensation committee
of the board of directors, based upon operating results and
employee performance. The bonus expense was $0 in 2008,
$3,713,000 in 2007 and was $10,300,000 in 2006.
The Company provides supplemental retirement benefits for
certain of its officers and executive officers. The total cost
of these benefits was $2,054,000, $1,867,000 and $1,853,000 for
the years ended December 31, 2008,
63
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
2007 and 2006, respectively. The accumulated benefit obligation
was $7,813,000 and $5,765,000 at December 31, 2008 and
2007, respectively.
|
|
17)
|
Segment
and Geographical Information and Significant Customer
|
The Company operates in one segment for the development,
manufacturing, sales and servicing of products that measure,
control, power and monitor critical parameters of advanced
manufacturing processes. The Companys chief decision-maker
reviews consolidated operating results to make decisions about
allocating resources and assessing performance for the entire
Company.
Information about the Companys operations in different
geographic regions is presented in the tables below. Net sales
to unaffiliated customers are based on the location in which the
sale originated. Transfers between geographic areas are at
negotiated transfer prices and have been eliminated from
consolidated net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Geographic net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
365,657
|
|
|
$
|
477,801
|
|
|
$
|
515,896
|
|
Japan
|
|
|
94,843
|
|
|
|
103,474
|
|
|
|
96,936
|
|
Europe
|
|
|
95,673
|
|
|
|
88,279
|
|
|
|
70,648
|
|
Asia
|
|
|
90,821
|
|
|
|
110,933
|
|
|
|
99,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
646,994
|
|
|
$
|
780,487
|
|
|
$
|
782,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Long lived assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
60,942
|
|
|
$
|
63,731
|
|
Japan
|
|
|
11,527
|
|
|
|
6,520
|
|
Europe
|
|
|
3,353
|
|
|
|
4,386
|
|
Asia
|
|
|
8,812
|
|
|
|
9,269
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,634
|
|
|
$
|
83,906
|
|
|
|
|
|
|
|
|
|
|
The Company groups its products into three product groups. Net
sales for these product groups are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Instruments and Control Systems
|
|
$
|
336,340
|
|
|
$
|
377,992
|
|
|
$
|
371,919
|
|
Power and Reactive Gas Products
|
|
|
246,107
|
|
|
|
319,403
|
|
|
|
328,810
|
|
Vacuum and Other Products
|
|
|
65,547
|
|
|
|
83,092
|
|
|
|
82,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
646,994
|
|
|
$
|
780,487
|
|
|
$
|
782,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had one customer comprising 19%, 20% and 21% of net
sales for the years ended December 31, 2008, 2007 and 2006,
respectively. During the years ended December 31, 2008,
2007 and 2006, the Company estimates that approximately 57%, 68%
and 70% of its net sales, respectively, were to semiconductor
capital equipment manufacturers and semiconductor device
manufacturers.
64
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
On November 7, 2007, the Company acquired Yield Dynamics,
Inc. (YDI), a provider of yield management
technology located in Sunnyvale, California. YDIs data and
yield management software, along with MKS portfolio of
sensors that control critical processes, data collection and
integration hardware, and real-time fault detection and
classification software, provides a comprehensive offering for
generating, collecting and analyzing process sensor data and
correlating the data to wafers, chambers and tools across the
semiconductor fab as well as other thin film manufacturing
processes. The purchase price consisted of $23,659,000 in cash,
net of $651,000 in cash acquired and $363,000 in acquisition
related costs. The purchase agreement includes contingent
payments of up to $10,000,000 based upon achieving specific
annual and cumulative revenue targets between 2008 and 2010.
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of the
acquisition:
|
|
|
|
|
Current assets
|
|
$
|
693
|
|
Intangible assets
|
|
|
9,010
|
|
Other assets
|
|
|
4,039
|
|
Goodwill
|
|
|
15,407
|
|
|
|
|
|
|
Total assets acquired
|
|
|
29,149
|
|
|
|
|
|
|
Current liabilities
|
|
|
(844
|
)
|
Deferred tax liabilities
|
|
|
(3,632
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(4,476
|
)
|
|
|
|
|
|
Total purchase price including acquisition costs
|
|
$
|
24,673
|
|
|
|
|
|
|
The goodwill and other intangible assets associated with the
acquisition are not deductible for tax purposes. Of the
$9,010,000 of acquired intangible assets, the following table
reflects the allocation of the acquired intangible assets and
related estimates of useful lives:
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,300
|
|
|
8-year useful life
|
Completed technology
|
|
|
5,500
|
|
|
6-year useful life
|
Others
|
|
|
310
|
|
|
2-5-year useful life
|
In-process research and development
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,010
|
|
|
|
|
|
|
|
|
|
|
This transaction resulted in an amount of purchase price that
exceeded the estimated fair values of tangible and intangible
assets, which was allocated to goodwill. The Company believes
that the amount of goodwill relative to identifiable intangible
assets relates to several factors including: (1) being a
provider of yield management software technology which will be
increasingly important to solution providers for semiconductor
and other industrial customers and (2) enhanced ability to
combine YDIs software products with MKS multivariate
software and traditional hardware products.
On January 3, 2006, the Company completed its acquisition
of Ion Systems, Inc. (Ion), a leading provider of
electrostatic management solutions located in Alameda,
California, pursuant to an Agreement and Plan of Merger dated
November 25, 2005. Ions ionization technology
monitors electrostatic charge to reduce process contamination
and improve yields, which complements the Companys process
monitoring and control technologies. The aggregate purchase
price consisted of $68,073,000 in cash, net of $5,056,000 in
cash acquired, and $807,000 in acquisition related costs.
65
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of the
acquisition:
|
|
|
|
|
Current assets
|
|
$
|
17,310
|
|
Intangible assets
|
|
|
25,947
|
|
Other assets
|
|
|
3,066
|
|
Goodwill
|
|
|
45,017
|
|
|
|
|
|
|
Total assets acquired
|
|
|
91,340
|
|
Current liabilities
|
|
|
(7,245
|
)
|
Deferred tax liabilities
|
|
|
(10,159
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(17,404
|
)
|
|
|
|
|
|
Total purchase price including acquisition costs
|
|
$
|
73,936
|
|
|
|
|
|
|
The goodwill and other intangible assets associated with the
acquisition are not deductible for tax purposes. Of the
$25,947,000 of acquired intangible assets, the following table
reflects the allocation of the acquired intangible assets and
related estimates of useful lives:
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
11,992
|
|
|
8-year useful life
|
Completed technology
|
|
|
10,255
|
|
|
6-year useful life
|
Trade names
|
|
|
2,300
|
|
|
8-year useful life
|
Order backlog
|
|
|
1,000
|
|
|
3 months
|
In-process research and development
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,947
|
|
|
|
|
|
|
|
|
|
|
This transaction resulted in an amount of purchase price that
exceeded the estimated fair values of tangible and intangible
assets, which was allocated to goodwill. The Company believes
that the amount of goodwill relative to identifiable intangible
assets relates to several factors including: (1) potential
buyer-specific synergies related to market opportunities for a
combined product offering and (2) potential to leverage the
Companys sales force and intellectual property to attract
new customers and revenue.
On January 3, 2006, the Company completed its acquisition
of Umetrics, AB (Umetrics), a leader in multivariate
data analysis and modeling software located in Umea, Sweden,
pursuant to a Sale and Purchase Agreement dated
December 15, 2005. Umetrics multivariate data
analysis and modeling software converts process data into
useable information for yield improvement when linked with the
Companys open and modular platform of process sensors and
data collection, integration, data storage, and visualization
capabilities. The purchase price consisted of $27,400,000 in
cash, net of $2,602,000 in cash acquired, and $392,000 in
acquisition related costs.
66
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of the
acquisition:
|
|
|
|
|
Current assets
|
|
$
|
4,243
|
|
Intangible assets
|
|
|
7,650
|
|
Other assets
|
|
|
400
|
|
Goodwill
|
|
|
22,060
|
|
|
|
|
|
|
Total assets acquired
|
|
|
34,353
|
|
Current liabilities
|
|
|
(1,929
|
)
|
Deferred tax liabilities
|
|
|
(2,030
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(3,959
|
)
|
|
|
|
|
|
Total purchase price including acquisition costs
|
|
$
|
30,394
|
|
|
|
|
|
|
The goodwill and other intangible assets associated with the
acquisition are not deductible for tax purposes. Of the
$7,650,000 of acquired intangible assets, the following table
reflects the allocation of the acquired intangible assets and
related estimates of useful lives:
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,300
|
|
|
8-year useful life
|
Completed technology
|
|
|
4,150
|
|
|
4-6-year useful life
|
Trade names
|
|
|
800
|
|
|
8-year useful life
|
In-process research and development
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,650
|
|
|
|
|
|
|
|
|
|
|
This transaction resulted in an amount of purchase price that
exceeded the estimated fair values of tangible and intangible
assets, which was allocated to goodwill. The Company believes
that the amount of goodwill relative to identifiable intangible
assets relates to several factors including: (1) being a
provider of multivariate software technology which will be
increasingly important to solution providers for semiconductor
and other industrial customers and (2) enhanced ability to
combine Umetrics software products with MKS
traditional hardware products.
Ions ionization technology and Umetrics multivariate
data analysis technology both complement the Companys
process control and monitoring technologies and will support the
Companys mission to improve process performance and
productivity.
On October 11, 2006, the Company completed its acquisition
of Novx Corp. (Novx), a provider of electrostatic
charge monitoring technology for semiconductor, data storage,
telecommunication, medical device and other markets. Novxs
technology expands the Companys capability to monitor,
detect and control electrostatic charge in advanced process
environments, such as semiconductor and hard disk drive
manufacturing. The total purchase price for Novx was $2,552,000.
The results of these acquisitions were included in the
Companys consolidated operations beginning on the date of
acquisition. The pro forma consolidated statements reflecting
the operating results of YDI, had it been acquired as of
January 1, 2007, would not differ materially from the
operating results of the Company as reported for the twelve
months ended December 31, 2007. The pro forma consolidated
statements reflecting the operating results of Ion, Umetrics and
Novx, had they been acquired as of January 1, 2006, would
not differ materially from the operating results of the Company
for the twelve months ended December 31, 2006.
67
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
19)
|
Commitments
and Contingencies
|
The Company filed suit against Celerity, Inc. in federal
district court in Texas on September 8, 2008 for
infringement of two of MKS patents relating to the
Companys PiMFC technology. The complaint was amended on
September 9, 2008 to include a claim of infringement for
one additional related MKS patent, which had issued earlier that
day. MKS dismissed the suit without prejudice on
February 6, 2009.
The Company is also subject to various other legal proceedings
and claims, which have arisen in the ordinary course of
business. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the
results of operations, financial condition or cash flows.
The Company leases certain of its facilities and machinery and
equipment under capital and operating leases expiring in various
years through 2013 and thereafter. Generally, the facility
leases require the Company to pay maintenance, insurance and
real estate taxes. Rental expense under operating leases totaled
$9,952,000, $8,257,000 and $7,443,000, for the years ended
December 31, 2008, 2007 and 2006, respectively.
Minimum lease payments under operating and capital leases are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Capital Leases
|
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
8,652
|
|
|
$
|
919
|
|
2010
|
|
|
7,649
|
|
|
|
336
|
|
2011
|
|
|
5,176
|
|
|
|
74
|
|
2012
|
|
|
4,468
|
|
|
|
|
|
2013
|
|
|
4,124
|
|
|
|
|
|
Thereafter
|
|
|
8,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
38,194
|
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
|
Less: amounts representing interest
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
|
1,266
|
|
Less: current portion
|
|
|
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
|
|
|
|
$
|
396
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, the Company has entered into
purchase commitments for certain inventory components and other
equipment and services used in its normal operations. The
majority of these purchase commitments covered by these
arrangements are for periods of less than one year and aggregate
to approximately $81,000,000. Additionally, the Company has
engaged a third party to provide certain computer equipment, IT
network services and IT support. This contract is for a period
of approximately six years beginning in September 2004 and has a
significant penalty for early termination. The obligation at
December 31, 2008 of approximately $14,857,000, excluding
capital lease and interest payments of $1,329,000, will be paid
over the term of the arrangement. Average annual payments are
expected to be approximately $7,429,000.
To the extent permitted by Massachusetts law, the Companys
Restated Articles of Organization, as amended, require the
Company to indemnify any of its current or former officers or
directors or any person who has served or is serving in any
capacity with respect to any of the Companys employee
benefit plans. Because no claim for indemnification has been
pursued by any person covered by the relevant provisions of the
Companys Restated Articles of Organization, the Company
believes that the estimated exposure for these indemnification
obligations is currently minimal. Accordingly, the Company has
no liabilities recorded for these requirements as of
December 31, 2008.
68
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The Company also enters into agreements in the ordinary course
of business which include indemnification provisions. Pursuant
to these agreements, the Company indemnifies, holds harmless and
agrees to reimburse the indemnified party, generally its
customers, for losses suffered or incurred by the indemnified
party in connection with certain patent or other intellectual
property infringement claims, and, in some instances, other
claims, by any third party with respect to the Companys
products. The term of these indemnification obligations is
generally perpetual after execution of the agreement. The
maximum potential amount of future payments the Company could be
required to make under these indemnification agreements is, in
some instances, not contractually limited. The Company has never
incurred costs to defend lawsuits or settle claims related to
these indemnification obligations. As a result, the Company
believes the estimated fair value of these obligations is
minimal. Accordingly, the Company has no liabilities recorded
for these obligations as of December 31, 2008.
When, as part of an acquisition, the Company acquires all of the
stock or all of the assets and liabilities of another company,
the Company assumes liability for certain events or occurrences
that took place prior to the date of acquisition. The maximum
potential amount of future payments the Company could be
required to make for such obligations is undeterminable at this
time. Other than obligations recorded as liabilities at the time
of the acquisitions, historically the Company has not made
significant payments for these indemnifications. Accordingly, no
liabilities have been recorded for these obligations.
In conjunction with certain asset sales, the Company may provide
routine indemnifications whose terms range in duration and often
are not explicitly defined. Where appropriate, an obligation for
such indemnifications is recorded as a liability. Because the
amounts of liability under these types of indemnifications are
not explicitly stated, the overall maximum amount of the
obligation under such indemnifications cannot be reasonably
estimated. Other than obligations recorded as liabilities at the
time of the asset sale, historically the Company has not made
significant payments for these indemnifications.
|
|
20)
|
Related
Party Transactions
|
The Vice President and General Manager of the Companys
Vacuum Products Group is the general partner of two real estate
entities (the Aspen Entities). The Company leased
from the Aspen Entities certain facilities occupied by the
Companys Vacuum Products Group in Boulder, Colorado until
the Aspen Entities sold those facilities to a third party on
March 30, 2007. The Company paid the Aspen Entities $0,
$191,000 and $751,000 in 2008, 2007 and 2006, respectively, to
lease such facilities.
On January 26, 2009, the Company committed to a plan of
termination with respect to approximately 10% of its workforce.
This decision was based on the overall economic slowdown,
particularly in the semiconductor capital equipment industry. As
a result, the Company expects to incur approximately $2,500,000
in cash expenditures for severance and related costs, which the
Company expects to record in the quarter ending March 31,
2009.
69
MKS
INSTRUMENTS, INC.
SUPPLEMENTAL FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
|
(Table in thousands, except per share data)
|
|
|
|
(Unaudited)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
193,448
|
|
|
$
|
171,002
|
|
|
$
|
157,364
|
|
|
$
|
125,180
|
|
Gross profit
|
|
|
81,907
|
|
|
|
70,488
|
|
|
|
62,939
|
|
|
|
44,609
|
|
Income (expense) from operations(1)
|
|
|
27,844
|
|
|
|
12,905
|
|
|
|
7,988
|
|
|
|
(13,204
|
)
|
Net income (loss)(2)(3)
|
|
$
|
20,382
|
|
|
$
|
9,234
|
|
|
$
|
6,791
|
|
|
$
|
(6,290
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
$
|
0.14
|
|
|
$
|
(0.13
|
)
|
Diluted
|
|
$
|
0.39
|
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
|
$
|
(0.13
|
)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
211,432
|
|
|
$
|
203,978
|
|
|
$
|
181,014
|
|
|
$
|
184,063
|
|
Gross profit
|
|
|
92,862
|
|
|
|
86,030
|
|
|
|
76,598
|
|
|
|
75,997
|
|
Income from operations
|
|
|
35,880
|
|
|
|
27,643
|
|
|
|
23,068
|
|
|
|
20,394
|
|
Net income(4)
|
|
$
|
27,290
|
|
|
$
|
22,527
|
|
|
$
|
21,382
|
|
|
$
|
15,161
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.48
|
|
|
$
|
0.40
|
|
|
$
|
0.38
|
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.48
|
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
$
|
0.27
|
|
|
|
|
(1) |
|
Income (expense) from operations for the quarter ended
December 31, 2008 includes a write down of intangible
assets of $6.1 million. |
|
(2) |
|
Net income for the quarter ended September 30, 2008
includes a net tax expense for discrete items of
$0.8 million attributable to the booking of a valuation
allowance on state tax credits of $2.7 million partially
offset by a benefit of $1.8 million for discrete items
related to the reversal of FIN 48 reserve items as a result
of a statute of limitations expiration. |
|
(3) |
|
Net income for the quarter ended December 31, 2008 includes
a benefit of $1.8 million attributable to discrete tax
matters related to the reinstatement of the U.S. research and
development tax credits and other adjustments. |
|
(4) |
|
Net income for the quarter ended September 30, 2007
includes a net tax benefit of $1.8 million attributable to
a discrete tax matter related to our research and development
tax credits. |
70
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2008. The term disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), means controls and other procedures
of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
companys management, including its principal executive and
principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2008, our Chief
Executive Officer and Chief Financial Officer concluded that, as
of such date, our disclosure controls and procedures were
effective at the reasonable assurance level to ensure that
information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer as
appropriate to allow timely decisions regarding required
disclosure.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
promulgated under the Securities Exchange Act as a process
designed by, or under the supervision of, the Companys
Chief Executive Officer and Chief Financial Officer and effected
by the Companys Board of Directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008.
In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework.
71
Based on our assessment, management concluded that, as of
December 31, 2008, our internal control over financial
reporting was effective based on those criteria.
Our internal controls over financial reporting as of
December 31, 2008 have been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their attestation report which
appears on page 37.
Changes
in Internal Control over Financial Reporting
There was no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during our fourth fiscal quarter that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item will be set forth under
the captions Election of Directors, Executive
Officers, Code of Ethics,
Directors Audit Committee Financial
Expert and Corporate Governance in our
definitive proxy statement for the 2009 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission no later than 120 days after the end of our
fiscal year, and is incorporated herein by reference.
We are also required under Item 405 of
Regulation S-K
to provide information concerning delinquent filers of reports
under Section 16 of the Securities and Exchange Act of
1934, as amended. This information is listed under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive proxy statement for the 2009
Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission no later than 120 days after the
end of our fiscal year. This information is incorporated herein
by reference.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be set forth under
the captions Executive Officers Executive
Compensation and Executive Officers
Compensation Discussion and Analysis in our definitive
proxy statement for the 2009 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission no later
than 120 days after the end of our fiscal year. This
information is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by Item 403 of
Regulation S-K
will be set forth under the caption Security Ownership of
Certain Beneficial Owners and Management in our definitive
proxy statement for the 2009 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission no later
than 120 days after the end of our fiscal year. This
information is incorporated herein by reference.
The information required by Item 201(d) of
Regulation S-K
will be set forth under the caption Executive
Officers Equity Compensation Plan Information
in our definitive proxy statement for the 2009 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission no later than 120 days after the end of our
fiscal year. This information is incorporated herein by
reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be set forth under
the caption Executive Officers Certain
Relationships and Related Transactions and Corporate
Governance in our definitive proxy statement for the
72
2009 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission no later than 120 days
after the end of our fiscal year. This information is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item will be set forth under
the caption Independent Registered Public Accounting
Firm in our definitive proxy statement for the 2009 Annual
Meeting of Stockholders to be filed with the Securities and
Exchange Commission no later than 120 days after the end of
our fiscal year. This information is incorporated herein by
reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as a part of this
Report:
1. Financial Statements. The following Consolidated
Financial Statements are included under Item 8 on this
Annual Report on
Form 10-K.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Financial Statements:
|
|
|
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
2. Financial Statement Schedules
The following consolidated financial statement schedule is
included in this Annual Report on
Form 10-K:
Schedule II Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since
they are either not required or information is otherwise
included.
3. Exhibits. The following exhibits are filed as
part of this Annual Report on
Form 10-K
pursuant to Item 15(b).
