þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Massachusetts | 04-2277512 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
2 Tech Drive, Suite 201, Andover, Massachusetts | 01810 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
2
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 140,072 | $ | 119,261 | ||||
Short-term investments |
125,146 | 159,608 | ||||||
Trade accounts receivable, net |
72,166 | 85,350 | ||||||
Inventories |
116,156 | 131,519 | ||||||
Income tax receivable |
31,366 | 4,057 | ||||||
Deferred income taxes |
19,511 | 19,058 | ||||||
Other current assets |
12,136 | 9,875 | ||||||
Total current assets |
516,553 | 528,728 | ||||||
Property, plant and equipment, net |
70,193 | 82,017 | ||||||
Goodwill |
144,511 | 337,765 | ||||||
Acquired intangible assets, net |
5,835 | 21,069 | ||||||
Other assets |
13,333 | 15,360 | ||||||
Total assets |
$ | 750,425 | $ | 984,939 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term borrowings |
$ | 10,118 | $ | 17,808 | ||||
Current portion of capital lease obligations |
445 | 870 | ||||||
Accounts payable |
22,148 | 19,320 | ||||||
Accrued compensation |
9,391 | 13,768 | ||||||
Other accrued expenses |
22,414 | 24,169 | ||||||
Total current liabilities |
64,516 | 75,935 | ||||||
Long-term portion of capital lease obligations |
118 | 396 | ||||||
Other liabilities |
18,704 | 21,910 | ||||||
Commitments and contingencies (Note 15) |
||||||||
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; 49,493,983 and
49,275,975 shares issued and outstanding at September 30, 2009 and
December
31, 2008, respectively |
113 | 113 | ||||||
Additional paid-in capital |
642,987 | 637,938 | ||||||
Retained earnings |
13,822 | 241,428 | ||||||
Accumulated other comprehensive income |
10,165 | 7,219 | ||||||
Total stockholders equity |
667,087 | 886,698 | ||||||
Total liabilities and stockholders equity |
$ | 750,425 | $ | 984,939 | ||||
3
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net revenues |
||||||||||||||||
Products |
$ | 87,255 | $ | 135,890 | $ | 212,601 | $ | 455,732 | ||||||||
Services |
19,007 | 21,474 | 49,535 | 66,082 | ||||||||||||
Total net revenues |
106,262 | 157,364 | 262,136 | 521,814 | ||||||||||||
Cost of revenues |
||||||||||||||||
Cost of products |
55,635 | 81,027 | 155,600 | 264,341 | ||||||||||||
Cost of services |
11,148 | 13,398 | 31,180 | 42,139 | ||||||||||||
Total cost of revenues |
66,783 | 94,425 | 186,780 | 306,480 | ||||||||||||
Gross profit |
39,479 | 62,939 | 75,356 | 215,334 | ||||||||||||
Research and development |
12,114 | 19,228 | 39,862 | 59,263 | ||||||||||||
Selling, general and administrative |
24,385 | 33,760 | 78,516 | 100,282 | ||||||||||||
Amortization of acquired intangible assets |
871 | 1,963 | 3,535 | 7,052 | ||||||||||||
Goodwill and asset impairment charges |
| | 208,497 | | ||||||||||||
Restructuring |
168 | | 5,856 | | ||||||||||||
Income (loss) from operations |
1,941 | 7,988 | (260,910 | ) | 48,737 | |||||||||||
Interest expense |
53 | 86 | 154 | 608 | ||||||||||||
Interest income |
316 | 1,412 | 1,639 | 5,746 | ||||||||||||
Gain (impairment) of investments |
| 506 | | (906 | ) | |||||||||||
Income (loss) before income taxes |
2,204 | 9,820 | (259,425 | ) | 52,969 | |||||||||||
Provision (benefit) for income taxes |
6,177 | 3,029 | (31,819 | ) | 16,562 | |||||||||||
Net income (loss) |
$ | (3,973 | ) | $ | 6,791 | $ | (227,606 | ) | $ | 36,407 | ||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | (0.08 | ) | $ | 0.14 | $ | (4.62 | ) | $ | 0.73 | ||||||
Diluted |
$ | (0.08 | ) | $ | 0.14 | $ | (4.62 | ) | $ | 0.71 | ||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
49,461 | 48,730 | 49,254 | 50,051 | ||||||||||||
Diluted |
49,461 | 49,898 | 49,254 | 51,112 | ||||||||||||
4
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (227,606 | ) | $ | 36,407 | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities: |
||||||||
Depreciation and amortization |
14,452 | 17,803 | ||||||
Stock-based compensation |
6,406 | 11,758 | ||||||
Tax expense from stock-based compensation |
(1,233 | ) | (12 | ) | ||||
Excess tax expense (benefit) from stock-based compensation |
3,174 | (2,202 | ) | |||||
Deferred income taxes |
2,030 | 1,731 | ||||||
Provision for excess or obsolete inventory |
17,692 | 4,898 | ||||||
Impairment of goodwill |
193,254 | | ||||||
Impairment of intangibles and other long-lived assets |
15,243 | | ||||||
Impairment of investments |
| 906 | ||||||
Other |
940 | 211 | ||||||
Changes in operating assets and liabilities: |
||||||||
Trade accounts receivable |
12,137 | 1,022 | ||||||
Inventories |
1,656 | 1,178 | ||||||
Income taxes receivable |
(27,156 | ) | (3,236 | ) | ||||
Other current assets |
(1,997 | ) | (6,408 | ) | ||||
Accrued expenses and other current liabilities |
(11,153 | ) | 268 | |||||
Accounts payable |
1,014 | (2,985 | ) | |||||
Net cash provided by (used in) operating activities |
(1,147 | ) | 61,339 | |||||
Cash flows from investing activities: |
||||||||
Purchases of short-term and long-term available for sale investments |
(176,250 | ) | (221,361 | ) | ||||
Maturities, sales and settlements of short-term and long-term
available for sale investments |
210,534 | 208,209 | ||||||
Purchases of property, plant and equipment |
(3,044 | ) | (8,413 | ) | ||||
Other |
504 | (59 | ) | |||||
Net cash provided by (used in) investing activities |
31,744 | (21,624 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from short-term borrowings |
120,012 | 106,094 | ||||||
Payments on short-term borrowings |
(127,509 | ) | (108,768 | ) | ||||
Repurchases of common stock |
| (115,723 | ) | |||||
Principal payments on capital lease obligations |
(895 | ) | (6,021 | ) | ||||
Proceeds from (taxes paid for) exercise of stock options and employee stock
purchase plan |
(124 | ) | 7,020 | |||||
Excess tax benefit (expense) from stock-based compensation |
(3,174 | ) | 2,202 | |||||
Net cash used in financing activities |
(11,690 | ) | (115,196 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
1,904 | (3,055 | ) | |||||
Increase (decrease) in cash and cash equivalents |
20,811 | (78,536 | ) | |||||
Cash and cash equivalents at beginning of period |
119,261 | 223,968 | ||||||
Cash and cash equivalents at end of period |
$ | 140,072 | $ | 145,432 | ||||
5
1) | Basis of Presentation |
The terms MKS and the Company refer to MKS Instruments, Inc. and its subsidiaries. The interim financial data as of September 30, 2009 and for the three and nine months ended September 30, 2009 and 2008 is unaudited; however, in the opinion of MKS, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The consolidated balance sheet presented as of December 31, 2008 has been derived from the audited consolidated financial statements as of that date. The unaudited consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by United States generally accepted accounting principles (U.S. GAAP). The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the MKS Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on February 27, 2009. |
The preparation of these consolidated 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 consolidated 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 expenses, merger expenses, 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. |
2) | Recently Issued Accounting Pronouncements |
In April 2009, the Financial Accounting Standards Board (FASB) issued additional guidance for estimating fair value when the volume and level of activity for the asset or liability being measured have significantly decreased and identifying circumstances that indicate a transaction is not orderly. The Company adopted the new guidance in the second quarter of 2009 and the adoption did not have an impact on the Companys financial position, results of operations, or cash flows. | ||
In April 2009, the FASB amended the existing guidance on the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The new guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and instead carries forward most of the previous provisions for acquired contingencies. The Company adopted the new guidance effective as of January 1, 2009 and the adoption did not have an impact on the Companys financial position, results of operations, or cash flows. | ||
In May 2009, the FASB issued guidance that modified the definition of what qualifies as a subsequent eventthose events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issuedand required companies to disclose the date through which it has evaluated subsequent events and the basis for determining that date. The Company adopted the provisions of the new guidance in the second quarter of 2009. | ||
In June 2009, the FASB issued guidance which changed the referencing of financial standards and the Hierarchy of Generally Accepted Accounting Principles and is effective for interim or annual financial periods ending after September 15, 2009. The Company adopted the provisions of the new guidance in the third quarter of 2009 and updated its disclosures. | ||
In October 2009, the FASB issued guidance that establishes new accounting and reporting provisions for arrangements including multiple revenue-generating activities. This guidance provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in this guidance also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendors multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method |
6
effects the timing or amount of revenue recognition. The amendments in this guidance are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating the potential impact of this new guidance on its consolidated financial statements. | ||
In October 2009, the FASB issued guidance that changes the accounting model for revenue arrangements that include both tangible products and software elements that are essential to the functionality, and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered essential to the functionality. The amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this guidance are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating the potential impact of this new guidance on its consolidated financial statements. |