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
+3
|
.1(1)
|
|
Restated Articles of Organization
|
|
+3
|
.2(2)
|
|
Articles of Amendment, as filed with the Secretary of State of
Massachusetts on May 18, 2001
|
|
+3
|
.3(3)
|
|
Articles of Amendment, as filed with the Secretary of State of
Massachusetts on May 16, 2002
|
|
+3
|
.4(4)
|
|
Amended and Restated By-Laws
|
|
+4
|
.1(4)
|
|
Specimen certificate representing the common stock
|
|
+10
|
.1(5)*
|
|
Applied Science and Technology, Inc. 1994 Formula Stock Option
Plan
|
|
+10
|
.2(4)*
|
|
1996 Amended and Restated Director Stock Option Plan
|
|
+10
|
.3(6)*
|
|
Second Amended and Restated 1997 Director Stock Option
Plan, and forms of option agreements thereto
|
|
+10
|
.4(7)*
|
|
2004 Stock Incentive Plan, as amended (the 2004 Plan)
|
|
+10
|
.5(8)*
|
|
Form of Nonstatutory Stock Option Agreement to be granted under
the 2004 Plan
|
73
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
+10
|
.6(9)*
|
|
Form of Performance Stock Award under the 2004 Plan
|
|
+10
|
.7(10)*
|
|
Form of Restricted Stock Award under the 2004 Plan
|
|
+10
|
.8(11)*
|
|
Form of Restricted Stock Unit Agreement (cliff vesting) under
the 2004 Plan
|
|
+10
|
.9(12)*
|
|
Form of Restricted Stock Unit Agreement for Initial Grant to
Non-Employee Directors under the 2004 Plan
|
|
+10
|
.10(12)*
|
|
Form of Restricted Stock Unit Agreement for Annual Grant to
Non-Employee Directors under the 2004 Plan
|
|
+10
|
.11(12)*
|
|
Form of Performance-Based Restricted Stock Unit Agreement under
the 2004 Plan
|
|
+10
|
.12(12)*
|
|
Form of Time-Based Restricted Stock Unit Agreement under the
2004 Plan
|
|
+10
|
.13(16)*
|
|
Form of Restricted Stock Unit Agreement under the 2004 Plan
|
|
+10
|
.14(13)*
|
|
Second Restated 1995 Stock Incentive Plan (the 1995
Plan)
|
|
+10
|
.15(14)*
|
|
Form of Nonstatutory Stock Option Agreement under the 1995 Plan
|
|
+10
|
.16(9)*
|
|
Form of Performance Stock Award under Registrants 1995 Plan
|
|
+10
|
.17(14)*
|
|
Third Restated 1999 Employee Stock Purchase Plan
|
|
+10
|
.18(14)*
|
|
Second Restated International Employee Stock Purchase Plan
|
|
+10
|
.19(15)*
|
|
Employment Agreement dated as of July 1, 2005 between John
Bertucci and the Registrant
|
|
+10
|
.20(16)*
|
|
Employment Agreement dated July 1, 2005 between Leo
Berlinghieri and the Registrant, as amended on November 13,
2007
|
|
10
|
.21*
|
|
Amendment, dated November 10, 2008, to Employment Agreement
between Leo Berlinghieri and the Registrant, dated July 1,
2005, as amended on November 13, 2007
|
|
+10
|
.22(15)*
|
|
Employment Agreement dated as of July 1, 2005 between
Ronald C. Weigner and the Registrant
|
|
10
|
.23*
|
|
Amendment, dated November 10, 2008, to Employment Agreement
between Ronald C. Weigner and the Registrant, dated July 1,
2005
|
|
+10
|
.24(15)*
|
|
Employment Agreement dated as of July 1, 2005 between
William D. Stewart and the Registrant
|
|
+10
|
.25(14)*
|
|
Employment Agreement dated as of July 30, 2004 between John
Smith and the Registrant
|
|
10
|
.26*
|
|
Amendment, dated November 10, 2008, to Employment Agreement
between John Smith and the Registrant, dated July 30, 2004
|
|
+10
|
.27(17)*
|
|
Employment Agreement dated as of April 25, 2005 between
Gerald Colella and the Registrant
|
|
10
|
.28*
|
|
Amendment, dated November 10, 2008, to Employment Agreement
between Gerald Colella and the Registrant, dated April 25,
2005
|
|
+10
|
.29(18)*
|
|
Summary of 2009 Salaries of Named Executive Officers
|
|
+10
|
.30*
|
|
Summary of Compensatory Arrangements with Non-Employee Directors
|
|
+10
|
.31(19)
|
|
Optional Advanced Demand Grid Note dated August 3, 2004 in
favor of HSBC Bank USA (HSBC Note), and Amendment
thereto dated as of July 29, 2005
|
|
+10
|
.32(20)
|
|
Second Amendment, dated July 31, 2006, to HSBC Note
|
|
+10
|
.33(16)
|
|
Third Amendment, dated July 31, 2007, to HSBC Note
|
|
+10
|
.34
|
|
Fourth Amendment, dated July 31, 2008, to HSBC Note
|
|
+10
|
.35(21)
|
|
Global Supply Agreement dated April 12, 2005 by and between
the Registrant and Applied Materials, Inc.
|
|
+10
|
.36(22)
|
|
Settlement Agreement dated as of October 3, 2005 by and
between the Registrant, Applied Science and Technology, Inc. and
Advanced Energy, Inc.
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
31
|
.1
|
|
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended
|
74
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
31
|
.2
|
|
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a)/Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended
|
|
32
|
.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
+ |
|
Previously filed |
|
* |
|
Management contract or compensatory plan arrangement filed as an
Exhibit to this
Form 10-K
pursuant to Item 15(b) of this report. |
|
(1) |
|
Incorporated by reference to the Registration Statement on
Form S-4
(File
No. 333-49738)
filed with the Securities and Exchange Commission on
November 13, 2000. |
|
(2) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2001. |
|
(3) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2002. |
|
(4) |
|
Incorporated by reference to the Registration Statement on
Form S-1/A
filed with the Securities and Exchange Commission on
March 2, 1999. |
|
(5) |
|
Incorporated by reference to the Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
January 29, 2001. |
|
(6) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2004. |
|
(7) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended September 30, 2006. |
|
(8) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended September 30, 2004. |
|
(9) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2005. |
|
(10) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 17, 2006. |
|
(11) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended March 31, 2006. |
|
(12) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2006. |
|
(13) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended September 30, 2002. |
|
(14) |
|
Incorporated by reference to the Registrants Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2004. |
|
(15) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
July 5, 2005. |
|
(16) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2007. |
|
(17) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
April 27, 2005. |
|
(18) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
January 15, 2009. |
|
(19) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2005. |
75
|
|
|
(20) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
August 3, 2006. |
|
(21) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
April 27, 2005. |
|
(22) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
October 7, 2005. |
(b) Exhibits
MKS hereby files as exhibits to our Annual Report on
Form 10-K
those exhibits listed in Item 15(a) above.
(c) Financial Statement Schedules
76
MKS
INSTRUMENTS, INC.
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Other
|
|
|
Deductions &
|
|
|
Balance at
|
|
Description
|
|
Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Write-offs
|
|
|
End of Year
|
|
|
|
(Dollars in thousands)
|
|
|
Accounts receivable allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
2,379
|
|
|
$
|
4,612
|
|
|
$
|
|
|
|
$
|
4,843
|
|
|
$
|
2,148
|
|
2007
|
|
$
|
4,533
|
|
|
$
|
1,721
|
|
|
$
|
|
|
|
$
|
3,875
|
|
|
$
|
2,379
|
|
2006
|
|
$
|
3,178
|
|
|
$
|
5,607
|
|
|
$
|
|
|
|
$
|
4,252
|
|
|
$
|
4,533
|
|
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MKS Instruments, Inc.
Leo Berlinghieri
Chief Executive Officer, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
/s/ John
R. Bertucci
John
R. Bertucci
|
|
Chairman of the Board of Directors
|
|
February 26, 2009
|
/s/ Leo
Berlinghieri
Leo
Berlinghieri
|
|
Chief Executive Officer, President and Director (Principal
Executive Officer)
|
|
February 26, 2009
|
/s/ Ronald
C. Weigner
Ronald
C. Weigner
|
|
Vice President, Chief Financial Officer and Treasurer (Principal
Financial and Accounting Officer)
|
|
February 26, 2009
|
/s/ Cristina
H. Amon
Cristina
H. Amon
|
|
Director
|
|
February 21, 2009
|
/s/ Robert
R. Anderson
Robert
R. Anderson
|
|
Director
|
|
February 26, 2009
|
/s/ Gregory
R. Beecher
Gregory
R. Beecher
|
|
Director
|
|
February 26, 2009
|
/s/ Richard
S. Chute
Richard
S. Chute
|
|
Director
|
|
February 26, 2009
|
/s/ Peter
R. Hanley
Peter
R. Hanley
|
|
Director
|
|
February 23, 2009
|
/s/ Hans-Jochen
Kahl
Hans-Jochen
Kahl
|
|
Director
|
|
February 26, 2009
|
/s/ Louis
P. Valente
Louis
P. Valente
|
|
Director
|
|
February 26, 2009
|
78
exv10w21
Exhibit
10.21
Whereas, MKS Instruments, Inc. (the Company) and Leo Berlinghieri (Employee) have entered
into an employment agreement dated July 1, 2005, Appendix A of which includes deferred compensation
benefits, and
Whereas, such deferred compensation benefits are subject to the provisions of Internal Revenue Code
Section 409A, and
Whereas Appendix A has been administered in accordance with the provisions of Section 409A as of
January 1, 2005, and
Whereas, Appendix A must be formally amended in writing on or before December 31, 2008, to
incorporate applicable provisions of Section 409A in order to avoid potentially adverse tax
consequences to Employee,
Now, therefore, in accordance with Section 16 of Appendix A, the Company and Employee hereby agree
that Appendix A of the Agreement is amended in its entirety to read as follows, effective as of
November 10, 2008:
APPENDIX A
Supplemental Retirement Benefits
1. Purpose. (a) General: The purpose of this Appendix A is to provide Employee
with supplemental retirement benefits to encourage his continued employment with the Corporation.
Benefits will be payable only if Employee fully complies with all of the requirements of this
Appendix A.
(b) For Benefit of Employee Only: Benefits under this Appendix A are provided for the
benefit of Employee only. No other employee shall accrue any rights of any kind as a result of the
existence of the arrangement described in this Appendix A. Supplemental retirement benefits may be
provided to an employee only as specifically authorized by the Board of Directors of the
Corporation.
(c) Internal Revenue Code Section 409A: The provisions of this Appendix A shall be
interpreted in a manner consistent with the requirements of Section 409A of the Internal Revenue
Code.
2. Definitions. As used in this Appendix A, the following terms have the meanings set
forth below, unless a different meaning is required by the context:
2.1. Actuarially Equivalent means a benefit of equivalent value to another benefit,
determined on the following basis:
Interest Rate: The average annual interest rate on 10-year Treasury securities as
published by the Federal Reserve for the calendar quarter immediately preceding the calendar
quarter in which the actuarially equivalent benefit is being determined plus 25 basis
points; and
Mortality: The most recent applicable mortality table prescribed by Section
417(e)(3)(A)(ii) of the Internal Revenue Code (or a successor provision as determined by the
Corporation).
2.2. Base salary means base salary as defined in the Employment Agreement, before any
pre-tax salary reductions for participation in any benefits plan of the Corporation.
2.3. Beneficiary means one or more persons, trusts, estates or other entities,
designated by Employee to receive death benefits under Section 6.1(b) of this Appendix A upon
Employees death. If Employee fails to designate a Beneficiary or if all designated Beneficiaries
predecease Employee, then such death benefits shall be payable to the executor or personal
representative of Employees estate.
Employee shall designate his Beneficiary by completing and signing a beneficiary designation form
prescribed by the Corporation, and returning it to the Corporation or its designated agent.
Employee shall have the right to change a Beneficiary by completing, signing and otherwise
complying with the terms of the beneficiary designation form and the Corporations rules and
procedures, as in effect from time to time. Upon the acceptance by the Corporation of a new
beneficiary designation form, all Beneficiary designations previously filed shall be canceled. The
Corporation shall be entitled to rely on the last beneficiary designation form filed by Employee
and accepted by the Corporation prior to his or her death. No designation or change in designation
of a Beneficiary shall be effective until received and acknowledged in writing by the Corporation
or its designated agent. If the Corporation has any doubt as to the proper Beneficiary to receive
payments pursuant to this Appendix A, the Corporation shall have the right, exercisable in its
discretion, to withhold such payments until this matter is resolved to the Corporations
satisfaction.
2
2.4. Bonus means a bonus paid under the Corporations Management Incentive Program.
2.5. Change in Control means the first to occur of any of the following events:
(a) Any person (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange
Act of 1934 (Exchange Act)) becomes the beneficial owner (as that term is used in Section
13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the
Companys capital stock entitled to vote in the election of directors;
(b) The shareholders of the Company approve any consolidation or merger of the Company,
other than a consolidation or merger of the Company in which the holders of the common stock
of the Company immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the common stock of the surviving corporation immediately after the consolidation
or merger;
(c) The shareholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; or
(d) The shareholders of the Company approve the sale or transfer of all or substantially all
of the assets of the Company to parties that are not within a controlled group of
corporations (as defined in Code Section 1563) in which the Company is a member.
2.6. Corporation means MKS Instruments, Inc. (the Company) and any corporation, trust,
association or enterprise which is required to be considered, together with the
Corporation, as one employer pursuant to the provisions of Sections 414(b), 414(c), 414(m) or
414(o) of the Code. For purposes of applying Code sections 1563(a)(1), (2), and (3) and regulation
section 1.414(c)-2 to the determination of companies under common control for purposes of this
Appendix A, 80% shall be used instead of at least 80% each place it appears in such sections.
2.7. Compensation for any calendar year means the sum of Employees Base Salary for such
year plus any Bonus paid in such year.
2.8. Early Retirement Benefit means the Retirement benefit determined under Section 5.2
of this Appendix A upon Employees Retirement prior to his Normal Retirement Date.
3
2.9. Employment Agreement means the Employment Agreement between Employee and the
Corporation that contains this Appendix A.
2.10. Final Average Pay means, for purposes of Section 5 the average of Employees
three (3) highest years of Compensation during the ten (10) calendar year period immediately
preceding the calendar year in which Employee Retires, and for purposes of determining death
benefits under Section 6 the average of Employees three (3) highest years of Compensation during
the ten (10) calendar year period immediately preceding the calendar year containing Employees
date of death. The foregoing notwithstanding, any calendar year in which Employee has no
Compensation from the Corporation shall be ignored in determining such ten calendar year period.
2.11. Normal Retirement Age means Employees 65th birthday or, if earlier, the date
Employee is deemed to have Retired in accordance with Section 2.15(b).
2.12. Normal Retirement Benefit means the Retirement benefit determined under Section
5.1 of this Appendix A upon Employees Retirement on or after his Normal Retirement Date.
2.13. Normal Retirement Date means the first day of the month in which Employee attains
Normal Retirement Age.
2.14. Permanent and Total Disability means (a) Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a continuous period of not
less than 12 months, or (b) Employee is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a period of not less
than three months under an accident and health plan covering employees of the Corporation.
Employee shall be conclusively presumed to be Permanently and Totally Disabled upon determination
that he is disabled by the Social Security Administration.
2.15. Retirement or Retires or Retired means the earlier of:
(a) Employees Separation from Service with the Corporation upon or after satisfying the
vesting requirements of Section 4.1, or
4
(b) Employees deemed Retirement. Employee shall be deemed to have Retired with a fully
vested Normal Retirement Benefit on the earliest of (i) the date he becomes Permanently and
Totally Disabled, (ii) the date of Employees Separation from Service as a result of the
Corporations termination of Employees employment with the Corporation for any reason other
than Termination for Cause as defined in Section 2.21 of this Appendix A, (iii) the date of
Employees death while employed by the Corporation, or (iv) the date of Employees
qualifying Separation from Service following a Change in Control in accordance with the
provisions of Section 7 of this Appendix A.
2.16. Retirement Date means the date Employee Retires or is deemed to have Retired in
accordance with Section 2.15 of this Appendix A. The term Retirement Date shall include
Employees Early Retirement Date as defined in Section 5.2 of this Appendix A.
2.17. Section 409A means Section 409A of the Internal Revenue Code, as the same may be
amended from time to time, and any successor statute thereto. References in this Appendix A to
Section 409A shall be deemed to mean and include any published guidance, regulations, notices,
rulings and similar announcements issued by the Internal Revenue Service or by the Secretary of the
Treasury under or interpreting Section 409A, decisions by any court of competent jurisdiction
involving a Participant or a beneficiary and any closing agreement made under section 7121 of the
Code that is approved by the Internal Revenue Service and involves a Participant, all as determined
by the Corporation in good faith, which determination may (but shall not be required to) be made in
reliance on the advice of such tax counsel or other tax professional(s) with whom the Corporation
from time to time may elect to consult with respect to any such matter.
2.18. Separates from Service or Separation from Service means Employees
separation from service with the Corporation as a result of death retirement, or any other reason,
except that for purposes of this section 2.18 the employment relationship is treated as continuing
intact while Employee is on military leave, sick leave, or other bona fide leave of absence if the
period of such leave does not exceed six months, or if longer, so long as Employee retains a right
to reemployment with the Corporation under an applicable statute or by contract. For purposes of
this Section 2.18 a leave of absence constitutes a bona fide leave of absence only if there is a
reasonable expectation that the employee will return to perform services for the employer. If the
period of leave exceeds six months and the individual does not retain a right
5
to reemployment under an applicable statute or by contract, the employment relationship is deemed
to terminate on the first date immediately following such six-month period. Whether an Employee has
a Separation from Service shall be determined in accordance with the provisions of Section 409A,
and regulations thereunder, and any other applicable guidance.
2.19. Specified Employee means, at any time when stock of the Corporation is publicly
traded on an established securities market or otherwise (as determined in accordance with Section
409A), an employee who is a specified employee within the meaning of Section 409A. The
Corporation shall have the discretion to use any alternative permitted under Section 409A to
determine whether Employee is a Specified Employee, and to take any action necessary to make such
alternative binding.
2.20. Termination of Employment means, for purposes of Section 4.6 of this Appendix A,
Termination for Cause, or Employees voluntary severance from employment with the Corporation
(within the meaning of the Corporations normal policies and procedures) for any reason other than
Retirement.
2.21. Termination for Cause means, solely for purposes of this Appendix A, termination of
Employees employment by the Corporation as a result of Employees conviction for the commission of
a felony, material breach of any employment or other agreements between Employee and the
Corporation, or willful failure to perform the material responsibilities of his position with the
Corporation.
2.22. Trust means a Trust established pursuant to Section 10 of this Appendix A.
3. Eligibility for Retirement Benefits.
3.1. General: Subject to Sections 4.2, 4.3, 4.4, and 4.5 the Corporation shall pay the
retirement benefits described in this Appendix A only if Employee Retires from employment with the
Corporation upon or after satisfying the vesting requirements set forth in Section 4.1, or upon
Employees deemed Retirement pursuant to Section 2.15(b).
4. Vesting.
6
4.1 General: Except as provided in Sections 4.2, 4.3, 4.4, and 4.5, and subject to
Section 10.1, Employees benefits under this Appendix A shall be fully vested and nonforfeitable if
Employee satisfies both (a) and (b) while employed with the Corporation:
(a) attains age 60, and
(b) has 25 years of service with the Corporation. Employee shall have 25 years of service
on the 25th anniversary of Employees original hire date.
The foregoing notwithstanding, Employee shall be fully vested in his benefit under this Appendix A
upon Employees deemed Retirement pursuant to Section 2.15(b) of this Appendix A.
4.2. Termination for Cause: All benefits shall be forfeited, and no amount shall be
payable under this Appendix A, in the event of Employees Termination for Cause.
4.3. Compliance with Noncompete, Nondisclosure, and Nonsolicitation Agreements. All
benefits under this Appendix A are expressly conditioned upon Employees compliance with the terms
of any noncompetition, nondisclosure, or nonsolicitation provisions contained in the Employment
Agreement, or in any other agreement between Employee and the Corporation. All benefits payable
under this Appendix A shall be forfeited, and no amount shall be payable, in the event Employee
violates the terms of any such provisions. If Employee violates the terms of any such provisions,
and benefit payments have commenced to Employee, any such payments shall cease, and Employee shall
repay all previously paid benefits to the Corporation upon demand. If Employee fails to repay such
amounts upon demand, the Corporation shall have the right to take any action necessary to recover
such payments from Employee.
4.4. Notice of Intent to Retire. Benefits payable under this Appendix A are specifically
conditioned upon Employee providing to the Corporation written notice of Employees intent to
Retire at least six months prior to Employees Retirement date. In the event Employee fails to
satisfy the notice requirements of this Section 4.4, all benefits shall be forfeited, and no amount
shall be payable under this Appendix A. The foregoing notwithstanding, the Corporation, in its
sole and absolute discretion, may elect to waive the notice requirement of this Section 4.4. The
foregoing notwithstanding, this Section 4.4 shall not apply to death
7
benefits payable under Section 6 of this Appendix A, or to Retirement benefits payable under
Section 5 as a result of Employees deemed Retirement pursuant to Section 2.15(b).
4.5. Release. Benefits payable under this Appendix A (other than death benefits payable
under Section 6) are specifically conditioned upon and provided in exchange for Employee signing a
separation agreement that releases the Corporation from any liabilities that may have arisen as a
result of Employees employment and/or termination of employment with the Corporation. In the event
Employee terminates employment with the Corporation for any reason other than death (including
Retirement) without satisfying the requirements of this Section 4.5 all benefits shall be
forfeited, and no amount shall be payable under this Appendix A.
4.6. Termination of Employment Prior to Satisfying Vesting Requirements. No benefits are
payable under this Appendix A upon Employees Termination of Employment with the Corporation prior
to satisfying the vesting requirements set forth in Section 4.1.
5. Retirement Benefits.
5.1. Normal Retirement Benefit. This Section 5.1 describes the Retirement benefit payable
by the Corporation in the event Employee Retires on or after his Normal Retirement Date. Employees
Normal Retirement Benefit shall be paid in the form of an Actuarially Equivalent lump sum, as set
forth in Section 5.3.
(a) Married on Retirement Date: If Employee is married on his Retirement Date, Employees
Normal Retirement Benefit shall be:
50% times Final Average Pay
payable annually for the life of Employee with 50% of such amount continuing after Employees death
to his spouse for her life, with payments commencing on Employees Normal Retirement Date, and
subsequent payments made as of each anniversary thereof. Solely for purposes of this Section 5.1,
Spouse shall mean the spouse to whom Employee is married on his Retirement Date (regardless of
whether that is the same spouse to whom he is married on his date of death), unless the Corporation
is directed by a court of competent jurisdiction to treat someone else as Employees spouse.
8
(b) Not Married on Retirement Date: If Employee is not married on his Retirement Date,
Employees Normal Retirement Benefit shall be:
50% times Final Average Pay
payable annually for the life of Employee with a ten year certain guarantee, with payments
commencing on Employees Normal Retirement Date, and subsequent payments made on each anniversary
thereof.