3) | 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. | ||
In April 2009, the FASB amended the existing guidance on other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The new guidance was effective for the Companys second quarter of 2009 and the adoption did not have an impact on the Companys financial position, results of operations, or cash flows. | ||
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. At 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 and, as a result, recorded a $1,457,000 impairment charge to earnings. This resulted in a new cost basis for the securities of $4,275,000 at December 31, 2007. | ||
During the Companys review of its investment portfolio as of March 31, 2008, the Company determined that further declines in the value of these two investments were other-than-temporary and, as a result, recorded an additional $1,161,000 impairment charge to earnings. This resulted in a new cost basis for the securities of $3,114,000 at March 31, 2008. | ||
During the second quarter of 2008, the Company recorded additional impairment charges of $251,000 on these two investments due to further declines in value. In addition, the Company received a $490,000 principal payment from one of these investments during the second quarter of 2008. During the third quarter of 2008, the Company liquidated its position in these two impaired investments, one by sale and the other by a structured payment, for a combined total of $2,879,000 and, as a result, it recorded a gain from the liquidation of $506,000. The Company did not have any other-than-temporary impaired investments at September 30, 2009. | ||
In April 2009, the FASB amended the existing guidance on required disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The Company adopted the new guidance in the second quarter of 2009 and added the required interim disclosures. |
7
The fair value of short-term available-for-sale investments with maturities or estimated lives of less than one year consists of the following: |
September 30, 2009 | December 31, 2008 | |||||||
Federal Government and Government Agency Obligations |
$ | 105,822 | $ | 137,981 | ||||
Commercial Paper and Corporate Obligations |
19,324 | 21,627 | ||||||
$ | 125,146 | $ | 159,608 | |||||
The following table shows the gross unrealized gains and losses aggregated by investment category: |
Gross Unrealized | Gross Unrealized | Estimated | ||||||||||||||
Cost | Gains | (Losses) | Fair Value | |||||||||||||
As of September 30, 2009: |
||||||||||||||||
Federal Government and Government Agency Obligations |
$ | 99,396 | $ | 120 | $ | (11 | ) | $ | 99,505 | |||||||
Commercial Paper and Corporate Obligations |
4,517 | 58 | (551 | ) | 4,024 | |||||||||||
Total |
$ | 103,913 | $ | 178 | $ | (562 | ) | $ | 103,529 | |||||||
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 | |||||||
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 for the three and nine months ended September 30, 2009 and 2008. |
4) | Fair Value Measurements | |
In accordance with the provisions of fair value accounting, a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs 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 and defines fair value based upon an exit price model. | ||
The fair value measurement guidance 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 guidance 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, |
8
Level 1 | 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 September 30, 2009, are summarized as follows: |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets for | Other | Unobservable | ||||||||||||||
Identical Assets | Observable | Inputs | ||||||||||||||
Description | September 30, 2009 | (Level 1) | Inputs (Level 2) | (Level 3) | ||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 8,314 | $ | 8,314 | $ | | $ | | ||||||||
Available-for-sale-securities |
125,146 | 125,146 | | | ||||||||||||
Total assets |
$ | 133,460 | $ | 133,460 | $ | | $ | | ||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets for | Other | Unobservable | ||||||||||||||
Identical Liabilities | Observable | Inputs | ||||||||||||||
Description | September 30, 2009 | (Level 1) | Inputs (Level 2) | (Level 3) | ||||||||||||
Liabilities |
||||||||||||||||
Derivatives
currency forward
contracts |
$ | 854 | $ | | $ | 854 | $ | | ||||||||
Total liabilities |
$ | 854 | $ | | $ | 854 | $ | | ||||||||
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 | Significant | ||||||||||||||
Active Markets for | Other | Unobservable | ||||||||||||||
Identical Assets | Observable | Inputs | ||||||||||||||
Description | December 31, 2008 | (Level 1) | Inputs (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 | $ | | ||||||||
Cash Equivalents | ||
As of September 30, 2009 and December 31, 2008, cash equivalents consisted of Federal Government and Government Agency Obligations, Commercial Paper, and Corporate Obligations, classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. | ||