5.2. Early Retirement Benefit. This Section 5.2 describes the Retirement benefit payable
by the Corporation in the event Employee Retires prior to his Normal Retirement Date. Employee may
Retire from employment with the Corporation prior to his Normal Retirement Date on the first day of
any month coincident with or next following the date he satisfies the vesting requirements of
section 4.1. The date on which Employee Retires under this Section 5.2 shall be his Early
Retirement Date. Employees Early Retirement Benefit shall be paid in the form of an Actuarially
Equivalent lump sum, as set forth in Section 5.3.
(a) Married on Early Retirement Date: If Employee is married on his Early Retirement
Date, Employees Early Retirement Benefit shall be:
50% times Final Average Pay
multiplied by the applicable percentage as set forth in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
Age at which
Early Retirement
Benefits Commence |
|
|
62 |
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Percentage |
|
|
100 |
% |
|
|
90 |
|
|
|
80 |
|
payable annually for the life of Employee with 50% of such amount continuing after Employees death
to his spouse for her life, with payments commencing on Employees Early Retirement Date, and
subsequent payments made on each anniversary thereof. Solely for purposes of this Section 5.2,
Spouse shall mean the spouse to whom Employee is married on his Early Retirement Date (regardless
of whether that is the same spouse to whom he is married on his date of death), unless the
Corporation is directed by a court of competent jurisdiction to treat someone else as Employees
spouse
9
(b) Not Married on Early Retirement Date: If Employee is not married on his Early
Retirement Date, Employees Early Retirement Benefit shall be:
50% times Final Average Pay
multiplied by the applicable percentage as set forth in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
Age at which
Early Retirement
Benefits Commence |
|
|
62 |
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Percentage |
|
|
100 |
% |
|
|
90 |
|
|
|
80 |
|
payable annually for the life of Employee with a ten year certain guarantee, with payments
commencing on Employees Early Retirement Date, and subsequent payments made on each anniversary
thereof.
5.3. Form of Payment:
Employees Normal Retirement Benefit or Early Retirement Benefit, determined in accordance with
section 5.1 or 5.2 as applicable, shall be paid in the form of a single lump sum that is
Actuarially Equivalent to such Normal Retirement Benefit or Early Retirement Benefit. Such lump sum
shall be paid on Employees Retirement Date (or, if later, the earliest date permitted by Section
409A). No benefits shall be payable in the form of an annuity or in installments.
5.4. Delay of Payment to Specified Employee. Sections 5.1 through 5.3 of this Appendix A
notwithstanding, in the event Employee is a Specified Employee on the date Employee Separates from
Service, then any amount payable under this Appendix A as a result of such Separation from Service,
other than amounts payable as a result of Employees Permanent and Total Disability, shall not be
made earlier than (a) the date that is six months after the date of such Employees Retirement or,
if earlier, (b) the date of the Employees death. Employees Retirement benefit shall be
actuarially increased, in the manner determined by the Corporation, to account for such delayed
commencement date.
10
5.5. Time of Payment: Where the provisions of this Appendix A require that a payment be
made on a designated date, (for example, under Sections 5.1, 5.2, 5.3, and 5.4) such payment shall
be deemed to have been made on such date if it is made as soon as administratively practicable
following such date. In no event, however, shall payment be made later than the end of the calendar
year containing such designated date or, if later, the 15th day of the third calendar
month following such designated date. No adjustment shall be made to Employees Retirement benefit
as a result of any delay between the specified payment date and the actual payment date. In no
event shall Employee be permitted to designate, directly or indirectly, the taxable year in which
payment will be made.
5.6. Death While Employed by the Corporation. In the event Employee dies while employed
by the Corporation, any benefits payable under this Appendix A shall be determined in accordance
with Section 6.
5.7 Domestic Relations Orders. The payment of all or part of Employees Retirement
benefit may, in the sole discretion of the Corporation, be accelerated and paid to a person other
than Employee if Corporation determines that such payment is necessary to fulfill a valid domestic
relations order as defined in Section 414(p)(1)(B) of the Internal Revenue Code.
6. Death While Employed by the Corporation.
6.1. General. In the event Employee dies while employed by the Corporation the death
benefit payable under this Appendix A shall be as follows:
(a) if Employee is married on his date of death, 50% of the lump sum that is Actuarially
Equivalent to the Normal Retirement Benefit determined under Section 5.1(a) of this Appendix
A, such lump sum benefit to be determined as if Employee Retired on his date of death after
reaching Normal Retirement Age; or
(b) if Employee is not married on his date of death, 50% of the lump sum that is Actuarially
Equivalent to the Normal Retirement Benefit determined under Section 5.1(b) of this Appendix
A, such lump sum benefit to be determined as if Employee Retired on his date of death after
reaching Normal Retirement Age.
The death benefit shall be payable in a lump sum as soon as administratively practicable following
Employees date of death.
11
6.2. Payee. This death benefit shall be payable to Employees (a) surviving spouse if
Employee is married on his date of death, or (b) Beneficiary if Employee is not married on his date
of death. Surviving spouse for purposes of this Section 6.2 means the spouse to whom Employee is
married on his date of death.
7. Effect of a Change in Control of the Corporation. Anything in this Appendix A to the
contrary notwithstanding, this Section 7 shall apply in the event of a Change in Control. If,
within three years after the date of a Change in Control, Employee voluntarily Separates from
Service with the Corporation for Good Reason, and employee is not otherwise eligible for
Retirement, then Employee shall be deemed to have Retired with a fully vested Normal Retirement
Benefit on the date of such Separation from Service.
Solely for purposes of this Section 7, Good Reason shall mean Employees voluntary Separation
from Service within 90 days following (i) a material diminution in Employees positions, duties and
responsibilities from those described in this Employment Agreement (ii) a reduction in Employees
Base Salary (other than a reduction which is part of a general salary reduction program affecting
senior executives of the Corporation) (iii) a material reduction in the aggregate value of the
pension and welfare benefits provided to Employee from those in effect prior to the Change in
Control (other than a reduction which is proportionate to the reductions applicable to other senior
executives pursuant to a cost-saving plan that includes all senior executives), (iv) a material
breach of any provision of this Employment Agreement by the Corporation, (v) the Corporations
requiring Employee to be based at a location that creates for Employee a one way commute in excess
of 60 miles from his primary residence, except for required travel on the Corporations business
to an extent substantially consistent with the business travel obligations of Employee under this
Employment Agreement. Notwithstanding the foregoing, a termination shall not be treated as a
termination for Good Reason (i) if Employee shall have consented in writing to the occurrence of
the event giving rise to the claim of termination for Good Reason or (ii) unless Employee shall
have delivered a written notice to the Corporation within 30 days of his having actual knowledge of
the occurrence of one of such events stating that he intends to terminate his employment for Good
Reason and specifying the factual basis for such termination, and such event, if capable of being
cured, shall not have been cured within 30 days of the receipt of such notice.
8. Effect of termination of employment and rehire. Upon Employees Retirement, the
benefit payable under this Appendix A, if any, shall be determined by the Corporation and such
12
determination shall be conclusive and binding (subject to Section 14). If Employee is subsequently
reemployed by the Corporation such reemployment, additional service, and additional compensation
shall not result in a re-determination of the benefits due under this Appendix A.
9. Administration.
9.1. Powers of the Corporation: The Board of Directors of the Company (the Board) shall
have the sole authority to act on behalf of the Corporation under this Appendix A (subject to
Section 9.3), and shall have all the powers necessary to administer the benefits under this
Appendix A, including, without limitation, the power to interpret the provisions of this Appendix A
and to establish rules and prescribe any forms required to administer benefits under this Appendix
A
9.2. Actions of the Board: All determinations, interpretations, rules, and decisions of
the Board shall be conclusive and binding upon all persons having or claiming to have any interest
or right under this Appendix A.
9.3. Delegation: The Board shall have the power to delegate specific duties and
responsibilities to officers or other employees of the Corporation or other individuals or
entities. Any delegation by the Board may allow further delegations by the individual or entity to
whom the delegation is made. Any delegation may be rescinded by the Board at any time. Each
person or entity to whom a duty or responsibility has been delegated shall be responsible for the
exercise of such duty or responsibility and shall not be responsible for any act or failure to act
of any other person or entity.
9.4. Reports and Records: The Board and those to whom the Board has delegated duties
under Section 9.3 shall keep records of all their proceedings and actions and shall maintain books
of account, records, and other data as shall be necessary for the proper administration of this
Appendix A and for compliance with applicable law.
9.5. Costs: The costs of providing and administering the benefits under this Appendix A
shall be borne by the Corporation.
10. Unfunded Benefits; Establishment of Trust.
13
10.1. Unfunded Status. This Appendix A shall be unfunded for tax purposes and for
purposes of Title 1 of ERISA.
10.2. Establishment of Trust. The Corporation shall not be required to set aside any
funds to discharge its obligations hereunder, but may set aside such funds to informally fund all
or part of its obligations hereunder if it chooses to do so, including without limitation the
contribution of assets to a rabbi trust (the Trust). Any setting aside of amounts, or acquisition
of any insurance policy or any other asset, by the Corporation with which to discharge its
obligations hereunder in trust or otherwise, shall not be deemed to create any beneficial ownership
interest in Employee, his surviving spouse, or Beneficiary, and legal and equitable title to any
funds so set aside shall remain in the Corporation, and any recipient of benefits hereunder shall
have no security or other interest in such funds. The rights of Employee and his surviving spouse
and Beneficiary(ies) under this Appendix A shall be no greater than the rights of a general
unsecured creditor of the Corporation. Any and all funds so set aside by the Corporation shall
remain the general assets of the Corporation, and subject to the claims of its general creditors,
present and future.
10.3. Interrelationship of this Appendix A and the Trust. The provisions of this Appendix
A shall govern the rights of Employee to receive distributions pursuant to the provisions of this
Appendix A. The provisions of the Trust shall govern the rights of the Corporation, Employee, and
creditors of the Corporation to the assets transferred to the Trust. The Corporation shall at all
times remain liable to carry out its obligations under this Appendix A.
10.4. Distributions from the Trust. The Corporations obligations under this Appendix A
may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such
distribution shall reduce the Corporations obligation under this Appendix A.
11. Payment of Benefit for Disabled or Incapacitated Person. If the Corporation
determines, in its discretion, that Employee or Employees Beneficiary or surviving spouse is
under a legal disability or is incapacitated in any way so as to be unable to manage his
financial affairs, the Corporation may make any payment otherwise due under the terms
of this Appendix A to such person or to his legal representative or to a friend or relative of such
person as the Corporation considers advisable. Any payment under this Section 11 shall be a
complete discharge of any liability for the making of such payment under this Appendix A. Nothing
contained in this Section 11, however, should be deemed to impose upon the Corporation any
liability for paying a benefit to any person who is under such a legal
14
disability or is so incapacitated unless it has received notice of such disability or incapacity
from a competent source.
12. Nonassignability. Neither Employee nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by Employee or any other person, be transferable by
operation of law in the event of Employees or any other persons bankruptcy or insolvency or be
transferable to a spouse as a result of a property
settlement or otherwise. The Corporation is authorized to make any payments directed by court
order.
13. Claim Procedure.
13.1. Presentation of Claim. Employee, or the surviving spouse of Employee after
Employees death, or Employees Beneficiary (such Employee, surviving spouse, or Beneficiary being
referred to below as a Claimant) may deliver to the Corporation a written claim for a
determination with respect to the amounts distributable to such Claimant under this Appendix A. If
such a claim relates to the contents of a notice received by the Claimant, the claim must be made
within sixty (60) days after such notice was received by the Claimant. All other claims must be
made within 180 days of the date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the Claimant.
13.2. Notification of Decision.
(a) Claim for benefits other than Disability benefits. The Corporation shall consider a
Claimants claim within a reasonable time, but no later than ninety (90) days after receiving the
claim. If the Corporation determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant prior to
the termination of the initial ninety (90) day period. In no event shall such extension exceed a
period of ninety (90) days from the end of the initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which the Corporation
expects to render the benefit determination.
15
(b) Claim for Disability benefits. If the claim relates to benefits in connection with
Disability, the Corporation shall consider a Claimants claim within a reasonable time, but no
later than forty-five (45) days after receiving the claim. If the Corporation determines that, due to
matters beyond the control of the Plan, the Corporation will not be able to respond to the claim
within such 45-day period, the Corporation may extend the response period for one or two additional
periods of up to 30 days each by providing the Claimant with notice describing the circumstances
that necessitate the extension and the date as of which the Corporation anticipates that it will
render its decision. Each such notice must be conveyed to the Claimant prior to the commencement of
an extension.
(c) Notification. The Corporation shall notify the Claimant, in writing, within the time
periods specified in Section 13.2(a) or (b), as applicable:
(1) that the Claimants requested determination has been made, and that the claim has been
allowed in full; or
(2) that the Corporation has reached a conclusion contrary, in whole or in part, to the
Claimants requested determination, and such notice must set forth in a manner calculated to
be understood by the Claimant:
(A) the specific reason(s) for the denial of the claim, or any part of it;
(B) specific reference(s) to pertinent provisions of this Appendix A upon which such
denial was based;
(C) a description of any additional material or information necessary for the
Claimant to perfect the claim, and an explanation of why such material or information
is necessary;
(D) an explanation of the claim review procedure set forth in Section 13.3 below; and
(E) a statement of the Claimants right to bring a civil action under ERISA Section
502(a) following an adverse benefit determination on review.
16
13.3. Review of a Denied Claim.
(a) Claim for benefits other than Disability benefits. On or before sixty (60) days after
receiving a notice from the Corporation that a claim has been denied, in whole or in part, a
Claimant (or the Claimants duly authorized representative) may file with the Corporation a written
request for a review of the denial of the claim. The Claimant (or the Claimants duly authorized
representative):
(a) may, upon request and free of charge, have reasonable access to, and copies of, all
documents, records and other information relevant to the claim for benefits;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Corporation, in its sole discretion, may grant.
The Corporation shall render its decision on review promptly, and no later than sixty (60) days
after the Corporation receives the Claimants written request for a review of the denial of the
claim. If the Corporation determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant prior to
the termination of the initial sixty (60) day period. In no event shall such extension exceed a
period of sixty (60) days from the end of the initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which the Corporation
expects to render the benefit determination. In rendering its decision, the Corporation shall take
into account all comments, documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such information was submitted or considered in
the initial benefit determination. The decision must be written in a manner calculated to be
understood by the Claimant, and it must contain:
(1) specific reasons for the decision;
(2) specific reference(s) to the pertinent provisions of this Appendix A upon which the
decision was based;
(3) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to and copies of, all documents, records and other information relevant
(as defined in applicable ERISA regulations) to the Claimants claim for
17
benefits; and
(4) a statement of the Claimants right to bring a civil action under ERISA Section 502(a).
(b) Claim for Disability benefits. If the claim relates to benefits in connection with
Disability, the procedure described in Section 13.3(a) above shall apply, modified as follows:
(1) All references to 60 days shall be changed to 45 days, except that a Claimant shall
have 180 days to file an appeal.
(2) The Corporation shall designate an individual to conduct the review who is not the
individual who made the initial adverse determination, and is not a subordinate of such
individual.
(3) The notice of extension shall describe the circumstances that require the extension;
must include the date as of which the Corporation anticipates that it will render its
decision; and must be communicated to the Claimant prior to the commencement of the
extension.
(4) The review shall not afford deference to the initial adverse benefit determination.
(5) When the appeal is based on a medical judgment, the Corporation shall consult with a
health care professional who has appropriate experience and training in the field involved
in determining the Claimants Disability and shall identify all medical and vocational
experts whose advice was obtained in connection with the appeal. A health care professional
may not be consulted under this Section 7.10(b)(3)(ii)(E) if the health care professional
(or a subordinate of such individual) was consulted in connection with the initial claim for
benefits.
(6) If the Corporation makes an adverse benefit determination on review, the Corporation
shall provide the Claimant with a statement that the Claimant is entitled to receive or
request reasonable access to, and copies of, all information relevant to the claim for
benefits, including internal rules, guidelines, and protocols (to the extent relied upon)
and a statement regarding voluntary alternative dispute resolution options.
18
13.4. Disability Benefits. For purposes of this Article 13, Disability benefits means a
benefit payable under this Appendix A that is conditioned upon the Corporations determination that
Employee is Permanently and Totally Disabled. If the Corporation does not make such determination,
but instead relies solely upon the determination of the Social Security Administrations
determination that Employee is disabled, then Sections 13.2(b) and 13.3(b) shall not apply, and any
claims by Employee shall instead be reviewed under the provisions of this Article 13 for benefits
other than Disability benefits.
13.5. Legal Action. A Claimants compliance with the foregoing provisions of this Article
13 is a mandatory prerequisite to a Claimants right to commence any legal action with respect to
any claim for benefits under this Appendix A.
14. Tax Withholding and Reporting; Section 280G Excise Taxes.
(a) General. The Corporation shall have the right to deduct any required withholding
taxes from any payment made under this Appendix A. Except as provided in Section 14(b), the
Corporation shall not be obligated to pay or reimburse Employee, or his surviving spouse or
Beneficiary, for any income or other taxes or penalties that may be imposed on such person by the
Internal Revenue Service or any state or other taxing authority as a result of benefits paid under
this Appendix A.
(b) Excise Tax Payment. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the Code)), to Employee or
for his benefit paid or payable or distributed or distributable pursuant to the terms of this
Employment Agreement (including this Appendix A) or otherwise in connection with, or arising out
of, his employment with the Corporation or a Change in Control of the Corporation (a Payment or
Payments), would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then Employee will be entitled to immediately receive an additional payment (a
Gross-Up Payment) from the Corporation in an amount such that after payment by Employee of all
taxes (including any interest or penalties, other than interest and penalties imposed by reason of
Employees failure to file timely a tax return or pay taxes shown due on his return, imposed with
respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up
Payment,
19
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
15. Successors. The provisions of this Appendix A shall bind and inure to the benefit of
the Corporation and its successors and assigns and Employee and Employees surviving spouse and
designated beneficiaries.
16. Amendment. This Appendix A may be amended only by written agreement between Employee
and the Corporation.
Agreed to and executed this 10th day of November, 2008.
|
|
|
|
|
MKS Instruments, Inc.
|
|
|
By: |
/s/ Phil Zucchi
|
|
|
|
Phil Zucchi, Vice President of Global HR |
|
|
|
|
|
|
|
|
|
/s/ Leo Berlinghieri
|
|
|
Leo Berlinghieri |
|
|
|
|
|
|
20
exv10w23
Exhibit
10.23
Whereas, MKS Instruments, Inc. (the Company) and Ronald C. Weigner (Employee) have entered
into an employment agreement dated July 1, 2005, Appendix A of which includes deferred compensation
benefits, and
Whereas, such deferred compensation benefits are subject to the provisions of Internal Revenue Code
Section 409A, and
Whereas Appendix A has been administered in accordance with the provisions of Section 409A as of
January 1, 2005, and
Whereas, Appendix A must be formally amended in writing on or before December 31, 2008, to
incorporate applicable provisions of Section 409A in order to avoid potentially adverse tax
consequences to Employee,
Now, therefore, in accordance with Section 16 of Appendix A, the Company and Employee hereby agree
that Appendix A of the Agreement is amended in its entirety to read as follows, effective as of
November 10, 2008:
APPENDIX A
Supplemental Retirement Benefits
1. Purpose. (a) General: The purpose of this Appendix A is to provide Employee
with supplemental retirement benefits to encourage his continued employment with the Corporation.
Benefits will be payable only if Employee fully complies with all of the requirements of this
Appendix A.
(b) For Benefit of Employee Only: Benefits under this Appendix A are provided for the
benefit of Employee only. No other employee shall accrue any rights of any kind as a result of the
existence of the arrangement described in this Appendix A. Supplemental retirement benefits may be
provided to an employee only as specifically authorized by the Board of Directors of the
Corporation.
(c) Internal Revenue Code Section 409A: The provisions of this Appendix A shall be
interpreted in a manner consistent with the requirements of Section 409A of the Internal Revenue
Code.
2. Definitions. As used in this Appendix A, the following terms have the meanings set
forth below, unless a different meaning is required by the context:
2.1. Actuarially Equivalent means a benefit of equivalent value to another benefit,
determined on the following basis:
Interest Rate: The average annual interest rate on 10-year Treasury securities as
published by the Federal Reserve for the calendar quarter immediately preceding the calendar
quarter in which the actuarially equivalent benefit is being determined plus 25 basis
points; and
Mortality: The most recent applicable mortality table prescribed by Section
417(e)(3)(A)(ii) of the Internal Revenue Code (or a successor provision as determined by the
Corporation).
2.2. Base salary means base salary as defined in the Employment Agreement, before any
pre-tax salary reductions for participation in any benefits plan of the Corporation.
2.3. Beneficiary means one or more persons, trusts, estates or other entities,
designated by Employee to receive death benefits under Section 6.1(b) of this Appendix A upon
Employees death. If Employee fails to designate a Beneficiary or if all designated Beneficiaries
predecease Employee, then such death benefits shall be payable to the executor or personal
representative of Employees estate.
Employee shall designate his Beneficiary by completing and signing a beneficiary designation form
prescribed by the Corporation, and returning it to the Corporation or its designated agent.
Employee shall have the right to change a Beneficiary by completing, signing and otherwise
complying with the terms of the beneficiary designation form and the Corporations rules and
procedures, as in effect from time to time. Upon the acceptance by the Corporation of a new
beneficiary designation form, all Beneficiary designations previously filed shall be canceled. The
Corporation shall be entitled to rely on the last beneficiary designation form filed by Employee
and accepted by the Corporation prior to his or her death. No designation or change in designation
of a Beneficiary shall be effective until received and acknowledged in writing by the Corporation
or its designated agent. If the Corporation has any doubt as to the proper Beneficiary to receive
payments pursuant to this Appendix A, the Corporation shall have the right, exercisable in its
discretion, to withhold such payments until this matter is resolved to the Corporations
satisfaction.
2
2.4. Bonus means a bonus paid under the Corporations Management Incentive Program.
2.5. Change in Control means the first to occur of any of the following events:
(a) Any person (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange
Act of 1934 (Exchange Act)) becomes the beneficial owner (as that term is used in Section
13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the
Companys capital stock entitled to vote in the election of directors;
(b) The shareholders of the Company approve any consolidation or merger of the Company,
other than a consolidation or merger of the Company in which the holders of the common stock
of the Company immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the common stock of the surviving corporation immediately after the consolidation
or merger;
(c) The shareholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; or
(d) The shareholders of the Company approve the sale or transfer of all or substantially all
of the assets of the Company to parties that are not within a controlled group of
corporations (as defined in Code Section 1563) in which the Company is a member.
2.6. Corporation means MKS Instruments, Inc. (the Company) and any corporation, trust,
association or enterprise which is required to be considered, together with the
Corporation, as one employer pursuant to the provisions of Sections 414(b), 414(c), 414(m) or
414(o) of the Code. For purposes of applying Code sections 1563(a)(1), (2), and (3) and regulation
section 1.414(c)-2 to the determination of companies under common control for purposes of this
Appendix A, 80% shall be used instead of at least 80% each place it appears in such sections.
2.7. Compensation for any calendar year means the sum of Employees Base Salary for such
year plus any Bonus paid in such year.
2.8. Early Retirement Benefit means the Retirement benefit determined under Section 5.2
of this Appendix A upon Employees Retirement prior to his Normal Retirement Date.
3
2.9. Employment Agreement means the Employment Agreement between Employee and the
Corporation that contains this Appendix A.
2.10. Final Average Pay means, for purposes of Section 5 the average of Employees
three (3) highest years of Compensation during the ten (10) calendar year period immediately
preceding the calendar year in which Employee Retires, and for purposes of determining death
benefits under Section 6 the average of Employees three (3) highest years of Compensation during
the ten (10) calendar year period immediately preceding the calendar year containing Employees
date of death. The foregoing notwithstanding, any calendar year in which Employee has no
Compensation from the Corporation shall be ignored in determining such ten calendar year period.
2.11. Normal Retirement Age means Employees 65th birthday or, if earlier, the date
Employee is deemed to have Retired in accordance with Section 2.15(b).
2.12. Normal Retirement Benefit means the Retirement benefit determined under Section
5.1 of this Appendix A upon Employees Retirement on or after his Normal Retirement Date.
2.13. Normal Retirement Date means the first day of the month in which Employee attains
Normal Retirement Age.
2.14. Permanent and Total Disability means (a) Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a continuous period of not
less than 12 months, or (b) Employee is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a period of not less
than three months under an accident and health plan covering employees of the Corporation.
Employee shall be conclusively presumed to be Permanently and Totally Disabled upon determination
that he is disabled by the Social Security Administration.
2.15. Retirement or Retires or Retired means the earlier of:
(a) Employees Separation from Service with the Corporation upon or after satisfying the
vesting requirements of Section 4.1, or
4
(b) Employees deemed Retirement. Employee shall be deemed to have Retired with a fully
vested Normal Retirement Benefit on the earliest of (i) the date he becomes Permanently and
Totally Disabled, (ii) the date of Employees Separation from Service as a result of the
Corporations termination of Employees employment with the Corporation for any reason other
than Termination for Cause as defined in Section 2.21 of this Appendix A, (iii) the date of
Employees death while employed by the Corporation, or (iv) the date of Employees
qualifying Separation from Service following a Change in Control in accordance with the
provisions of Section 7 of this Appendix A.
2.16. Retirement Date means the date Employee Retires or is deemed to have Retired in
accordance with Section 2.15 of this Appendix A. The term Retirement Date shall include
Employees Early Retirement Date as defined in Section 5.2 of this Appendix A.
2.17. Section 409A means Section 409A of the Internal Revenue Code, as the same may be
amended from time to time, and any successor statute thereto. References in this Appendix A to
Section 409A shall be deemed to mean and include any published guidance, regulations, notices,
rulings and similar announcements issued by the Internal Revenue Service or by the Secretary of the
Treasury under or interpreting Section 409A, decisions by any court of competent jurisdiction
involving a Participant or a beneficiary and any closing agreement made under section 7121 of the
Code that is approved by the Internal Revenue Service and involves a Participant, all as determined
by the Corporation in good faith, which determination may (but shall not be required to) be made in
reliance on the advice of such tax counsel or other tax professional(s) with whom the Corporation
from time to time may elect to consult with respect to any such matter.
2.18. Separates from Service or Separation from Service means Employees
separation from service with the Corporation as a result of death retirement, or any other reason,
except that for purposes of this section 2.18 the employment relationship is treated as continuing
intact while Employee is on military leave, sick leave, or other bona fide leave of absence if the
period of such leave does not exceed six months, or if longer, so long as Employee retains a right
to reemployment with the Corporation under an applicable statute or by contract. For purposes of
this Section 2.18 a leave of absence constitutes a bona fide leave of absence only if there is a
reasonable expectation that the employee will return to perform services for the employer. If the
period of leave exceeds six months and the individual does not retain a right
5
to reemployment under an applicable statute or by contract, the employment relationship is deemed
to terminate on the first date immediately following such six-month period. Whether an Employee has
a Separation from Service shall be determined in accordance with the provisions of Section 409A,
and regulations thereunder, and any other applicable guidance.
2.19. Specified Employee means, at any time when stock of the Corporation is publicly
traded on an established securities market or otherwise (as determined in accordance with Section
409A), an employee who is a specified employee within the meaning of Section 409A. The
Corporation shall have the discretion to use any alternative permitted under Section 409A to
determine whether Employee is a Specified Employee, and to take any action necessary to make such
alternative binding.
2.20. Termination of Employment means, for purposes of Section 4.6 of this Appendix A,
Termination for Cause, or Employees voluntary severance from employment with the Corporation
(within the meaning of the Corporations normal policies and procedures) for any reason other than
Retirement.
2.21. Termination for Cause means, solely for purposes of this Appendix A, termination of
Employees employment by the Corporation as a result of Employees conviction for the commission of
a felony, material breach of any employment or other agreements between Employee and the
Corporation, or willful failure to perform the material responsibilities of his position with the
Corporation.
2.22. Trust means a Trust established pursuant to Section 10 of this Appendix A.
3. Eligibility for Retirement Benefits.
3.1. General: Subject to Sections 4.2, 4.3, 4.4, and 4.5 the Corporation shall pay the
retirement benefits described in this Appendix A only if Employee Retires from employment with the
Corporation upon or after satisfying the vesting requirements set forth in Section 4.1, or upon
Employees deemed Retirement pursuant to Section 2.15(b).
4. Vesting.
6
4.1 General: Except as provided in Sections 4.2, 4.3, 4.4, and 4.5, and subject to
Section 10.1, Employees benefits under this Appendix A shall be fully vested and nonforfeitable if
Employee satisfies both (a) and (b) while employed with the Corporation:
(a) attains age 60, and
(b) has 25 years of service with the Corporation. Employee shall have 25 years of service
on the 25th anniversary of Employees original hire date.
The foregoing notwithstanding, Employee shall be fully vested in his benefit under this Appendix A
upon Employees deemed Retirement pursuant to Section 2.15(b) of this Appendix A.
4.2. Termination for Cause: All benefits shall be forfeited, and no amount shall be
payable under this Appendix A, in the event of Employees Termination for Cause.
4.3. Compliance with Noncompete, Nondisclosure, and Nonsolicitation Agreements. All
benefits under this Appendix A are expressly conditioned upon Employees compliance with the terms
of any noncompetition, nondisclosure, or nonsolicitation provisions contained in the Employment
Agreement, or in any other agreement between Employee and the Corporation. All benefits payable
under this Appendix A shall be forfeited, and no amount shall be payable, in the event Employee
violates the terms of any such provisions. If Employee violates the terms of any such provisions,
and benefit payments have commenced to Employee, any such payments shall cease, and Employee shall
repay all previously paid benefits to the Corporation upon demand. If Employee fails to repay such
amounts upon demand, the Corporation shall have the right to take any action necessary to recover
such payments from Employee.
4.4. Notice of Intent to Retire. Benefits payable under this Appendix A are specifically
conditioned upon Employee providing to the Corporation written notice of Employees intent to
Retire at least six months prior to Employees Retirement date. In the event Employee fails to
satisfy the notice requirements of this Section 4.4, all benefits shall be forfeited, and no amount
shall be payable under this Appendix A. The foregoing notwithstanding, the Corporation, in its
sole and absolute discretion, may elect to waive the notice requirement of this Section 4.4. The
foregoing notwithstanding, this Section 4.4 shall not apply to death
7
benefits payable under Section 6 of this Appendix A, or to Retirement benefits payable under
Section 5 as a result of Employees deemed Retirement pursuant to Section 2.15(b).
4.5. Release. Benefits payable under this Appendix A (other than death benefits payable
under Section 6) are specifically conditioned upon and provided in exchange for Employee signing a
separation agreement that releases the Corporation from any liabilities that may have arisen as a
result of Employees employment and/or termination of employment with the Corporation. In the event
Employee terminates employment with the Corporation for any reason other than death (including
Retirement) without satisfying the requirements of this Section 4.5 all benefits shall be
forfeited, and no amount shall be payable under this Appendix A.
4.6. Termination of Employment Prior to Satisfying Vesting Requirements. No benefits are
payable under this Appendix A upon Employees Termination of Employment with the Corporation prior
to satisfying the vesting requirements set forth in Section 4.1.
5. Retirement Benefits.
5.1. Normal Retirement Benefit. This Section 5.1 describes the Retirement benefit payable
by the Corporation in the event Employee Retires on or after his Normal Retirement Date. Employees
Normal Retirement Benefit shall be paid in the form of an Actuarially Equivalent lump sum, as set
forth in Section 5.3.
(a) Married on Retirement Date: If Employee is married on his Retirement Date, Employees
Normal Retirement Benefit shall be:
50% times Final Average Pay
payable annually for the life of Employee with 50% of such amount continuing after Employees death
to his spouse for her life, with payments commencing on Employees Normal Retirement Date, and
subsequent payments made as of each anniversary thereof. Solely for purposes of this Section 5.1,
Spouse shall mean the spouse to whom Employee is married on his Retirement Date (regardless of
whether that is the same spouse to whom he is married on his date of death), unless the Corporation
is directed by a court of competent jurisdiction to treat someone else as Employees spouse.
8
(b) Not Married on Retirement Date: If Employee is not married on his Retirement Date,
Employees Normal Retirement Benefit shall be:
50% times Final Average Pay
payable annually for the life of Employee with a ten year certain guarantee, with payments
commencing on Employees Normal Retirement Date, and subsequent payments made on each anniversary
thereof.
5.2. Early Retirement Benefit. This Section 5.2 describes the Retirement benefit payable
by the Corporation in the event Employee Retires prior to his Normal Retirement Date. Employee may
Retire from employment with the Corporation prior to his Normal Retirement Date on the first day of
any month coincident with or next following the date he satisfies the vesting requirements of
section 4.1. The date on which Employee Retires under this Section 5.2 shall be his Early
Retirement Date. Employees Early Retirement Benefit shall be paid in the form of an Actuarially
Equivalent lump sum, as set forth in Section 5.3.
(a) Married on Early Retirement Date: If Employee is married on his Early Retirement
Date, Employees Early Retirement Benefit shall be:
50% times Final Average Pay
multiplied by the applicable percentage as set forth in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age at which
Early Retirement
Benefits Commence |
|
|
64 |
|
|
|
63 |
|
|
|
62 |
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Percentage |
|
|
90 |
% |
|
|
80 |
|
|
|
60 |
|
|
|
40 |
|
|
|
20 |
|
payable annually for the life of Employee with 50% of such amount continuing after Employees death
to his spouse for her life, with payments commencing on Employees Early Retirement Date, and
subsequent payments made on each anniversary thereof. Solely for purposes of this Section 5.2,
Spouse shall mean the spouse to whom Employee is married on his Early Retirement Date (regardless
of whether that is the same spouse to whom he is married on his date of death), unless the
Corporation is directed by a court of competent jurisdiction to treat someone else as Employees
spouse
9
(b) Not Married on Early Retirement Date: If Employee is not married on his Early
Retirement Date, Employees Early Retirement Benefit shall be:
50% times Final Average Pay
multiplied by the applicable percentage as set forth in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age at which
Early Retirement
Benefits Commence |
|
|
64 |
|
|
|
63 |
|
|
|
62 |
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Percentage |
|
|
90 |
% |
|
|
80 |
|
|
|
60 |
|
|
|
40 |
|
|
|
20 |
|
payable annually for the life of Employee with a ten year certain guarantee, with payments
commencing on Employees Early Retirement Date, and subsequent payments made on each anniversary
thereof.
5.3. Form of Payment:
Employees Normal Retirement Benefit or Early Retirement Benefit, determined in accordance with
section 5.1 or 5.2 as applicable, shall be paid in the form of a single lump sum that is
Actuarially Equivalent to such Normal Retirement Benefit or Early Retirement Benefit. Such lump sum
shall be paid on Employees Retirement Date (or, if later, the earliest date permitted by Section
409A). No benefits shall be payable in the form of an annuity or in installments.
5.4. Delay of Payment to Specified Employee. Sections 5.1 through 5.3 of this Appendix A
notwithstanding, in the event Employee is a Specified Employee on the date Employee Separates from
Service, then any amount payable under this Appendix A as a result of such Separation from Service,
other than amounts payable as a result of Employees Permanent and Total Disability, shall not be
made earlier than (a) the date that is six months after the date of such Employees Retirement or,
if earlier, (b) the date of the Employees death. Employees Retirement benefit shall be
actuarially increased, in the manner determined by the Corporation, to account for such delayed
commencement date.
10
5.5. Time of Payment: Where the provisions of this Appendix A require that a payment be
made on a designated date, (for example, under Sections 5.1, 5.2, 5.3, and 5.4) such payment shall
be deemed to have been made on such date if it is made as soon as administratively practicable
following such date. In no event, however, shall payment be made later than the end of the calendar
year containing such designated date or, if later, the 15th day of the third calendar
month following such designated date. No adjustment shall be made to Employees Retirement benefit
as a result of any delay between the specified payment date and the actual payment date. In no
event shall Employee be permitted to designate, directly or indirectly, the taxable year in which
payment will be made.
5.6. Death While Employed by the Corporation. In the event Employee dies while employed
by the Corporation, any benefits payable under this Appendix A shall be determined in accordance
with Section 6.
5.7 Domestic Relations Orders. The payment of all or part of Employees Retirement
benefit may, in the sole discretion of the Corporation, be accelerated and paid to a person other
than Employee if Corporation determines that such payment is necessary to fulfill a valid domestic
relations order as defined in Section 414(p)(1)(B) of the Internal Revenue Code.
6. Death While Employed by the Corporation.
6.1. General. In the event Employee dies while employed by the Corporation the death
benefit payable under this Appendix A shall be as follows:
(a) if Employee is married on his date of death, 50% of the lump sum that is Actuarially
Equivalent to the Normal Retirement Benefit determined under Section 5.1(a) of this Appendix
A, such lump sum benefit to be determined as if Employee Retired on his date of death after
reaching Normal Retirement Age; or
(b) if Employee is not married on his date of death, 50% of the lump sum that is Actuarially
Equivalent to the Normal Retirement Benefit determined under Section 5.1(b) of this Appendix
A, such lump sum benefit to be determined as if Employee Retired on his date of death after
reaching Normal Retirement Age.
The death benefit shall be payable in a lump sum as soon as administratively practicable following
Employees date of death.
11
6.2. Payee. This death benefit shall be payable to Employees (a) surviving spouse if
Employee is married on his date of death, or (b) Beneficiary if Employee is not married on his date
of death. Surviving spouse for purposes of this Section 6.2 means the spouse to whom Employee is
married on his date of death.
7. Effect of a Change in Control of the Corporation. Anything in this Appendix A to the
contrary notwithstanding, this Section 7 shall apply in the event of a Change in Control. If,
within three years after the date of a Change in Control, Employee voluntarily Separates from
Service with the Corporation for Good Reason, and employee is not otherwise eligible for
Retirement, then Employee shall be deemed to have Retired with a fully vested Normal Retirement
Benefit on the date of such Separation from Service.
Solely for purposes of this Section 7, Good Reason shall mean Employees voluntary Separation
from Service within 90 days following (i) a material diminution in Employees positions, duties and
responsibilities from those described in this Employment Agreement (ii) a reduction in Employees
Base Salary (other than a reduction which is part of a general salary reduction program affecting
senior executives of the Corporation) (iii) a material reduction in the aggregate value of the
pension and welfare benefits provided to Employee from those in effect prior to the Change in
Control (other than a reduction which is proportionate to the reductions applicable to other senior
executives pursuant to a cost-saving plan that includes all senior executives), (iv) a material
breach of any provision of this Employment Agreement by the Corporation, (v) the Corporations
requiring Employee to be based at a location that creates for Employee a one way commute in excess
of 60 miles from his primary residence, except for required travel on the Corporations business
to an extent substantially consistent with the business travel obligations of Employee under this
Employment Agreement. Notwithstanding the foregoing, a termination shall not be treated as a
termination for Good Reason (i) if Employee shall have consented in writing to the occurrence of
the event giving rise to the claim of termination for Good Reason or (ii) unless Employee shall
have delivered a written notice to the Corporation within 30 days of his having actual knowledge of
the occurrence of one of such events stating that he intends to terminate his employment for Good
Reason and specifying the factual basis for such termination, and such event, if capable of being
cured, shall not have been cured within 30 days of the receipt of such notice.
8. Effect of termination of employment and rehire. Upon Employees Retirement, the
benefit payable under this Appendix A, if any, shall be determined by the Corporation and such
12
determination shall be conclusive and binding (subject to Section 14). If Employee is subsequently
reemployed by the Corporation such reemployment, additional service, and additional compensation
shall not result in a re-determination of the benefits due under this Appendix A.
9. Administration.
9.1. Powers of the Corporation: The Board of Directors of the Company (the Board) shall
have the sole authority to act on behalf of the Corporation under this Appendix A (subject to
Section 9.3), and shall have all the powers necessary to administer the benefits under this
Appendix A, including, without limitation, the power to interpret the provisions of this Appendix A
and to establish rules and prescribe any forms required to administer benefits under this Appendix
A
9.2. Actions of the Board: All determinations, interpretations, rules, and decisions of
the Board shall be conclusive and binding upon all persons having or claiming to have any interest
or right under this Appendix A.
9.3. Delegation: The Board shall have the power to delegate specific duties and
responsibilities to officers or other employees of the Corporation or other individuals or
entities. Any delegation by the Board may allow further delegations by the individual or entity to
whom the delegation is made. Any delegation may be rescinded by the Board at any time. Each
person or entity to whom a duty or responsibility has been delegated shall be responsible for the
exercise of such duty or responsibility and shall not be responsible for any act or failure to act
of any other person or entity.
9.4. Reports and Records: The Board and those to whom the Board has delegated duties
under Section 9.3 shall keep records of all their proceedings and actions and shall maintain books
of account, records, and other data as shall be necessary for the proper administration of this
Appendix A and for compliance with applicable law.
9.5. Costs: The costs of providing and administering the benefits under this Appendix A
shall be borne by the Corporation.
10. Unfunded Benefits; Establishment of Trust.
13
10.1. Unfunded Status. This Appendix A shall be unfunded for tax purposes and for
purposes of Title 1 of ERISA.
10.2. Establishment of Trust. The Corporation shall not be required to set aside any
funds to discharge its obligations hereunder, but may set aside such funds to informally fund all
or part of its obligations hereunder if it chooses to do so, including without limitation the
contribution of assets to a rabbi trust (the Trust). Any setting aside of amounts, or acquisition
of any insurance policy or any other asset, by the Corporation with which to discharge its
obligations hereunder in trust or otherwise, shall not be deemed to create any beneficial ownership
interest in Employee, his surviving spouse, or Beneficiary, and legal and equitable title to any
funds so set aside shall remain in the Corporation, and any recipient of benefits hereunder shall
have no security or other interest in such funds. The rights of Employee and his surviving spouse
and Beneficiary(ies) under this Appendix A shall be no greater than the rights of a general
unsecured creditor of the Corporation. Any and all funds so set aside by the Corporation shall
remain the general assets of the Corporation, and subject to the claims of its general creditors,
present and future.
10.3. Interrelationship of this Appendix A and the Trust. The provisions of this Appendix
A shall govern the rights of Employee to receive distributions pursuant to the provisions of this
Appendix A. The provisions of the Trust shall govern the rights of the Corporation, Employee, and
creditors of the Corporation to the assets transferred to the Trust. The Corporation shall at all
times remain liable to carry out its obligations under this Appendix A.
10.4. Distributions from the Trust. The Corporations obligations under this Appendix A
may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such
distribution shall reduce the Corporations obligation under this Appendix A.
11. Payment of Benefit for Disabled or Incapacitated Person. If the Corporation
determines, in its discretion, that Employee or Employees Beneficiary or surviving spouse is
under a legal disability or is incapacitated in any way so as to be unable to manage his
financial affairs, the Corporation may make any payment otherwise due under the terms
of this Appendix A to such person or to his legal representative or to a friend or relative of such
person as the Corporation considers advisable. Any payment under this Section 11 shall be a
complete discharge of any liability for the making of such payment under this Appendix A. Nothing
contained in this Section 11, however, should be deemed to impose upon the Corporation any
liability for paying a benefit to any person who is under such a legal
14
disability or is so incapacitated unless it has received notice of such disability or incapacity
from a competent source.
12. Nonassignability. Neither Employee nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by Employee or any other person, be transferable by
operation of law in the event of Employees or any other persons bankruptcy or insolvency or be
transferable to a spouse as a result of a property
settlement or otherwise. The Corporation is authorized to make any payments directed by court
order.