Available-For-Sale Securities | ||
As of September 30, 2009 and December 31, 2008, available-for-sale securities consisted of Federal Government and Government Agency Obligations, Commercial Paper, and Corporate Obligations, 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 |
9
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. | ||
Assets and liabilities of the Company measured at fair value on a non-recurring basis as of and for the nine months ended September 30, 2009 are summarized as follows: |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||||||
September 30, | Identical Assets | Observable Inputs | Inputs | |||||||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | Total Losses | |||||||||||||||
Assets |
||||||||||||||||||||
Goodwill |
$ | 144,511 | $ | | $ | | $ | 144,511 | $ | 193,254 | ||||||||||
Definite lived intangible assets |
5,835 | | | 5,835 | 11,699 | |||||||||||||||
Long-lived assets held and used |
1,297 | | 1,297 | | 3,544 | |||||||||||||||
Total assets |
$ | 151,643 | $ | | $ | 1,297 | $ | 150,346 | $ | 208,497 | ||||||||||
In accordance with the provisions of accounting for goodwill and other intangible assets, goodwill with a carrying amount of $337,765,000 was written down to its implied fair value of $144,511,000, resulting in an impairment charge of $193,254,000, which was included in earnings in the second quarter of 2009. In accordance with the provisions of accounting for the impairment of long-lived assets, definite-lived intangible assets with a carrying amount as of April 30, 2009 of $18,866,000, were written down to its fair value of $7,167,000, resulting in an impairment charge of $11,699,000, which was included in earnings in the second quarter of 2009. Refer to Note 7 for the information and description used to develop the inputs and the fair value determination of the goodwill and other intangible assets. | ||
The long-lived asset held and used with a carrying amount of $4,841,000 was written down to its fair value of $1,297,000, resulting in a loss of $3,544,000, which was included in earnings in the second quarter of 2009. | ||
Assets and liabilities of the Company measured at fair value on a non-recurring basis as of and for the twelve months ended December 31, 2008 are summarized as follows: |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||||||
December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||||||
Description | 2008 | (Level 1) | (Level 2) | (Level 3) | Total Losses | |||||||||||||||
Assets |
||||||||||||||||||||
Goodwill |
$ | 337,765 | $ | | $ | | $ | 337,765 | $ | | ||||||||||
Definite lived intangible assets |
21,069 | | | 21,069 | 6,069 | |||||||||||||||
Total assets |
$ | 358,834 | $ | | $ | | $ | 358,834 | $ | 6,069 | ||||||||||
During the fourth quarter of 2008, the adverse economic climate was a significant factor that indicated that the carrying amount of certain long-lived asset groups were not recoverable. A review of future cash flows indentified asset groups within Yield Dynamics (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 in the fourth quarter of 2008. |
5) | Derivatives | |
In March 2008, the FASB amended existing guidance to provide enhanced disclosure about how and why the entity uses derivative instruments, how the instruments and related hedged items are accounted for and how the instruments and related hedged items |
10
affect the financial position, results of operations, and cash flows of the entity. The Company adopted this new guidance effective January 1, 2009. | ||
The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. The Company operates internationally and, in the normal course of business, is exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business. The Company has used derivative instruments, such as forward contracts, to manage certain foreign currency exposure. | ||
By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions and no collateral is required. The Company has policies to monitor the credit risk of these counterparties. While there can be no assurance, the Company does not anticipate any material non-performance by any of these counterparties. | ||
The Company hedges a portion of its forecasted foreign currency denominated intercompany sales of inventory, over a maximum period of eighteen months, using forward foreign exchange contracts accounted for as cash-flow hedges related to Japanese, South Korean, British and European currencies. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives fair value are not included in current earnings but are included in accumulated other comprehensive income in stockholders equity. These changes in fair value will subsequently be reclassified into earnings as a component of product cost, as applicable, when the forecasted transaction occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs. The cash flows resulting from forward exchange contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. The Company does not enter into derivative instruments for trading or speculative purposes. | ||