13. Claim Procedure.
13.1. Presentation of Claim. Employee, or the surviving spouse of Employee after
Employees death, or Employees Beneficiary (such Employee, surviving spouse, or Beneficiary being
referred to below as a Claimant) may deliver to the Corporation a written claim for a
determination with respect to the amounts distributable to such Claimant under this Appendix A. If
such a claim relates to the contents of a notice received by the Claimant, the claim must be made
within sixty (60) days after such notice was received by the Claimant. All other claims must be
made within 180 days of the date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the Claimant.
13.2. Notification of Decision.
(a) Claim for benefits other than Disability benefits. The Corporation shall consider a
Claimants claim within a reasonable time, but no later than ninety (90) days after receiving the
claim. If the Corporation determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant prior to
the termination of the initial ninety (90) day period. In no event shall such extension exceed a
period of ninety (90) days from the end of the initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which the Corporation
expects to render the benefit determination.
15
(b) Claim for Disability benefits. If the claim relates to benefits in connection with
Disability, the Corporation shall consider a Claimants claim within a reasonable time, but no
later than forty-five (45) days after receiving the claim. If the Corporation determines that, due to
matters beyond the control of the Plan, the Corporation will not be able to respond to the claim
within such 45-day period, the Corporation may extend the response period for one or two additional
periods of up to 30 days each by providing the Claimant with notice describing the circumstances
that necessitate the extension and the date as of which the Corporation anticipates that it will
render its decision. Each such notice must be conveyed to the Claimant prior to the commencement of
an extension.
(c) Notification. The Corporation shall notify the Claimant, in writing, within the time
periods specified in Section 13.2(a) or (b), as applicable:
(1) that the Claimants requested determination has been made, and that the claim has been
allowed in full; or
(2) that the Corporation has reached a conclusion contrary, in whole or in part, to the
Claimants requested determination, and such notice must set forth in a manner calculated to
be understood by the Claimant:
(A) the specific reason(s) for the denial of the claim, or any part of it;
(B) specific reference(s) to pertinent provisions of this Appendix A upon which such
denial was based;
(C) a description of any additional material or information necessary for the
Claimant to perfect the claim, and an explanation of why such material or information
is necessary;
(D) an explanation of the claim review procedure set forth in Section 13.3 below; and
(E) a statement of the Claimants right to bring a civil action under ERISA Section
502(a) following an adverse benefit determination on review.
16
13.3. Review of a Denied Claim.
(a) Claim for benefits other than Disability benefits. On or before sixty (60) days after
receiving a notice from the Corporation that a claim has been denied, in whole or in part, a
Claimant (or the Claimants duly authorized representative) may file with the Corporation a written
request for a review of the denial of the claim. The Claimant (or the Claimants duly authorized
representative):
(a) may, upon request and free of charge, have reasonable access to, and copies of, all
documents, records and other information relevant to the claim for benefits;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Corporation, in its sole discretion, may grant.
The Corporation shall render its decision on review promptly, and no later than sixty (60) days
after the Corporation receives the Claimants written request for a review of the denial of the
claim. If the Corporation determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant prior to
the termination of the initial sixty (60) day period. In no event shall such extension exceed a
period of sixty (60) days from the end of the initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which the Corporation
expects to render the benefit determination. In rendering its decision, the Corporation shall take
into account all comments, documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such information was submitted or considered in
the initial benefit determination. The decision must be written in a manner calculated to be
understood by the Claimant, and it must contain:
(1) specific reasons for the decision;
(2) specific reference(s) to the pertinent provisions of this Appendix A upon which the
decision was based;
(3) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to and copies of, all documents, records and other information relevant
(as defined in applicable ERISA regulations) to the Claimants claim for
17
benefits; and
(4) a statement of the Claimants right to bring a civil action under ERISA Section 502(a).
(b) Claim for Disability benefits. If the claim relates to benefits in connection with
Disability, the procedure described in Section 13.3(a) above shall apply, modified as follows:
(1) All references to 60 days shall be changed to 45 days, except that a Claimant shall
have 180 days to file an appeal.
(2) The Corporation shall designate an individual to conduct the review who is not the
individual who made the initial adverse determination, and is not a subordinate of such
individual.
(3) The notice of extension shall describe the circumstances that require the extension;
must include the date as of which the Corporation anticipates that it will render its
decision; and must be communicated to the Claimant prior to the commencement of the
extension.
(4) The review shall not afford deference to the initial adverse benefit determination.
(5) When the appeal is based on a medical judgment, the Corporation shall consult with a
health care professional who has appropriate experience and training in the field involved
in determining the Claimants Disability and shall identify all medical and vocational
experts whose advice was obtained in connection with the appeal. A health care professional
may not be consulted under this Section 7.10(b)(3)(ii)(E) if the health care professional
(or a subordinate of such individual) was consulted in connection with the initial claim for
benefits.
(6) If the Corporation makes an adverse benefit determination on review, the Corporation
shall provide the Claimant with a statement that the Claimant is entitled to receive or
request reasonable access to, and copies of, all information relevant to the claim for
benefits, including internal rules, guidelines, and protocols (to the extent relied upon)
and a statement regarding voluntary alternative dispute resolution options.
18
13.4. Disability Benefits. For purposes of this Article 13, Disability benefits means a
benefit payable under this Appendix A that is conditioned upon the Corporations determination that
Employee is Permanently and Totally Disabled. If the Corporation does not make such determination,
but instead relies solely upon the determination of the Social Security Administrations
determination that Employee is disabled, then Sections 13.2(b) and 13.3(b) shall not apply, and any
claims by Employee shall instead be reviewed under the provisions of this Article 13 for benefits
other than Disability benefits.
13.5. Legal Action. A Claimants compliance with the foregoing provisions of this Article
13 is a mandatory prerequisite to a Claimants right to commence any legal action with respect to
any claim for benefits under this Appendix A.
14. Tax Withholding and Reporting; Section 280G Excise Taxes.
(a) General. The Corporation shall have the right to deduct any required withholding
taxes from any payment made under this Appendix A. Except as provided in Section 14(b), the
Corporation shall not be obligated to pay or reimburse Employee, or his surviving spouse or
Beneficiary, for any income or other taxes or penalties that may be imposed on such person by the
Internal Revenue Service or any state or other taxing authority as a result of benefits paid under
this Appendix A.
(b) Excise Tax Payment. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the Code)), to Employee or
for his benefit paid or payable or distributed or distributable pursuant to the terms of this
Employment Agreement (including this Appendix A) or otherwise in connection with, or arising out
of, his employment with the Corporation or a Change in Control of the Corporation (a Payment or
Payments), would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then Employee will be entitled to immediately receive an additional payment (a
Gross-Up Payment) from the Corporation in an amount such that after payment by Employee of all
taxes (including any interest or penalties, other than interest and penalties imposed by reason of
Employees failure to file timely a tax return or pay taxes shown due on his return, imposed with
respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up
Payment,
19
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
15. Successors. The provisions of this Appendix A shall bind and inure to the benefit of
the Corporation and its successors and assigns and Employee and Employees surviving spouse and
designated beneficiaries.
16. Amendment. This Appendix A may be amended only by written agreement between Employee
and the Corporation.
Agreed to and executed this 10th day of November, 2008.
|
|
|
|
|
MKS Instruments, Inc.
|
|
|
By: |
/s/ Leo Berlinghieri
|
|
|
|
Leo Berlinghieri, CEO & President |
|
|
|
|
|
|
|
|
|
/s/ Ronald C. Weigner
|
|
|
Ronald C. Weigner |
|
|
|
|
|
|
20
exv10w26
Exhibit
10.26
Whereas, MKS Instruments, Inc. (the Company) and John A. Smith (Employee) have entered into an
employment agreement dated July 30, 2004, Appendix A of which includes deferred compensation
benefits, and
Whereas, such deferred compensation benefits are subject to the provisions of Internal Revenue Code
Section 409A, and
Whereas Appendix A has been administered in accordance with the provisions of Section 409A as of
January 1, 2005, and
Whereas, Appendix A must be formally amended in writing on or before December 31, 2008, to
incorporate applicable provisions of Section 409A in order to avoid potentially adverse tax
consequences to Employee,
Now, therefore, in accordance with Section 16 of Appendix A, the Company and Employee hereby agree
that Appendix A of the Agreement is amended in its entirety to read as follows, effective as of
November 10, 2008:
APPENDIX A
Supplemental Retirement Benefits
1. Purpose. (a) General. The purpose of this Appendix A is to provide Employee
with supplemental retirement benefits to encourage his continued employment with the Corporation.
Benefits will be payable only if Employee fully complies with all of the requirements of this
Appendix A.
(b) For Benefit of Employee Only. Benefits under this Appendix A are provided for the
benefit of Employee only. No other employee shall accrue any rights of any kind as a result of the
existence of the arrangement described in this Appendix A. Supplemental retirement benefits may be
provided to an employee only as specifically authorized by the Board of Directors of the
Corporation.
(c) Internal Revenue Code Section 409A. The provisions of this Appendix A shall be
interpreted in a manner consistent with the requirements of Section 409A of the Internal Revenue
Code.
2. Definitions. Whenever used herein the following terms shall have the meanings
hereinafter set forth:
2.1 |
|
Account or Deferred Compensation Account means the account established in
Employees name pursuant to Section 5.1 of this Appendix A which reflects Employees entire
interest in this Appendix A, and which includes Employees Company Contribution Subaccount,
Retirement Subaccount, and In-Service Distribution Subaccount(s). |
|
2.2 |
|
Base Salary means base salary as defined in the Employment Agreement, before any
pre-tax salary reductions for participation in any benefit plan of the Corporation. Solely
for purposes of Section 4.1 of this Agreement, if Employee becomes disabled, then during such
period of disability base salary means base salary as defined in the Employment Agreement
for the calendar year in which such disability commenced, or the immediately preceding
calendar year, whichever is greater. Disability for purposes of this Section 2.2 means
Employee is receiving benefits under any short term or long term disability plan maintained by
the Corporation. |
|
2.3 |
|
Beneficiary means one or more persons, trusts, estates or other entities,
designated by Employee to receive death benefits under this Appendix A upon Employees death.
If Employee fails to designate a Beneficiary or if all designated Beneficiaries predecease
Employee then death benefits under this Appendix A shall be payable to Employees surviving
spouse, if any, and if not to the executor or personal representative of Employees estate. |
|
|
|
Employee shall designate his Beneficiary by completing and signing a beneficiary designation
form prescribed by the Corporation, and returning it to the Corporation or its designated
agent. Employee shall have the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the beneficiary designation form and the Corporations
rules and procedures, as in effect from time to time. Upon the acceptance by the Corporation
of a new beneficiary designation form, all Beneficiary designations previously filed shall
be canceled. The Corporation shall be entitled to rely on the last beneficiary designation
form filed by Employee and accepted by the Corporation prior to his or her death. No
designation or change in designation of a Beneficiary shall be |
2
|
|
effective until received and acknowledged in writing by the Corporation or its designated
agent. If the Corporation has any doubt as to the proper Beneficiary to receive payments
pursuant to this Appendix A, the Corporation shall have the right, exercisable in its
discretion, to withhold such payments until this matter is resolved to the Corporations
satisfaction. |
2.4 |
|
Bonus means a bonus payable under the Corporations Management Incentive Plan. |
|
2.5 |
|
Change in Control means the first to occur of any of the following events: |
(a) Any person (as that term is used in Section 13 and 14(d)(2) of the Securities
Exchange Act of 1934 (Exchange Act)) becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more
of the Companys capital stock entitled to vote in the election of directors;
(b) The shareholders of the Company approve any consolidation or merger of the Company,
other than a consolidation or merger of the Company in which the holders of the common stock
of the Company immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the common stock of the surviving corporation immediately after the consolidation
or merger;
(c) The shareholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; or
(d) The shareholders of the Company approve the sale or transfer of all or substantially all
of the assets of the Company to parties that are not within a controlled group of
corporations (as defined in Code Section 1563) in which the Company is a member.
2.6 |
|
Company Contribution Subaccount means the portion of Employees Account established
in accordance with Section 4.3 of this Appendix A which is credited with the Corporations
hypothetical contributions, and any earnings thereon. |
3
2.7 |
|
Compensation means, for any calendar year, the sum of Employees Base Salary for
such calendar year plus any Bonus payable in such calendar year. |
|
2.8 |
|
Corporation means MKS Instruments, Inc. (the Company) and any corporation, trust,
association or enterprise which is required to be considered, together with the Corporation,
as one employer pursuant to the provisions of Sections 414(b), 414(c), 414(m) or 414(o) of the
Code. For purposes of applying Code sections 1563(a)(1), (2), and (3) and regulation section
1.414(c)-2 to the determination of companies under common control for purposes of this
Appendix A, 80% shall be used instead of at least 80% each place it appears in such
sections. |
|
2.9 |
|
Deferred Compensation Agreement means a written compensation deferral agreement
entered into between Employee and the Corporation pursuant Section 3 of this Appendix A. |
|
2.10 |
|
Employment Agreement means the Employment Agreement between Employee and the
Corporation that contains this Appendix A. |
|
2.11 |
|
In-Service Distribution Subaccount means the portion of Employees Account
established in accordance with Section 3.4(c) of the Plan which is credited with Employees
hypothetical deferrals, and earnings thereon, deferred to an in-service distribution date. |
|
2.12 |
|
Permanent and Total Disability means (a) Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, or (b) Employee is, by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than three months under an accident and health
plan covering employees of the Corporation. Employee shall be conclusively presumed to be |
4
|
|
Permanently and Totally Disabled upon determination that he is disabled by the Social
Security Administration. |
2.13 |
|
Retirement or Retired or Retires means the earlier of: |
(a) Employees Separation from Service with the Corporation upon or after attaining age 61,
or
(b) Employees deemed Retirement: Employee shall be deemed to have Retired on the
earliest of (i) the date he becomes Permanently and Totally Disabled, (ii) the date of
Employees Separation from Service as a result of the Corporations termination of
Employees employment with the Corporation for any reason other than Termination for Cause
as defined in Section 2.19 of this Appendix A, (iii) the date of Employees death while
employed by the Corporation, or (iv) the date of Employees qualifying Separation from
Service following a Change in Control in accordance with the provisions of Section 8 of this
Appendix A.
2.14. |
|
Retirement Subaccount means the portion of Employees Account established in
accordance with Section 3.4(b) of the Plan which is credited with Employees hypothetical
contributions, and earnings thereon, deferred to Retirement. |
|
2.15. |
|
Section 409A means Section 409A of the Internal Revenue Code, as the same may be
amended from time to time, and any successor statute thereto. References in this Appendix A
to Section 409A shall be deemed to mean and include any published guidance, regulations,
notices, rulings and similar announcements issued by the Internal Revenue Service or by the
Secretary of the Treasury under or interpreting Section 409A, decisions by any court of
competent jurisdiction involving a Participant or a beneficiary and any closing agreement made
under section 7121 of the Code that is approved by the Internal Revenue Service and involves a
Participant, all as determined by the Corporation in good faith, which determination may (but
shall not be required to) be made in reliance on the advice of such tax counsel or other tax
professional(s) with whom the Corporation from time to time may elect to consult with respect
to any such matter. |
5
2.16. |
|
Separates from Service or Separation from Service means Employees
separation from service with the Corporation as a result of death, retirement, or any other
reason, except that for purposes of this Section 2.16 the employment relationship is treated
as continuing intact while Employee is on military leave, sick leave, or other bona fide leave
of absence if the period of such leave does not exceed six months, or if longer, so long as
Employee retains a right to reemployment with the Corporation under an applicable statute or
by contract. For purposes of this Section 2.16 a leave of absence constitutes a bona fide
leave of absence only if there is a reasonable expectation that Employee will return to
perform services for the Corporation. If the period of leave exceeds six months and Employee
does not retain a right to reemployment under an applicable statute or by contract, the
employment relationship is deemed to terminate on the first date immediately following such
six-month period. Notwithstanding the foregoing, where a leave of absence is due to any
medically determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of not less than six months, where such
impairment causes Employee to be unable to perform the duties of his position of employment or
any substantially similar position of employment, a 29-month period of absence shall be
substituted for such six-month period. Whether an Employee has a Separation from Service shall
be determined in accordance with the provisions of Section 409A, any regulations thereunder,
and any other applicable guidance. |
|
2.17 |
|
Specified Employee means, at any time when stock of the Corporation is publicly
traded on an established securities market or otherwise (as determined in accordance with
Section 409A), an employee who is a specified employee within the meaning of Section 409A.
The Corporation shall have the discretion to use any alternative permitted under Section 409A
to determine whether Employee is a Specified Employee, and to take any action necessary to
make such alternative binding. |
|
2.18 |
|
Termination of Employment means, for purposes of Section 4.4 of this Appendix A,
Employees Termination for Cause, or Employees voluntary |
6
|
|
severance from employment with the Corporation (within the meaning of the Corporations
normal policies and procedures) for any reason other than Retirement. |
2.19 |
|
Termination for Cause means, solely for purposes of this Appendix A, termination of
Employees employment by the Corporation as a result of Employees conviction for the
commission of a felony, material breach of any employment or other agreements between Employee
and the Corporation, or willful failure to perform the material responsibilities of his
position with the Corporation. |
|
2.20 |
|
Trust means a Trust established pursuant to Section 11 of this Appendix A. |
|
2.21 |
|
Gender and Number. Words in the masculine gender shall include the feminine and the
singular shall include the plural, and vice versa, unless qualified by the context. Any
headings used herein are included for ease of reference only, and are not to be construed so
as to alter the terms hereof. |
3. Deferral Elections.
3.1 |
|
Deferred Compensation Agreement. Employee may elect to defer a portion of his
Compensation by entering into a Deferred Compensation Agreement with the Corporation pursuant
to the rules set forth in this Section 3. The Deferred Compensation Agreement shall be made
on a form supplied by the Corporation and shall become effective only if the Corporation
accepts and approves the Agreement. |
|
3.2 |
|
Timing of Deferred Compensation Agreement. |
(a) Deferrals of Base Salary. (i) Employee may enter into a Deferred Compensation
Agreement with respect to his Base Salary prior to January 1 of each calendar year. The
Deferred Compensation Agreement shall apply to Base Salary earned in the immediately
following calendar year, and shall be irrevocable for such calendar year, except as provided
in Section 3.3(c) of this
7
Appendix A.
(ii) The foregoing notwithstanding, Employee may enter into a Deferred Compensation
Agreement within 30 days of the date Employee first becomes eligible to participate in the
deferred compensation arrangement set forth in this Appendix A. Such Deferred Compensation
Agreement shall apply to Base Salary earned after the date such Deferred Compensation
Agreement is executed, and shall be irrevocable for the balance of the calendar year, except
as provided in Section 3.3(c). This subparagraph (ii) shall not apply (that is, no mid-year
deferral election shall be permitted) in the event Employee, on the date Employee first
becomes eligible to participate in this arrangement, is covered under any other
account-based nonqualified deferred compensation plan required to be aggregated with this
arrangement under the definition of plan contained in Section 409A.
(b) Deferrals of Bonus. Employee may enter into a Deferred Compensation Agreement
with respect to a Bonus no later than September 30 of the calendar year prior to the
calendar year in which such Bonus is earned. Such deferral elections shall be irrevocable,
except as provided in Section 3.3(c). Subsequent deferrals of Bonus shall be made only
pursuant to a new Deferred Compensation Agreement.
The foregoing notwithstanding, if a Bonus constitutes performance based compensation as
defined in Section 409A, Employee may enter into a Deferred Compensation Agreement with
respect to such Bonus at any time up until June 30 of the year prior to the year in which
the applicable performance period ends.
(c) Cancellation of Deferral. The foregoing notwithstanding, in the event Employee
receives a hardship distribution (as defined in Treasury Regulation 1.401(k)-1(d)(3)) from a
section 401(k) plan maintained by the Corporation, Employees existing Deferred Compensation
Agreements shall be terminated prospectively (that is, upon receipt of such hardship
distribution, no further deferrals of Base Salary or Bonus shall be made under an existing
Deferred Compensation Agreement). Employee may, however, enter into a new Deferred
8
Compensation Agreement that satisfies the requirements of Sections 3.1 through 3.3 of this
Appendix A.
(a) From Base Salary. Employee may elect to defer up to 25% of his or her
Base Salary, in increments of 1%.
(b) From Bonus. Employee may elect to defer up to 100% of his Bonus, in
increments of 5%.
The 25% and 100% maximum deferral limits described above may be reduced by the Corporation
in any year if the Corporation determines, in its sole discretion, that such action is
necessary to meet Federal or State tax withholding obligations.
(a) General. At the time Employee defers Compensation pursuant to a Deferred
Compensation Agreement for a calendar year, he may specify an In-Service Distribution Date
applicable to all or a portion of the deferrals for such calendar year, and earnings
thereon. Any deferrals of Compensation not deferred to an In-Service Distribution Date shall
be deemed deferred to Retirement.
(b) Retirement Subaccount. The Corporation shall establish a Retirement Subaccount
on Employees behalf representing Compensation Employee has deferred to Retirement, and
earnings thereon. Payments from Employees Retirement Subaccount shall be made at such time
and in such manner as provided in Section 6.3.
(c) Deferrals to an In-Service Distribution Date. Deferrals to an In-Service
Distribution Date shall be subject to the following requirements:
(i) In-Service Distribution Date. The In-Service Distribution Date must be
a date at least three full calendar years after the date of such Deferred
9
Compensation Agreement.
(ii) In-Service Distribution Subaccount. The Corporation shall
establish an In-Service Distribution Subaccount on Employees behalf to which
Employees deferrals relating to a particular In-Service Distribution Date, and
earnings thereon, shall be credited.
(iii) Limits. There are no limits on the number of In-Service Distribution
Subaccounts Employee may establish.
(iv) Payments. Payments from In-Service Distribution Subaccounts shall be
made at such time and in such manner as provided in Section 6.2.
(d) Postponing In-Service Distributions. Employee may elect to postpone payment of
an In-Service Distribution Subaccount, and instead have such amount paid out on an allowable
alternative In-Service Distribution Date, by submitting a new In-Service Distribution
Election Form to the Corporation, subject to the following:
(i) Such Election Form must be submitted to and accepted by the Corporation in its
sole discretion no later than the end of the 13th month prior to the month
containing Employees previously elected In-Service Distribution Date; and
(ii) The new In-Service Distribution Date selected by Employee must
be the first day of any calendar year that is at least five full
calendar years after the end of the calendar year in which the previously elected
In- Service Distribution would otherwise have been paid to Employee, and
(iii) Such election shall not take effect until 12 months has
elapsed from the date such election is made.
3.5 |
|
Vesting of Retirement and In-Service Distribution Subaccounts. Subject to
Section 11.2, Employees Retirement Subaccount and In-Service Distribution |
10
|
|
Subaccount(s) shall be fully vested and nonforfeitable. |
4. Company Contributions.
4.1 |
|
Required Company Contribution. The Corporation shall make an annual hypothetical
contribution on Employees behalf equal to 15% of Employees Compensation. Such hypothetical
contribution shall commence with the calendar year the Employment Agreement is executed by the
Corporation and Employee, and shall continue each calendar year up to and including the year
in which Employee Retires. Except as provided in Section 2.2, and solely for purposes of this
Section 4.1, Compensation in the calendar year Employee Retires shall mean only Base Salary
and Bonus actually paid to Employee in such calendar year. |
|
4.2 |
|
Discretionary Company Contribution. The Corporation may, in its absolute discretion,
make an additional hypothetical contribution on Employees behalf with respect to any calendar
year. The fact that the Corporation makes a discretionary contribution with respect to a
particular calendar year shall not obligate the Corporation to make a discretionary
contribution with respect to any other calendar year. |
|
4.3 |
|
Company Contribution Subaccount. The Corporation shall establish a Company
Contribution Subaccount on behalf of Employee to which hypothetical required company
contributions and discretionary company contributions, and earnings thereon, shall be
allocated. |
|
4.4 |
|
Vesting of Company Contribution Subaccount. Subject to Sections 4.5, 4.6, 4.7, and
Section 11.2 of this Appendix A, Employees Company Contribution Subaccount shall vest upon
the earlier of (a) or (b), where (a) is the following vesting schedule: |
11
|
|
|
|
|
Attained Age While Employed |
|
|
By the Corporation |
|
Vested Percentage |
65 |
|
|
100 |
% |
64 |
|
|
90 |
% |
63 |
|
|
80 |
% |
and (b) is the date of Employees deemed Retirement under Section 2.13(b).
Employees Company Contribution Subaccount shall be forfeited upon Employees Termination of
Employment. The Company may, in its sole and absolute discretion, waive the vesting schedule
and fully vest Employee at any time.
4.5. |
|
Compliance with Noncompete, Nondisclosure, and Nonsoliciation Agreements. Employees
Company Contribution Subaccount shall be forfeited, and no amount attributable to such
Subaccount shall be payable under this Appendix A, in the event the Corporation determines
that Employee has failed to comply with the terms of any noncompetition, nondisclosure, or
nonsolicitation provision contained in the Employment Agreement, or in any other agreement
between Employee and the Corporation. |
|
4.6. |
|
Notice of Intent to Retire. Benefits payable under Section 6.1 of this Appendix A
attributable to Employees Company Contribution Subaccount are specifically conditioned upon
Employee providing to the Corporation written notice of Employees intent to Retire at least
six months prior to Employees Retirement date. In the event Employee fails to satisfy the
notice requirements of this Section 4.6, Employees Company Contribution Subaccount shall be
forfeited, and no amount attributable to such Subaccount shall be payable under this Appendix
A. The foregoing notwithstanding, this section 4.6 shall not apply to benefits payable under
Section 6.1 as a result of Employees deemed Retirement under Section 2.13(b) of this Appendix
A. The Corporation, in its sole and absolute discretion, may elect to waive the notice
requirement of this Section 4.6. |
|
4.7. |
|
Release. Benefits payable under Section 6.1 of this Appendix A attributable to
Employees Company Contribution Subaccount are specifically conditioned upon and provided in
exchange for Employee signing a separation agreement
that releases the Corporation from any liabilities that may have arisen as a result |
12
|
|
of Employees employment and/or termination of employment with the Corporation. In the event
Employee terminates employment with the Corporation for any reason other than death
(including Retirement) without satisfying the requirements of this Section 4.7 Employees
Company Contribution Subaccount shall be forfeited, and no amount attributable to such
Subaccount shall be payable under this Appendix A. |
4.8 |
|
Payment of Company Contribution Subaccount. Employees vested Company Contribution
Subaccount shall be paid at such time and in such manner as provided in Section 6. |
5. Employees Deferred Compensation Account.
5.1 |
|
Establishment of Deferred Compensation Accounts and Subaccounts. The Corporation
shall establish and maintain a hypothetical account for Employee called the Deferred
Compensation Account. Such Account shall be segregated from the other accounts on the books
and records of the Corporation as an unfunded and unsecured liability of the Corporation to
Employee. Subaccounts (including Employees Company Contribution Subaccount, In-Service
Distribution Subaccount(s), and Retirement Subaccount) shall be maintained as determined
necessary by the Corporation. Accounts and subaccounts are maintained solely as a device for
the measurement and determination of the amounts to be paid to Employee or his Beneficiary
pursuant to this Appendix A. Any reference to contributions to or payments from
Employees Accounts or subaccounts, or similar phrases, are for convenience only. |
|
5.2 |
|
Timing of Contributions to and Distributions From Employees Deferred Compensation
Account. The Corporation shall credit to Employees Deferred Compensation Account an
amount equal to the percentage of Employees Base Salary and Bonus which he has elected to
defer in accordance with Section 3.3, as of the last day of the calendar month in which
Employee would have received such amount if not for Employees deferral election. |
|
|
|
The Corporation shall credit to Employees Deferred Compensation Account an |
13
|
|
amount equal to
the Company Contribution(s) to which he is entitled under Sections 4.1 and 4.2 as soon as
administratively practicable after the end of each calendar year. |
|
|
Any distribution with respect to Employees Deferred Compensation Account shall be charged
to such Account as of the date the distribution is made by the Corporation or from the Trust
established in accordance with this Appendix A. |
|
5.3 |
|
Selection of Investment Vehicle. Employee shall specify, in the manner prescribed by
the Corporation, the allocation of his Account among investment indices available under this
Appendix A. An individuals selection of an investment index will have no bearing on the
actual investment or segregation of Corporation assets, but will be used as the basis for
making adjustments to such individuals Account as described in Section Article 5.4 below.
Employee can change his or her investment index or indices at such time, and in such manner,
as determined by the Corporation. The Corporation may change the investment indices available
under this Appendix A at any time in its absolute discretion. |
|
5.4 |
|
Adjustment of Deferred Compensation Account. As of the last day of each calendar
month, or more frequently as determined in the sole discretion of the Corporation, Employees
Deferred Compensation Account shall be credited with hypothetical net income, gain and loss,
including hypothetical net unrealized gain and loss, based on the hypothetical investment
directions made by the Participant in accordance with Section 5.3 of this Appendix A. |
6. Benefit Payments.
6.1 |
|
Payment of Company Contribution Subaccount. |
|
|
|
The vested portion of Employees Company Contribution Subaccount shall be paid in a lump sum
on Employees Retirement date, and the nonvested portion shall be forfeited. |
|
6.2 |
|
Payment of In-Service Distribution Subaccount. Employees In-Service |
14
|
|
Distribution Subaccount(s) shall be paid in a single lump sum on the earlier of (a) the Participants
In-Service Distribution Date, or (b) the date Employee Separates from Service for any reason. |
6.3 |
|
Payment of Retirement Subaccount. Employees Retirement Subaccount(s) shall be paid
in a single lump sum on the date Employee Separates from Service for any reason. |
|
6.4 |
|
Delay of Payment to Specified Employee. Sections 6.1 through 6.3 of this Appendix A
notwithstanding, in the event Employee is a Specified Employee on the date Employee Separates
from Service then any amount payable under this Appendix A as a result of such Separation from
Service, other than amounts payable as a result of Employees Permanent and Total Disability,
shall not be made earlier than (a) the date that is six months after the date of Employees
Separation from Service or, if earlier, (b) the date of the Employees death. |
|
6.5 |
|
Payment upon Death. The vested portion of Employees Deferred Compensation Account
shall be paid to Employees Beneficiary upon Employees death. |
|
6.6 |
|
Time and amount of Payment. Where the provisions of this Appendix A require that a
payment be made on a designated date, (for example, under Sections 6.1, 6.2, 6.3, 6.4, 6.5, or
8) such payment shall be deemed to have been made on such date if it is made as soon as
administratively practicable following such date. In no event, however, shall payment be made
later than the end of the calendar year containing such designated date or, if later, the 15th
day of the third calendar month following such designated date. The amount payable, if any, to
Employee (or Employees beneficiary) under Sections 6.1 through 6.5 shall be determined as of
the valuation date (pursuant to Section 5.4) immediately preceding Employees (or Employees
beneficiarys) distribution date. In no event shall Employee be permitted to designate,
directly or indirectly, the taxable year in which payment will be made. |
|
6.7 |
|
Distribution of Taxable Amounts. Anything in this Appendix A to the contrary
notwithstanding, in the event Employee is determined to be subject to federal |
15
|
|
income tax on
any amount credited to Employees Deferred Compensation Account due to the failure of this
arrangement to meet the requirements of Section 409A, Corporation shall distribute to
Employee, as soon as administratively practicable, an amount equal to the amount Employee is
required to include in income as a result of such failure. |
6.8 |
|
Domestic Relations Orders. The payment of all or part of Employees Retirement
benefit may, in the sole discretion of the Corporation, be accelerated and paid to a person
other than Employee if Corporation determines that such payment is necessary to fulfill a
valid domestic relations order as defined in Section 414(p)(1)(B) of the Internal Revenue
Code. |
7. Limitations On Liability. Notwithstanding any of the preceding provisions of this
Appendix A, neither the Corporation, nor any individual acting as employee or agent of the
Corporation, shall be liable to Employee or other person for any claim, loss, liability or expense
incurred in connection with this Appendix A.
The Corporation does not in any way guarantee Employees Deferred Compensation Account against loss
or depreciation, whether caused by poor investment performance, insolvency of a deemed investment
or by any other event or occurrence. In no event shall the employees, officers, directors, or
stockholders of the Corporation be liable to any individual or entity on account of any claim
arising by reason of the provisions of this Appendix A or any instrument or instruments
implementing its provisions, or for the failure of any Employee, Beneficiary or other individual or
entity to be entitled to any particular tax consequences with respect to this Appendix A, or any
credit or payment hereunder.
Nothing contained in this Appendix A shall constitute a guarantee by the Corporation or any other
person or entity that the assets of the Corporation will be sufficient to pay any benefits
hereunder.
Any payment made in good faith in accordance with provisions of this Appendix A
shall be a complete discharge of any liability for the making of such payment under the provisions
of this Appendix A.
16
8. Effect of a Change In Control of the Corporation. Anything in this Appendix A to the
contrary notwithstanding, this Section 8 shall apply in the event of a Change in Control. If,
within three years after the date of a Change in Control Employee voluntarily Separates from
Service with the Corporation for Good Reason, and employee is not otherwise eligible for
Retirement, then Employee shall be deemed to have Retired with a fully vested benefit on the date
of such Separation from Service.
Solely for purposes of this Section 8, Good Reason shall mean Employees voluntary Separation
from Service within 90 days following (i) a material diminution in Employees positions, duties and
responsibilities from those described in this Employment Agreement (ii) if Employee is a member of
the Board of Directors, the removal of Employee from, or the failure to re-elect Employee as a
member of, the Board, (iii) a reduction in Employees Base Salary (other than a reduction which is
part of a general salary reduction program affecting senior executives of the Corporation) (iv) a
material reduction in the aggregate value of the pension and welfare benefits provided to Employee
from those in effect prior to the Change in Control (other than a reduction which is proportionate
to the reductions applicable to other senior executives pursuant to a cost-saving plan that
includes all senior executives), (v) a material breach of any provision of this Employment
Agreement by the Corporation, (vi) the Corporations requiring Employee to be based at a location
that creates a one-way commute for Employee in excess of 60 miles from his primary residence,
except for required travel on the Corporations business to an extent substantially consistent with
the business travel obligations of Employee under this Employment Agreement. Notwithstanding the
foregoing, a termination shall not be treated as a termination for Good Reason (i) if Employee
shall have consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee shall have delivered a written notice to the
Corporation within 30 days of his having actual knowledge of the occurrence of one of such events
stating that he intends to terminate his employment for Good Reason and specifying the factual
basis for such termination, and such event, if capable of being cured, shall not have been cured
within 30 days of the receipt of such notice.
17
9. Effect Of Termination Of Employment And Rehire. Upon Employees Retirement or other
Separation from Service with the Corporation the benefit payable under this Appendix A, if any,
shall be determined by the Corporation and such determination shall be conclusive and binding
(subject to Section 14). This Appendix A shall not apply to any subsequent period of reemployment
of Employee by the Corporation.
10. Administration.
10.1. |
|
Powers of the Corporation. The Board of Directors of the Company (the Board)
shall have the sole authority to act on behalf of the Corporation under this Appendix A
(subject to Section 10.3), and shall have all the powers necessary to administer the benefits
under this Appendix A, including, without limitation, the power to interpret the provisions of
this Appendix A and to establish rules and prescribe any forms required to administer benefits
under this Appendix A |
|
10.2. |
|
Actions of the Board. All determinations, interpretations, rules, and decisions of
the Board shall be conclusive and binding upon all persons having or claiming to have any
interest or right under this Appendix A. |
|
10.3. |
|
Delegation. The Board shall have the power to delegate specific duties and
responsibilities to officers or other employees of the Corporation or other individuals or
entities. Any delegation by the Board may allow further delegations by the individual or
entity to whom the delegation is made. Any delegation may be rescinded by the Board at any
time. Each person or entity to whom a duty or responsibility has been delegated shall be
responsible for the exercise of such duty or responsibility and shall not be responsible for
any act or failure to act of any other person or entity. |
|
10.4. |
|
Reports and Records. The Board and those to whom the Board has delegated duties
under Section 10.3 shall keep records of all their proceedings and actions and shall maintain
books of account, records, and other data as shall be necessary for the proper administration
of this Appendix A and for compliance with applicable law. |
18
10.5. |
|
Costs. The costs of providing and administering the benefits under this Appendix A
shall be borne by the Corporation. |
11. Unfunded Benefits; Establishment Of Trust.
11.1. |
|
Unfunded Status. This Appendix A shall be unfunded for tax purposes and for
purposes of Title 1 of ERISA. |
|
11.2. |
|
Establishment of Trust. The Corporation shall not be required to set aside any funds
to discharge its obligations hereunder, but may set aside such funds to informally fund all or part
of its obligations hereunder if it chooses to do so, including without limitation the contribution
of assets to a rabbi trust (the Trust). Any setting aside of amounts, or acquisition of any
insurance policy or any other asset, by the Corporation with which to discharge its obligations
hereunder in trust or otherwise, shall not be deemed to create any beneficial ownership interest in
Employee, his surviving spouse, or Beneficiary, and legal and equitable title to any funds so set
aside shall remain in the Corporation, and any recipient of benefits hereunder shall have no
security or other interest in such funds. The rights of Employee and his surviving spouse and
Beneficiary(ies) under this Appendix A shall be no greater than the rights of a general unsecured
creditor of the Corporation. Any and all funds so set aside by the Corporation shall remain the
general assets of the Corporation, and subject to the claims of its general creditors, present and
future. |
|
11.3. |
|
Interrelationship of this Appendix A and the Trust. The provisions of this Appendix
A shall govern the rights of Employee to receive distributions pursuant to the provisions of this
Appendix A. The provisions of the Trust shall govern the rights of the Corporation, Employee, and
creditors of the Corporation to the assets transferred to the Trust. The Corporation shall at all
times remain liable to carry out its obligations under this Appendix A. |
|
11.4 |
|
Distributions from the Trust. The Corporations obligations under this Appendix A
may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such
distribution shall reduce the Corporations obligation under this Appendix A. |
19
12. Payment Of Benefit For Disabled Or Incapacitated Person. If the Corporation
determines, in its discretion, that Employee or Employees Beneficiary is under a legal
disability or is incapacitated in any way so as to be unable to manage his financial
affairs, the Corporation may make any payment otherwise due under the terms of
this Appendix A to such person or to his legal representative or to a friend or relative of such
person as the Corporation considers advisable. Any payment under this Section 12 shall be a
complete discharge of any liability for the making of such payment under this Appendix A. Nothing
contained in this Section 12 however, should be deemed to impose upon the Corporation any liability
for paying a benefit to any person who is under such a legal disability or is so incapacitated
unless it has received notice of such disability or incapacity from a competent source.
13. Nonassignability. Neither Employee nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by Employee or any other person, be transferable by
operation of law in the event of Employees or any other persons bankruptcy or insolvency or be
transferable to a spouse as a result of a property settlement or otherwise. The Corporation is
authorized to make any payments directed by court order.
14. Claim Procedure.
14.1. |
|
Presentation of Claim. Employee, or Employees Beneficiary after Employees death
(such Employee or Beneficiary being referred to below as a Claimant) may deliver to the
Corporation a written claim for a determination with respect to the amounts distributable to
such Claimant under this Appendix A. If such a
claim relates to the contents of a notice received by the Claimant, the claim must be made
within sixty (60) days after such notice was received by the Claimant. All other claims must
be made within 180 days of the date on which the event that caused the claim to arise
occurred. The claim must state with particularity |
20
|
|
the determination desired by the Claimant. |
14.2. |
|
Notification of Decision. |
(a) Claim for benefits other than Disability Benefits. The Corporation shall
consider a Claimants claim within a reasonable time, but no later than ninety (90) days
after receiving the claim. If the Corporation determines that special circumstances require
an extension of time for processing the claim, written notice of the extension shall be
furnished to the Claimant prior to the termination of the initial ninety (90) day period. In
no event shall such extension exceed a period of ninety (90) days from the end of the
initial period. The extension notice shall indicate the special circumstances requiring an
extension of time and the date by which the Corporation expects to render the benefit
determination.
(b) Claim for disability benefits. If the claim relates to benefits in connection
with disability (as defined in Section 4.4), the Corporation shall consider a Claimants
claim within a reasonable time, but no later than forty-five (45) days after receiving the
claim. If the Corporation determines that, due to matters beyond the control of the Plan,
the Corporation will not be able to respond to the claim within such 45-day period, the
Corporation may extend the response period for one or two additional periods of up to 30
days each by providing the Claimant with notice describing the circumstances that
necessitate the extension and the date as of which the Corporation anticipates that it will
render its decision. Each such notice must be conveyed to the Claimant prior to the
commencement of an extension.
(c) Notification. The Corporation shall notify the Claimant in writing, within the
time periods specified in Section 14.2(a) or (b) as applicable:
(1) that the Claimants requested determination has been made, and that the
claim has been allowed in full; or
(2) that the Corporation has reached a conclusion contrary, in whole or in part,
to the Claimants requested determination, and such notice must set forth in a
manner calculated to be understood by the Claimant:
21
(A) the specific reason(s) for the denial of the claim, or any part
of it;
(B) specific reference(s) to pertinent provisions of this Appendix
A upon which such denial was based;
(C) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary;
(D) an explanation of the claim review procedure set forth in
Section 14.3 below; and
(E) a statement of the Claimants right to bring a civil action
under ERISA Section 502(a) following an adverse benefit determination on review.
14.3 |
|
Review of a Denied Claim. |
(a) Claim for benefits other than disability benefits. On or before sixty (60) days
after receiving a notice from the Corporation that a claim has been denied, in whole or in
part, a Claimant (or the Claimants duly authorized representative) may file with the
Corporation a written request for a review of the denial of the claim. The Claimant (or the
Claimants duly authorized representative):
(1) may, upon request and free of charge, have reasonable access to, and copies of,
all documents, records and other information relevant to the claim for benefits;
(2) may submit written comments or other documents; and/or
(3) may request a hearing, which the Corporation, in its sole discretion, may
grant.
|
|
The Corporation shall render its decision on review promptly, and no later than |
22
|
|
sixty (60)
days after the Corporation receives the Claimants written request for a review of the
denial of the claim. If the Corporation determines that special circumstances require an
extension of time for processing the claim, written notice of the extension shall be
furnished to the Claimant prior to the termination of the initial sixty (60) day period. In
no event shall such extension exceed a period of sixty (60) days from the end of the initial
period. The extension notice shall indicate the special circumstances requiring an extension
of time and the date by which the Corporation expects to render the benefit determination.
In rendering its decision, the Corporation shall take into account all comments, documents,
records and other information submitted by the Claimant relating to the claim, without
regard to whether such information was submitted or considered in the initial benefit
determination. The decision must be written in a manner calculated to be understood by the
Claimant, and it must contain: |
(1) specific reasons for the decision;
(2) specific reference(s) to the pertinent provisions of this Appendix A upon which
the decision was based;
(3) a statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the Claimants
claim for benefits; and
(4) a statement of the Claimants right to bring a civil action under ERISA Section
502(a).
(b) Claim for disability benefits. If the claim relates to benefits in connection
with disability (as defined in Section 4.4), the procedure described in Section 14.3(a)
above shall apply, modified as follows:
(1) All references to 60 days shall be changed to 45 days, except that a Claimant
shall have 180 days to file an appeal.
23
(2) The Corporation shall designate an individual to conduct the review who is not
the individual who made the initial adverse determination, and is not a subordinate
of such individual.
(3) The notice of extension shall describe the circumstances that require the
extension; must include the date as of which the Corporation anticipates that it
will render its decision; and must be communicated to the Claimant prior to the
commencement of the extension.
(4) The review shall not afford deference to the initial adverse benefit
determination.