To the extent the hedge accounting criteria are not met, the foreign currency forward contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded currently in earnings in the period in which they occur. These include hedges that are used to reduce exchange rate risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (i.e. payables, receivables) and other economic hedges where the hedge accounting criteria were not met. | ||
As of September 30, 2009 and December 31, 2008, the Company had outstanding forward foreign exchange contracts with gross notional values of $25,453,000 and $30,556,000, respectively. The following table provides a summary of the primary net hedging positions and corresponding fair values held as of September 30, 2009: |
Gross Notional | ||||||||
Currency Hedged (Buy/Sell) | Value | Fair Value (1) | ||||||
U.S. Dollar/Japanese Yen |
$ | 14,926 | $ | (51 | ) | |||
U.S. Dollar/South Korean Won |
5,708 | (524 | ) | |||||
U.S. Dollar/Euro |
3,964 | (269 | ) | |||||
U.S. Dollar/U.K. Pound Sterling |
855 | (10 | ) | |||||
Total |
$ | 25,453 | $ | (854 | ) | |||
(1) | Represents the net receivable (payable) amount included in the consolidated balance sheet as of September 30, 2009. |
The following table provides a summary of the fair value amounts of the Companys derivative instruments: |
September 30, | December 31, | |||||||
Derivatives Designated as Hedging Instruments | 2009 | 2008 | ||||||
Derivative assets |
||||||||
Forward exchange contracts |
$ | 88 | $ | 2,645 | ||||
Derivative liabilities |
||||||||
Forward exchange contracts |
942 | 2,137 | ||||||
Total net derivative assets (liabilities) designated as hedging instruments (1) |
$ | (854 | ) | $ | 508 | |||
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(1) | The net liability of $854,000 is classified in other accrued expenses and the net asset of $508,000 is classified in other current assets on the consolidated balance sheets as of September 30, 2009 and December 31, 2008, respectively. | |
The following table provides a summary of the gains (losses) on derivatives designated as hedging instruments: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Derivatives Designated as Cash Flow Hedging Relationships | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Forward exchange contracts - forwards | ||||||||||||||||
Net gain (loss) recognized in OCI (1) |
$ | (547 | ) | $ | 2,327 | $ | (648 | ) | $ | 3,166 | ||||||
Net gain (loss) reclassified from accumulated OCI into
income (2) |
(39 | ) | (95 | ) | 1,546 | (2,435 | ) | |||||||||
Net gain (loss) recognized in income (3) |
(691 | ) | | 248 | |
(1) | Net change in the fair value of the effective portion classified in other comprehensive income (OCI). | |
(2) | Effective portion classified as cost of products. | |
(3) | Ineffective portion and amount excluded from effectiveness testing, classified in selling, general and administrative. |
The following table provides a summary of gains on derivatives not designated as hedging instruments: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Derivatives Not Designated as Hedging Instruments | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Forward exchange contracts - forwards | ||||||||||||||||
Net gain recognized in income (1) |
$ | 41 | $ | | $ | 41 | $ | 2,669 |
(1) | Classified in selling, general and administrative. |
The $2,669,000 gain was primarily attributable to the settlement of cash and intercompany loans at different foreign exchange rates related to a legal entity consolidation among some of the Companys foreign subsidiaries. |
6) | Inventories | |
Inventories consist of the following: |
September 30, 2009 | December 31, 2008 | |||||||
Raw material |
$ | 52,590 | $ | 58,542 | ||||
Work in process |
14,509 | 22,072 | ||||||
Finished goods |
49,057 | 50,905 | ||||||
$ | 116,156 | $ | 131,519 | |||||
During the nine months ended September 30, 2009, the Company recorded charges of $17,692,000 for excess and obsolete inventory. Of this amount, $14,373,000 was recorded in the three months ended March 31, 2009, primarily as a result of a lower inventory consumption plan in the first quarter of 2009 that the Company implemented in response to the weakness in its markets during that period. |
7) | Goodwill and Intangible Assets | |
Goodwill | ||
The Company tests goodwill for impairment on an annual basis, which has been determined to be as of October 31 of each fiscal year. The Company also tests goodwill between annual tests if an event occurs or circumstances change that indicate that the fair value of a reporting unit may be below its carrying value. Due to various factors, including current market and economic conditions that have contributed to a decline in the Companys forecasted business levels, and the excess of the Companys consolidated net assets over its market capitalization for a sustained period of time, the Company concluded an interim assessment for impairment should be conducted for its goodwill as of April 30, 2009, the date of the triggering event. |