(5) When the appeal is based on a medical judgment, the Corporation shall consult
with a health care professional who has appropriate experience and training in the
field involved in determining the Claimants disability and shall identify all
medical and vocational experts whose advice was obtained in connection with the
appeal. A health care professional may not be consulted under this Section
7.10(b)(3)(ii)(E) if the health care professional (or a subordinate of such
individual) was consulted in connection with the initial claim for benefits.
(6) If the Corporation makes an adverse benefit determination on review, the
Corporation shall provide the Claimant with a statement that the Claimant is
entitled to receive or request reasonable access to, and copies of, all information
relevant to the claim for benefits, including internal rules, guidelines, and
protocols (to the extent relied upon) and a statement regarding voluntary
alternative dispute resolution options.
14.4. |
|
Disability Benefits. For purposes of this Article 14, disability benefits means a
benefit payable under this Appendix A that is conditioned upon the
Corporations determination that Employee is Permanently and Totally Disabled. If the
Corporation does not make such determination, but instead relies solely upon the
determination of the Social Security Administrations determination that Employee is
disabled, then Sections 14.2(b) and 14.3(b) shall not apply, and |
24
|
|
any claims by Employee
shall instead be reviewed under the provisions of this Article 14 for benefits other than
Disability benefits. |
14.5. |
|
Legal Action. A Claimants compliance with the foregoing provisions of this Article
14 is a mandatory prerequisite to a Claimants right to commence any legal action with respect
to any claim for benefits under this Appendix A. |
15. Tax Withholding And Reporting.
(a) General: The Corporation shall have the right to deduct any required withholding
taxes from any payment made under this Appendix A. Except as provided in Section 15(b), the
Corporation shall not be obligated to pay or reimburse Employee, or his surviving spouse or
Beneficiary, for any income or other taxes or penalties that may be imposed on such person by
the Internal Revenue Service or any state or other taxing authority as a result of benefits
paid under this Appendix A.
(b) Excise Tax Payment. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the Code)), to Employee
or for his benefit paid or payable or distributed or distributable pursuant to the terms of
this Employment Agreement (including this Appendix A) or otherwise in connection with, or
arising out of, his employment with the Corporation or a Change in Control of the Corporation
(a Payment or Payments), would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Employee with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter collectively
referred to as the Excise Tax), then Employee will be entitled to immediately receive an
additional payment (a Gross-Up Payment) from the Corporation in an amount such that after
payment by Employee of all taxes (including any interest or penalties, other than interest and
penalties imposed
by reason of Employees failure to file timely a tax return or pay taxes shown due on his
return, imposed with respect to such taxes and the Excise Tax), including any Excise Tax
imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
25
16. Successors. The provisions of this Appendix A shall bind and inure to the
benefit of the Corporation and its successors and assigns and Employee and Employees surviving
spouse and designated beneficiaries.
17. Amendment. This Appendix A may be amended only by written agreement between Employee
and the Corporation.
Agreed to and executed this 10th day of November, 2008.
|
|
|
|
|
MKS Instruments, Inc.
|
|
|
By: |
/s/ Leo Berlinghieri
|
|
|
|
Leo Berlinghieri, CEO & President |
|
|
|
|
|
|
|
|
|
/s/ John Smith
|
|
|
John A. Smith |
|
|
|
|
|
|
26
exv10w28
Exhibit
10.28
Whereas, MKS Instruments, Inc. (the Company) and Gerald G. Colella (Employee) have entered
into an employment agreement dated April 25, 2005, Appendix A of which includes deferred
compensation benefits, and
Whereas, such deferred compensation benefits are subject to the provisions of Internal Revenue Code
Section 409A, and
Whereas Appendix A has been administered in accordance with the provisions of Section 409A as of
January 1, 2005, and
Whereas, Appendix A must be formally amended in writing on or before December 31, 2008, to
incorporate applicable provisions of Section 409A in order to avoid potentially adverse tax
consequences to Employee,
Now, therefore, in accordance with Section 16 of Appendix A, the Company and Employee hereby agree
that Appendix A of the Agreement is amended in its entirety to read as follows, effective as of
November 10, 2008:
APPENDIX A
Supplemental Retirement Benefits
1. Purpose. (a) General: The purpose of this Appendix A is to provide Employee
with supplemental retirement benefits to encourage his continued employment with the Corporation.
Benefits will be payable only if Employee fully complies with all of the requirements of this
Appendix A.
(b) For Benefit of Employee Only: Benefits under this Appendix A are provided for the
benefit of Employee only. No other employee shall accrue any rights of any kind as a result of the
existence of the arrangement described in this Appendix A. Supplemental retirement benefits may be
provided to an employee only as specifically authorized by the Board of Directors of the
Corporation.
(c) Internal Revenue Code Section 409A: The provisions of this Appendix A shall be
interpreted in a manner consistent with the requirements of Section 409A of the Internal Revenue
Code.
2. Definitions. As used in this Appendix A, the following terms have the meanings set
forth below, unless a different meaning is required by the context:
2.1. Actuarially Equivalent means a benefit of equivalent value to another benefit,
determined on the following basis:
Interest Rate: The average annual interest rate on 10-year Treasury securities as
published by the Federal Reserve for the calendar quarter immediately preceding the calendar
quarter in which the actuarially equivalent benefit is being determined plus 25 basis
points; and
Mortality: The most recent applicable mortality table prescribed by Section
417(e)(3)(A)(ii) of the Internal Revenue Code (or a successor provision as determined by the
Corporation).
2.2. Base salary means base salary as defined in the Employment Agreement, before any
pre-tax salary reductions for participation in any benefits plan of the Corporation.
2.3. Beneficiary means one or more persons, trusts, estates or other entities,
designated by Employee to receive death benefits under Section 6.1(b) of this Appendix A upon
Employees death. If Employee fails to designate a Beneficiary or if all designated Beneficiaries
predecease Employee, then such death benefits shall be payable to the executor or personal
representative of Employees estate.
Employee shall designate his Beneficiary by completing and signing a beneficiary designation form
prescribed by the Corporation, and returning it to the Corporation or its designated agent.
Employee shall have the right to change a Beneficiary by completing, signing and otherwise
complying with the terms of the beneficiary designation form and the Corporations rules and
procedures, as in effect from time to time. Upon the acceptance by the Corporation of a new
beneficiary designation form, all Beneficiary designations previously filed shall be canceled. The
Corporation shall be entitled to rely on the last beneficiary designation form filed by Employee
and accepted by the Corporation prior to his or her death. No designation or change in designation
of a Beneficiary shall be effective until received and acknowledged in writing by the Corporation
or its designated agent. If the Corporation has any doubt as to the proper Beneficiary to receive
payments pursuant to this Appendix A, the Corporation shall have the right, exercisable in its
discretion, to withhold such payments until this matter is resolved to the Corporations
satisfaction.
2
2.4. Bonus means a bonus paid under the Corporations Management Incentive Program.
2.5. Change in Control means the first to occur of any of the following events:
(a) Any person (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange
Act of 1934 (Exchange Act)) becomes the beneficial owner (as that term is used in Section
13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the
Companys capital stock entitled to vote in the election of directors;
(b) The shareholders of the Company approve any consolidation or merger of the Company,
other than a consolidation or merger of the Company in which the holders of the common stock
of the Company immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the common stock of the surviving corporation immediately after the consolidation
or merger;
(c) The shareholders of the Company approve any plan or proposal for the liquidation or
dissolution of the Company; or
(d) The shareholders of the Company approve the sale or transfer of all or substantially all
of the assets of the Company to parties that are not within a controlled group of
corporations (as defined in Code Section 1563) in which the Company is a member.
2.6. Corporation means MKS Instruments, Inc. (the Company) and any corporation, trust,
association or enterprise which is required to be considered, together with the
Corporation, as one employer pursuant to the provisions of Sections 414(b), 414(c), 414(m) or
414(o) of the Code. For purposes of applying Code sections 1563(a)(1), (2), and (3) and regulation
section 1.414(c)-2 to the determination of companies under common control for purposes of this
Appendix A, 80% shall be used instead of at least 80% each place it appears in such sections.
2.7. Compensation for any calendar year means the sum of Employees Base Salary for such
year plus any Bonus paid in such year.
2.8. Early Retirement Benefit means the Retirement benefit determined under Section 5.2
of this Appendix A upon Employees Retirement prior to his Normal Retirement Date.
3
2.9. Employment Agreement means the Employment Agreement between Employee and the
Corporation that contains this Appendix A.
2.10. Final Average Pay means, for purposes of Section 5 the average of Employees
three (3) highest years of Compensation during the ten (10) calendar year period immediately
preceding the calendar year in which Employee Retires, and for purposes of determining death
benefits under Section 6 the average of Employees three (3) highest years of Compensation during
the ten (10) calendar year period immediately preceding the calendar year containing Employees
date of death. The foregoing notwithstanding, any calendar year in which Employee has no
Compensation from the Corporation shall be ignored in determining such ten calendar year period.
2.11. Normal Retirement Age means Employees 65th birthday or, if earlier, the date
Employee is deemed to have Retired in accordance with Section 2.15(b).
2.12. Normal Retirement Benefit means the Retirement benefit determined under Section
5.1 of this Appendix A upon Employees Retirement on or after his Normal Retirement Date.
2.13. Normal Retirement Date means the first day of the month in which Employee attains
Normal Retirement Age.
2.14. Permanent and Total Disability means (a) Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a continuous period of not
less than 12 months, or (b) Employee is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a period of not less
than three months under an accident and health plan covering employees of the Corporation.
Employee shall be conclusively presumed to be Permanently and Totally Disabled upon determination
that he is disabled by the Social Security Administration.
2.15. Retirement or Retires or Retired means the earlier of:
(a) Employees Separation from Service with the Corporation upon or after satisfying the
vesting requirements of Section 4.1, or
4
(b) Employees deemed Retirement. Employee shall be deemed to have Retired with a fully
vested Normal Retirement Benefit on the earliest of (i) the date he becomes Permanently and
Totally Disabled, (ii) the date of Employees Separation from Service as a result of the
Corporations termination of Employees employment with the Corporation for any reason other
than Termination for Cause as defined in Section 2.21 of this Appendix A, (iii) the date of
Employees death while employed by the Corporation, or (iv) the date of Employees
qualifying Separation from Service following a Change in Control in accordance with the
provisions of Section 7 of this Appendix A.
2.16. Retirement Date means the date Employee Retires or is deemed to have Retired in
accordance with Section 2.15 of this Appendix A. The term Retirement Date shall include
Employees Early Retirement Date as defined in Section 5.2 of this Appendix A.
2.17. Section 409A means Section 409A of the Internal Revenue Code, as the same may be
amended from time to time, and any successor statute thereto. References in this Appendix A to
Section 409A shall be deemed to mean and include any published guidance, regulations, notices,
rulings and similar announcements issued by the Internal Revenue Service or by the Secretary of the
Treasury under or interpreting Section 409A, decisions by any court of competent jurisdiction
involving a Participant or a beneficiary and any closing agreement made under section 7121 of the
Code that is approved by the Internal Revenue Service and involves a Participant, all as determined
by the Corporation in good faith, which determination may (but shall not be required to) be made in
reliance on the advice of such tax counsel or other tax professional(s) with whom the Corporation
from time to time may elect to consult with respect to any such matter.
2.18. Separates from Service or Separation from Service means Employees
separation from service with the Corporation as a result of death retirement, or any other reason,
except that for purposes of this section 2.18 the employment relationship is treated as continuing
intact while Employee is on military leave, sick leave, or other bona fide leave of absence if the
period of such leave does not exceed six months, or if longer, so long as Employee retains a right
to reemployment with the Corporation under an applicable statute or by contract. For purposes of
this Section 2.18 a leave of absence constitutes a bona fide leave of absence only if there is a
reasonable expectation that the employee will return to perform services for the employer. If the
period of leave exceeds six months and the individual does not retain a right
5
to reemployment under an applicable statute or by contract, the employment relationship is deemed
to terminate on the first date immediately following such six-month period. Whether an Employee has
a Separation from Service shall be determined in accordance with the provisions of Section 409A,
and regulations thereunder, and any other applicable guidance.
2.19. Specified Employee means, at any time when stock of the Corporation is publicly
traded on an established securities market or otherwise (as determined in accordance with Section
409A), an employee who is a specified employee within the meaning of Section 409A. The
Corporation shall have the discretion to use any alternative permitted under Section 409A to
determine whether Employee is a Specified Employee, and to take any action necessary to make such
alternative binding.
2.20. Termination of Employment means, for purposes of Section 4.6 of this Appendix A,
Termination for Cause, or Employees voluntary severance from employment with the Corporation
(within the meaning of the Corporations normal policies and procedures) for any reason other than
Retirement.
2.21. Termination for Cause means, solely for purposes of this Appendix A, termination of
Employees employment by the Corporation as a result of Employees conviction for the commission of
a felony, material breach of any employment or other agreements between Employee and the
Corporation, or willful failure to perform the material responsibilities of his position with the
Corporation.
2.22. Trust means a Trust established pursuant to Section 10 of this Appendix A.
3. Eligibility for Retirement Benefits.
3.1. General: Subject to Sections 4.2, 4.3, 4.4, and 4.5 the Corporation shall pay the
retirement benefits described in this Appendix A only if Employee Retires from employment with the
Corporation upon or after satisfying the vesting requirements set forth in Section 4.1, or upon
Employees deemed Retirement pursuant to Section 2.15(b).
4. Vesting.
6
4.1 General: Except as provided in Sections 4.2, 4.3, 4.4, and 4.5, and subject to
Section 10.1, Employees benefits under this Appendix A shall be fully vested and nonforfeitable if
Employee satisfies both (a) and (b) while employed with the Corporation:
(a) attains age 60, and
(b) has 25 years of service with the Corporation. Employee shall have 25 years of service
on the 25th anniversary of Employees original hire date.
The foregoing notwithstanding, Employee shall be fully vested in his benefit under this Appendix A
upon Employees deemed Retirement pursuant to Section 2.15(b) of this Appendix A.
4.2. Termination for Cause: All benefits shall be forfeited, and no amount shall be
payable under this Appendix A, in the event of Employees Termination for Cause.
4.3. Compliance with Noncompete, Nondisclosure, and Nonsolicitation Agreements. All
benefits under this Appendix A are expressly conditioned upon Employees compliance with the terms
of any noncompetition, nondisclosure, or nonsolicitation provisions contained in the Employment
Agreement, or in any other agreement between Employee and the Corporation. All benefits payable
under this Appendix A shall be forfeited, and no amount shall be payable, in the event Employee
violates the terms of any such provisions. If Employee violates the terms of any such provisions,
and benefit payments have commenced to Employee, any such payments shall cease, and Employee shall
repay all previously paid benefits to the Corporation upon demand. If Employee fails to repay such
amounts upon demand, the Corporation shall have the right to take any action necessary to recover
such payments from Employee.
4.4. Notice of Intent to Retire. Benefits payable under this Appendix A are specifically
conditioned upon Employee providing to the Corporation written notice of Employees intent to
Retire at least six months prior to Employees Retirement date. In the event Employee fails to
satisfy the notice requirements of this Section 4.4, all benefits shall be forfeited, and no amount
shall be payable under this Appendix A. The foregoing notwithstanding, the Corporation, in its
sole and absolute discretion, may elect to waive the notice requirement of this Section 4.4. The
foregoing notwithstanding, this Section 4.4 shall not apply to death
7
benefits payable under Section 6 of this Appendix A, or to Retirement benefits payable under
Section 5 as a result of Employees deemed Retirement pursuant to Section 2.15(b).
4.5. Release. Benefits payable under this Appendix A (other than death benefits payable
under Section 6) are specifically conditioned upon and provided in exchange for Employee signing a
separation agreement that releases the Corporation from any liabilities that may have arisen as a
result of Employees employment and/or termination of employment with the Corporation. In the event
Employee terminates employment with the Corporation for any reason other than death (including
Retirement) without satisfying the requirements of this Section 4.5 all benefits shall be
forfeited, and no amount shall be payable under this Appendix A.
4.6. Termination of Employment Prior to Satisfying Vesting Requirements. No benefits are
payable under this Appendix A upon Employees Termination of Employment with the Corporation prior
to satisfying the vesting requirements set forth in Section 4.1.
5. Retirement Benefits.
5.1. Normal Retirement Benefit. This Section 5.1 describes the Retirement benefit payable
by the Corporation in the event Employee Retires on or after his Normal Retirement Date. Employees
Normal Retirement Benefit shall be paid in the form of an Actuarially Equivalent lump sum, as set
forth in Section 5.3.
(a) Married on Retirement Date: If Employee is married on his Retirement Date, Employees
Normal Retirement Benefit shall be:
50% times Final Average Pay
payable annually for the life of Employee with 50% of such amount continuing after Employees death
to his spouse for her life, with payments commencing on Employees Normal Retirement Date, and
subsequent payments made as of each anniversary thereof. Solely for purposes of this Section 5.1,
Spouse shall mean the spouse to whom Employee is married on his Retirement Date (regardless of
whether that is the same spouse to whom he is married on his date of death), unless the Corporation
is directed by a court of competent jurisdiction to treat someone else as Employees spouse.
8
(b) Not Married on Retirement Date: If Employee is not married on his Retirement Date,
Employees Normal Retirement Benefit shall be:
50% times Final Average Pay
payable annually for the life of Employee with a ten year certain guarantee, with payments
commencing on Employees Normal Retirement Date, and subsequent payments made on each anniversary
thereof.
5.2. Early Retirement Benefit. This Section 5.2 describes the Retirement benefit payable
by the Corporation in the event Employee Retires prior to his Normal Retirement Date. Employee may
Retire from employment with the Corporation prior to his Normal Retirement Date on the first day of
any month coincident with or next following the date he satisfies the vesting requirements of
section 4.1. The date on which Employee Retires under this Section 5.2 shall be his Early
Retirement Date. Employees Early Retirement Benefit shall be paid in the form of an Actuarially
Equivalent lump sum, as set forth in Section 5.3.
(a) Married on Early Retirement Date: If Employee is married on his Early Retirement
Date, Employees Early Retirement Benefit shall be:
50% times Final Average Pay
multiplied by the applicable percentage as set forth in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
Age at which Early Retirement
Benefits Commence |
|
|
62 |
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Percentage |
|
|
100 |
% |
|
|
90 |
|
|
|
80 |
|
payable annually for the life of Employee with 50% of such amount continuing after Employees death
to his spouse for her life, with payments commencing on Employees Early Retirement Date, and
subsequent payments made on each anniversary thereof. Solely for purposes of this Section 5.2,
Spouse shall mean the spouse to whom Employee is married on his Early Retirement Date (regardless
of whether that is the same spouse to whom he is married on his date of death), unless the
Corporation is directed by a court of competent jurisdiction to treat someone else as Employees
spouse
9
(b) Not Married on Early Retirement Date: If Employee is not married on his Early
Retirement Date, Employees Early Retirement Benefit shall be:
50% times Final Average Pay
multiplied by the applicable percentage as set forth in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
Age at which Early Retirement
Benefits Commence |
|
|
62 |
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Percentage |
|
|
100 |
% |
|
|
90 |
|
|
|
80 |
|
payable annually for the life of Employee with a ten year certain guarantee, with payments
commencing on Employees Early Retirement Date, and subsequent payments made on each anniversary
thereof.
5.3. Form of Payment:
Employees Normal Retirement Benefit or Early Retirement Benefit, determined in accordance with
section 5.1 or 5.2 as applicable, shall be paid in the form of a single lump sum that is
Actuarially Equivalent to such Normal Retirement Benefit or Early Retirement Benefit. Such lump sum
shall be paid on Employees Retirement Date (or, if later, the earliest date permitted by Section
409A). No benefits shall be payable in the form of an annuity or in installments.
5.4. Delay of Payment to Specified Employee. Sections 5.1 through 5.3 of this Appendix A
notwithstanding, in the event Employee is a Specified Employee on the date Employee Separates from
Service, then any amount payable under this Appendix A as a result of such Separation from Service,
other than amounts payable as a result of Employees Permanent and Total Disability, shall not be
made earlier than (a) the date that is six months after the date of such Employees Retirement or,
if earlier, (b) the date of the Employees death. Employees Retirement benefit shall be
actuarially increased, in the manner determined by the Corporation, to account for such delayed
commencement date.
10
5.5. Time of Payment: Where the provisions of this Appendix A require that a payment be
made on a designated date, (for example, under Sections 5.1, 5.2, 5.3, and 5.4) such payment shall
be deemed to have been made on such date if it is made as soon as administratively practicable
following such date. In no event, however, shall payment be made later than the end of the calendar
year containing such designated date or, if later, the 15th day of the third calendar
month following such designated date. No adjustment shall be made to Employees Retirement benefit
as a result of any delay between the specified payment date and the actual payment date. In no
event shall Employee be permitted to designate, directly or indirectly, the taxable year in which
payment will be made.
5.6. Death While Employed by the Corporation. In the event Employee dies while employed
by the Corporation, any benefits payable under this Appendix A shall be determined in accordance
with Section 6.
5.7 Domestic Relations Orders. The payment of all or part of Employees Retirement
benefit may, in the sole discretion of the Corporation, be accelerated and paid to a person other
than Employee if Corporation determines that such payment is necessary to fulfill a valid domestic
relations order as defined in Section 414(p)(1)(B) of the Internal Revenue Code.
6. Death While Employed by the Corporation.
6.1. General. In the event Employee dies while employed by the Corporation the death
benefit payable under this Appendix A shall be as follows:
(a) if Employee is married on his date of death, 50% of the lump sum that is Actuarially
Equivalent to the Normal Retirement Benefit determined under Section 5.1(a) of this Appendix
A, such lump sum benefit to be determined as if Employee Retired on his date of death after
reaching Normal Retirement Age; or
(b) if Employee is not married on his date of death, 50% of the lump sum that is Actuarially
Equivalent to the Normal Retirement Benefit determined under Section 5.1(b) of this Appendix
A, such lump sum benefit to be determined as if Employee Retired on his date of death after
reaching Normal Retirement Age.
The death benefit shall be payable in a lump sum as soon as administratively practicable following
Employees date of death.
11
6.2. Payee. This death benefit shall be payable to Employees (a) surviving spouse if
Employee is married on his date of death, or (b) Beneficiary if Employee is not married on his date
of death. Surviving spouse for purposes of this Section 6.2 means the spouse to whom Employee is
married on his date of death.
7. Effect of a Change in Control of the Corporation. Anything in this Appendix A to the
contrary notwithstanding, this Section 7 shall apply in the event of a Change in Control. If,
within three years after the date of a Change in Control, Employee voluntarily Separates from
Service with the Corporation for Good Reason, and employee is not otherwise eligible for
Retirement, then Employee shall be deemed to have Retired with a fully vested Normal Retirement
Benefit on the date of such Separation from Service.
Solely for purposes of this Section 7, Good Reason shall mean Employees voluntary Separation
from Service within 90 days following (i) a material diminution in Employees positions, duties and
responsibilities from those described in this Employment Agreement (ii) a reduction in Employees
Base Salary (other than a reduction which is part of a general salary reduction program affecting
senior executives of the Corporation) (iii) a material reduction in the aggregate value of the
pension and welfare benefits provided to Employee from those in effect prior to the Change in
Control (other than a reduction which is proportionate to the reductions applicable to other senior
executives pursuant to a cost-saving plan that includes all senior executives), (iv) a material
breach of any provision of this Employment Agreement by the Corporation, (v) the Corporations
requiring Employee to be based at a location that creates for Employee a one way commute in excess
of 60 miles from his primary residence, except for required travel on the Corporations business
to an extent substantially consistent with the business travel obligations of Employee under this
Employment Agreement. Notwithstanding the foregoing, a termination shall not be treated as a
termination for Good Reason (i) if Employee shall have consented in writing to the occurrence of
the event giving rise to the claim of termination for Good Reason or (ii) unless Employee shall
have delivered a written notice to the Corporation within 30 days of his having actual knowledge of
the occurrence of one of such events stating that he intends to terminate his employment for Good
Reason and specifying the factual basis for such termination, and such event, if capable of being
cured, shall not have been cured within 30 days of the receipt of such notice.
8. Effect of termination of employment and rehire. Upon Employees Retirement, the
benefit payable under this Appendix A, if any, shall be determined by the Corporation and such
12
determination shall be conclusive and binding (subject to Section 14). If Employee is subsequently
reemployed by the Corporation such reemployment, additional service, and additional compensation
shall not result in a re-determination of the benefits due under this Appendix A.
9. Administration.
9.1. Powers of the Corporation: The Board of Directors of the Company (the Board) shall
have the sole authority to act on behalf of the Corporation under this Appendix A (subject to
Section 9.3), and shall have all the powers necessary to administer the benefits under this
Appendix A, including, without limitation, the power to interpret the provisions of this Appendix A
and to establish rules and prescribe any forms required to administer benefits under this Appendix
A
9.2. Actions of the Board: All determinations, interpretations, rules, and decisions of
the Board shall be conclusive and binding upon all persons having or claiming to have any interest
or right under this Appendix A.
9.3. Delegation: The Board shall have the power to delegate specific duties and
responsibilities to officers or other employees of the Corporation or other individuals or
entities. Any delegation by the Board may allow further delegations by the individual or entity to
whom the delegation is made. Any delegation may be rescinded by the Board at any time. Each
person or entity to whom a duty or responsibility has been delegated shall be responsible for the
exercise of such duty or responsibility and shall not be responsible for any act or failure to act
of any other person or entity.
9.4. Reports and Records: The Board and those to whom the Board has delegated duties
under Section 9.3 shall keep records of all their proceedings and actions and shall maintain books
of account, records, and other data as shall be necessary for the proper administration of this
Appendix A and for compliance with applicable law.
9.5. Costs: The costs of providing and administering the benefits under this Appendix A
shall be borne by the Corporation.
10. Unfunded Benefits; Establishment of Trust.
13
10.1. Unfunded Status. This Appendix A shall be unfunded for tax purposes and for
purposes of Title 1 of ERISA.
10.2. Establishment of Trust. The Corporation shall not be required to set aside any
funds to discharge its obligations hereunder, but may set aside such funds to informally fund all
or part of its obligations hereunder if it chooses to do so, including without limitation the
contribution of assets to a rabbi trust (the Trust). Any setting aside of amounts, or acquisition
of any insurance policy or any other asset, by the Corporation with which to discharge its
obligations hereunder in trust or otherwise, shall not be deemed to create any beneficial ownership
interest in Employee, his surviving spouse, or Beneficiary, and legal and equitable title to any
funds so set aside shall remain in the Corporation, and any recipient of benefits hereunder shall
have no security or other interest in such funds. The rights of Employee and his surviving spouse
and Beneficiary(ies) under this Appendix A shall be no greater than the rights of a general
unsecured creditor of the Corporation. Any and all funds so set aside by the Corporation shall
remain the general assets of the Corporation, and subject to the claims of its general creditors,
present and future.
10.3. Interrelationship of this Appendix A and the Trust. The provisions of this Appendix
A shall govern the rights of Employee to receive distributions pursuant to the provisions of this
Appendix A. The provisions of the Trust shall govern the rights of the Corporation, Employee, and
creditors of the Corporation to the assets transferred to the Trust. The Corporation shall at all
times remain liable to carry out its obligations under this Appendix A.
10.4. Distributions from the Trust. The Corporations obligations under this Appendix A
may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such
distribution shall reduce the Corporations obligation under this Appendix A.
11. Payment of Benefit for Disabled or Incapacitated Person. If the Corporation
determines, in its discretion, that Employee or Employees Beneficiary or surviving spouse is
under a legal disability or is incapacitated in any way so as to be unable to manage his
financial affairs, the Corporation may make any payment otherwise due under the terms
of this Appendix A to such person or to his legal representative or to a friend or relative of such
person as the Corporation considers advisable. Any payment under this Section 11 shall be a
complete discharge of any liability for the making of such payment under this Appendix A. Nothing
contained in this Section 11, however, should be deemed to impose upon the Corporation any
liability for paying a benefit to any person who is under such a legal
14
disability or is so incapacitated unless it has received notice of such disability or incapacity
from a competent source.
12. Nonassignability. Neither Employee nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by Employee or any other person, be transferable by
operation of law in the event of Employees or any other persons bankruptcy or insolvency or be
transferable to a spouse as a result of a property settlement or otherwise. The Corporation is authorized to make any payments directed by court
order.
13. Claim Procedure.
13.1. Presentation of Claim. Employee, or the surviving spouse of Employee after
Employees death, or Employees Beneficiary (such Employee, surviving spouse, or Beneficiary being
referred to below as a Claimant) may deliver to the Corporation a written claim for a
determination with respect to the amounts distributable to such Claimant under this Appendix A. If
such a claim relates to the contents of a notice received by the Claimant, the claim must be made
within sixty (60) days after such notice was received by the Claimant. All other claims must be
made within 180 days of the date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the Claimant.
13.2. Notification of Decision.
(a) Claim for benefits other than Disability benefits. The Corporation shall consider a
Claimants claim within a reasonable time, but no later than ninety (90) days after receiving the
claim. If the Corporation determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant prior to
the termination of the initial ninety (90) day period. In no event shall such extension exceed a
period of ninety (90) days from the end of the initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which the Corporation
expects to render the benefit determination.
15
(b) Claim for Disability benefits. If the claim relates to benefits in connection with
Disability, the Corporation shall consider a Claimants claim within a reasonable time, but no
later than forty-five (45) days after receiving the claim. If the Corporation determines that, due to
matters beyond the control of the Plan, the Corporation will not be able to respond to the claim
within such 45-day period, the Corporation may extend the response period for one or two additional
periods of up to 30 days each by providing the Claimant with notice describing the circumstances
that necessitate the extension and the date as of which the Corporation anticipates that it will
render its decision. Each such notice must be conveyed to the Claimant prior to the commencement of
an extension.
(c) Notification. The Corporation shall notify the Claimant, in writing, within the time
periods specified in Section 13.2(a) or (b), as applicable:
(1) that the Claimants requested determination has been made, and that the claim has been
allowed in full; or
(2) that the Corporation has reached a conclusion contrary, in whole or in part, to the
Claimants requested determination, and such notice must set forth in a manner calculated to
be understood by the Claimant:
(A) the specific reason(s) for the denial of the claim, or any part of it;
(B) specific reference(s) to pertinent provisions of this Appendix A upon which such
denial was based;
(C) a description of any additional material or information necessary for the
Claimant to perfect the claim, and an explanation of why such material or information
is necessary;
(D) an explanation of the claim review procedure set forth in Section 13.3 below; and
(E) a statement of the Claimants right to bring a civil action under ERISA Section
502(a) following an adverse benefit determination on review.
16
13.3. Review of a Denied Claim.
(a) Claim for benefits other than Disability benefits. On or before sixty (60) days after
receiving a notice from the Corporation that a claim has been denied, in whole or in part, a
Claimant (or the Claimants duly authorized representative) may file with the Corporation a written
request for a review of the denial of the claim. The Claimant (or the Claimants duly authorized
representative):
(a) may, upon request and free of charge, have reasonable access to, and copies of, all
documents, records and other information relevant to the claim for benefits;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Corporation, in its sole discretion, may grant.
The Corporation shall render its decision on review promptly, and no later than sixty (60) days
after the Corporation receives the Claimants written request for a review of the denial of the
claim. If the Corporation determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant prior to
the termination of the initial sixty (60) day period. In no event shall such extension exceed a
period of sixty (60) days from the end of the initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which the Corporation
expects to render the benefit determination. In rendering its decision, the Corporation shall take
into account all comments, documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such information was submitted or considered in
the initial benefit determination. The decision must be written in a manner calculated to be
understood by the Claimant, and it must contain:
(1) specific reasons for the decision;
(2) specific reference(s) to the pertinent provisions of this Appendix A upon which the
decision was based;
(3) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to and copies of, all documents, records and other information relevant
(as defined in applicable ERISA regulations) to the Claimants claim for
17
benefits; and
(4) a statement of the Claimants right to bring a civil action under ERISA Section 502(a).
(b) Claim for Disability benefits. If the claim relates to benefits in connection with
Disability, the procedure described in Section 13.3(a) above shall apply, modified as follows:
(1) All references to 60 days shall be changed to 45 days, except that a Claimant shall
have 180 days to file an appeal.
(2) The Corporation shall designate an individual to conduct the review who is not the
individual who made the initial adverse determination, and is not a subordinate of such
individual.
(3) The notice of extension shall describe the circumstances that require the extension;
must include the date as of which the Corporation anticipates that it will render its
decision; and must be communicated to the Claimant prior to the commencement of the
extension.
(4) The review shall not afford deference to the initial adverse benefit determination.
(5) When the appeal is based on a medical judgment, the Corporation shall consult with a
health care professional who has appropriate experience and training in the field involved
in determining the Claimants Disability and shall identify all medical and vocational
experts whose advice was obtained in connection with the appeal. A health care professional
may not be consulted under this Section 7.10(b)(3)(ii)(E) if the health care professional
(or a subordinate of such individual) was consulted in connection with the initial claim for
benefits.
(6) If the Corporation makes an adverse benefit determination on review, the Corporation
shall provide the Claimant with a statement that the Claimant is entitled to receive or
request reasonable access to, and copies of, all information relevant to the claim for
benefits, including internal rules, guidelines, and protocols (to the extent relied upon)
and a statement regarding voluntary alternative dispute resolution options.
18
13.4. Disability Benefits. For purposes of this Article 13, Disability benefits means a
benefit payable under this Appendix A that is conditioned upon the Corporations determination that
Employee is Permanently and Totally Disabled. If the Corporation does not make such determination,
but instead relies solely upon the determination of the Social Security Administrations
determination that Employee is disabled, then Sections 13.2(b) and 13.3(b) shall not apply, and any
claims by Employee shall instead be reviewed under the provisions of this Article 13 for benefits
other than Disability benefits.
13.5. Legal Action. A Claimants compliance with the foregoing provisions of this Article
13 is a mandatory prerequisite to a Claimants right to commence any legal action with respect to
any claim for benefits under this Appendix A.
14. Tax Withholding and Reporting; Section 280G Excise Taxes.
(a) General. The Corporation shall have the right to deduct any required withholding
taxes from any payment made under this Appendix A. Except as provided in Section 14(b), the
Corporation shall not be obligated to pay or reimburse Employee, or his surviving spouse or
Beneficiary, for any income or other taxes or penalties that may be imposed on such person by the
Internal Revenue Service or any state or other taxing authority as a result of benefits paid under
this Appendix A.
(b) Excise Tax Payment. In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the Code)), to Employee or
for his benefit paid or payable or distributed or distributable pursuant to the terms of this
Employment Agreement (including this Appendix A) or otherwise in connection with, or arising out
of, his employment with the Corporation or a Change in Control of the Corporation (a Payment or
Payments), would be subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively referred to as the
Excise Tax), then Employee will be entitled to immediately receive an additional payment (a
Gross-Up Payment) from the Corporation in an amount such that after payment by Employee of all
taxes (including any interest or penalties, other than interest and penalties imposed by reason of
Employees failure to file timely a tax return or pay taxes shown due on his return, imposed with
respect to such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-Up
Payment,
19
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
15. Successors. The provisions of this Appendix A shall bind and inure to the benefit of
the Corporation and its successors and assigns and Employee and Employees surviving spouse and
designated beneficiaries.
16. Amendment. This Appendix A may be amended only by written agreement between Employee
and the Corporation.
Agreed to and executed this 10th day of November, 2008.
|
|
|
|
|
MKS Instruments, Inc.
|
|
|
By: |
/s/ Leo Berlinghieri
|
|
|
|
Leo Berlinghieri, CEO & President |
|
|
|
|
|
|
|
|
|
/s/ Gerald G. Colella
|
|
|
Gerald G. Colella |
|
|
|
|
|
|
20
exv10w30
Exhibit 10.30
MKS Instruments, Inc.
Compensatory Arrangements with non- Employee Directors
Effective January 20, 2009
Cash Compensation1
Directors who are not employees of the Company are paid cash compensation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Retainer |
|
|
|
|
|
|
(Paid in Quarterly |
|
|
|
|
|
|
Installments) |
|
Meeting Fees |
Chairman |
|
|
|
$ |
60,000.00 |
|
|
$ |
1,600.00 |
|
Board Member |
|
|
|
$ |
28,800.00 |
|
|
$ |
1,800.00 |
|
Lead Director |
|
|
|
$ |
14,400.00 |
|
|
|
|
|
Audit Committee |
|
Chair |
|
$ |
10,800.00 |
|
|
$ |
1,350.00 |
|
|
|
Member |
|
|
|
|
|
$ |
1,350.00 |
|
Compensation Committee |
|
Chair |
|
$ |
9,000.00 |
|
|
$ |
1,350.00 |
|
|
|
Member |
|
|
|
|
|
$ |
1,350.00 |
|
Nominating &
Corporate Governance
Committee |
|
Chair |
|
$ |
5,400.00 |
|
|
$ |
1,350.00 |
|
|
|
Member |
|
|
|
|
|
$ |
1,350.00 |
|
Directors of MKS are reimbursed for expenses incurred in connection with their attendance at board
meetings and committee meetings.
Stock Compensation
Non-employee directors participate in the Companys 2004 Stock Incentive Plan. Under this
plan, non-employee directors receive restricted stock units of the Companys common stock as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Restricted Stock |
|
|
Type of Award |
|
Date of Award |
|
Units |
|
Vesting Schedule |
Initial Award
|
|
Date of initial
election to board
|
|
|
6,666 |
|
|
vests in 12 equal quarterly
installments over a three-year period |
|
|
|
|
|
|
|
|
|
Annual*
|
|
Date of each Annual
Meeting of
Shareholders
|
|
|
4,000 |
|
|
Fully vests on the
day prior to the
first annual
meeting of
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Restricted Stock |
|
|
Type of Award |
|
Date of Award |
|
Units |
|
Vesting Schedule |
|
|
|
|
|
|
|
|
following the date
of grant (or if no
such meeting is
held within 13
months after the
date of grant, on
the 13 month
anniversary of the
date of grant) |
|
|
|
* |
|
A Non-Employee Director is eligible to receive annual awards if the director has been in office
for at least six months prior to the date of the respective annual meeting of shareholders. |
1
Reflects temporary reductions in cash compensation in effect as of January 20, 2009.
exv10w34
Exhibit 10.34
FOURTH AMENDMENT DATED JULY 31, 2008
TO
OPTIONAL ADVANCE DEMAND GRID NOTE
This Fourth Amendment dated as of July 31, 2008 amends the Optional Advance Demand Grid Note
dated August 3, 2004, made by MKS Instruments, Inc. and MKS Japan, Inc. in favor of HSBC Bank USA,
National Association, as amended by the First Amendment, dated July 29, 2005 and the Second
Amendment, dated July 31, 2006, and the Third Amendment, dated as of July 31, 2007 (the Note).
Terms defined in the Note shall have the same meanings in this Amendment.
|
1. |
|
The date of July 31, 2008, wherever it appears in the Note, is hereby
deleted and replaced with: July 31, 2009. After July 31, 2009, the termination date
of July 31, 2009 (and any subsequent termination date), wherever it appears in the
note, shall be deleted and replaced by such later date as may be agreed to in writing
by the Bank and the Borrower as the new termination date of the Note. |
|
|
2. |
|
The definition of Adjusted LIBOR Rate. The LIBOR Rate plus .75%, shall be
deleted and replaced with Adjusted LIBOR Rate: The LIBOR Rate plus .50%. |
|
|
3. |
|
Except as amended hereby, the Note remains unchanged and in full force and
effect. |
|
|
|
|
|
|
|
|
|
|
|
MKS INSTRUMENTS, INC. |
|
|
|
HSBC BANK USA, NATIONAL ASSOCIATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Joseph M. Tocci
|
|
|
|
By:
|
|
/s/ Elise M. Russo |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Joseph M. Tocci
|
|
|
|
Name:
|
|
Elise M. Russo |
|
|
Title:
|
|
Treasurer
|
|
|
|
Title
|
|
First Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
MKS JAPAN, INC. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Ronald Weigner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Ronald Weigner |
|
|
|
|
|
|
|
|
Title:
|
|
Director |
|
|
|
|
|
|
|
|
exv21w1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
|
|
|
SUBSIDIARY
|
|
JURISDICTION OF INCORPORATION |
ASTeX GmbH
|
|
Germany |
Ion Systems, Inc.
|
|
California |
MKS (Bermuda) Ltd.
|
|
Bermuda |
MKS Denmark APS
|
|
Denmark |
MKS Germany Holding GmbH
|
|
Germany |
MKS Instruments (Asia) Ltd.
|
|
Bermuda |
MKS Instruments (China) Company Ltd.
|
|
China |
MKS Instruments Deutschland GmbH
|
|
Germany |
MKS Instruments France S.A.S.
|
|
France |
MKS Instruments (Hong Kong) Ltd.
|
|
Hong Kong |
MKS Instruments (Shanghai) Ltd.
|
|
Shanghai |
MKS Instruments U.K. Limited
|
|
United Kingdom |
MKS Japan, Inc.
|
|
Japan |
MKS Korea Co., Ltd.
|
|
Korea |
MKS Luxembourg S.A.R.L.
|
|
Luxembourg |
MKS MSC, Inc.
|
|
Massachusetts |
MKS Taiwan Technology Ltd.
|
|
Taiwan |
MKS Technology Limited
|
|
United Kingdom |
MKS Tega Ltd.
|
|
Israel |
MKS Tenta Products Ltd.
|
|
Israel |
MKS Umetrics AB
|
|
Sweden |
Spectra Sensortech, Ltd.
|
|
United Kingdom |
Telvac Engineering Limited
|
|
United Kingdom |
Tianjin Yield Co, Ltd.
|
|
China |
Umetrics, Inc.
|
|
New Jersey |
Umetrics (UK) Ltd.
|
|
UK |
Yield Dynamics, Inc.
|
|
California |
exv23w1
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No.
333-78069, 333-78071, 333-78073, 333-31224, 333-54486, 333-54488, 333-54490, 333-90498, 333-90500,
333-90502, 333-116385, 333-116387, 333-116389, and 333-127221) and Form S-3 (No. 333-34450 and
333-109753) of MKS Instruments, Inc. of our report dated February 27, 2009 relating to the
financial statements, financial statement schedule and the effectiveness of internal control over
financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2009
exv31w1
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Leo Berlinghieri, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of MKS Instruments, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any changes in the registrants internal
control over financial reporting that occurred during the registrants fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control and
financial reporting. |
|
|
|
|
|
Dated: February 26, 2009 |
/s/ Leo Berlinghieri
|
|
|
Leo Berlinghieri |
|
|
Chief Executive Officer and President
(Principal Executive Officer) |
|
|
exv31w2
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Ronald C. Weigner, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of MKS Instruments, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any changes in the registrants internal
control over financial reporting that occurred during the registrants fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process,
summarize and report financial information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control and
financial reporting. |
|
|
|
|
|
Dated: February 26, 2009 |
/s/ Ronald C. Weigner
|
|
|
Ronald C. Weigner |
|
|
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer) |
|
|
exv32w1
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of MKS Instruments, Inc. (the Company) for
the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date
hereof (the Report), the undersigned, Leo Berlinghieri, Chief Executive Officer and President of
the Company, and Ronald C. Weigner, Vice President, Chief Financial Officer and Treasurer of the Company, each
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, based on his knowledge:
|
(1) |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
(2) |
|
The information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company. |
|
|
|
|
|
Dated: February 26, 2009 |
/s/ Leo Berlinghieri
|
|
|
Leo Berlinghieri |
|
|
Chief Executive Officer and President |
|
|
|
|
Dated: February 26, 2009 |
/s/ Ronald C. Weigner
|
|
|
Ronald C. Weigner |
|
|
Vice President, Chief Financial Officer and Treasurer |
|
|