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Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, the Company determines the fair value of a reporting unit using a discounted cash flow (DCF) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (WACC), which represents the average rate a business must pay its providers of debt and equity. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal earnings and forecasts and external market forecasts. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting units goodwill with its carrying amount of goodwill to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, whereby the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. | ||
In the interim assessment, the Company determined that for certain reporting units, the carrying amount of their net assets exceeded their respective fair values, indicating that a potential impairment existed. After completing the second step of the goodwill impairment test, the Company recorded a goodwill impairment charge in the second quarter of 2009 of $193,254,000. | ||
The changes in the carrying amount of goodwill during the nine months ended September 30, 2009 and twelve months ended December 31, 2008 were as follows: |
2009 | 2008 | |||||||
Balance at January 1 |
||||||||
Goodwill |
$ | 337,765 | $ | 337,473 | ||||
Accumulated impairment losses |
| | ||||||
337,765 | 337,473 | |||||||
Goodwill acquired |
| | ||||||
Impairment losses |
(193,254 | ) | | |||||
Adjustments to deferred tax assets |
| 292 | ||||||
Balance at September 30, 2009 and December 31, 2008 |
||||||||
Goodwill |
337,765 | 337,765 | ||||||
Accumulated impairment losses |
(193,254 | ) | | |||||
$ | 144,511 | $ | 337,765 | |||||
Intangible Assets | ||
The Company is required to test certain long-lived assets when indicators of impairment are present. For the purposes of the impairment test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Due to various factors, including current market and economic conditions that have contributed to a decline in the Companys forecasted business levels, and the excess of the Companys consolidated net assets over market capitalization for a sustained period of time, the Company concluded an interim assessment for impairment should be conducted for its intangible assets as of April 30, 2009. The Company tested the long-lived assets in question for recoverability by comparing the sum of the undiscounted cash flows attributable to each respective asset group to their carrying amounts, and determined that the carrying amounts were not recoverable. Management then evaluated the fair values of each long-lived asset of the potentially impaired long-lived asset group to determine the amount of the impairment, if any. The fair value of each intangible asset was based primarily on an income approach, which is a present value technique used to measure the fair value of future cash flows produced by the asset. The Company estimated future cash flows over the remaining useful life of each intangible asset. As a result of this analysis, the Company determined that certain of its intangible assets related to completed technology, customer relationships, and patents and trademarks had carrying values that exceeded their estimated fair values. As a result, an impairment charge of $11,699,000 was recorded in the second quarter of 2009. |
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During the fourth quarter of 2008, the adverse economic climate was a significant factor that indicated that the carrying amount of certain long-lived asset groups were not 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 in the fourth quarter of 2008. | ||
Components of the Companys acquired intangible assets are comprised of the following: | ||
As of September 30, 2009: |
Impairment | Accumulated | |||||||||||||||
Gross | Charges | Amortization | Net | |||||||||||||
Completed technology |
$ | 88,855 | $ | (3,812 | ) | $ | (82,292 | ) | $ | 2,751 | ||||||
Customer relationships |
21,879 | (7,113 | ) | (13,156 | ) | 1,610 | ||||||||||
Patents, trademarks, trade names and other |
29,672 | (774 | ) | (27,424 | ) | 1,474 | ||||||||||
$ | 140,406 | $ | (11,699 | ) | $ | (122,872 | ) | $ | 5,835 | |||||||
For the 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 | |||||||
Aggregate amortization expense related to acquired intangibles for the three and nine months ended September 30, 2009 was $871,000 and $3,535,000, respectively. Aggregate amortization expense related to acquired intangibles for the three and nine months ended September 30, 2008 was $1,963,000 and $7,052,000, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows: |
Year | Amount | |||
2009 (remaining) |
$ | 869 | ||
2010 |
2,134 | |||
2011 |
1,588 | |||
2012 |
634 | |||
2013 |
610 |
Long-lived tangible assets | ||
As a result of a facility consolidation in Asia, the Company recorded an asset impairment charge of $3,544,000 in the second quarter of 2009 resulting from the write down of the value of a building to its estimated fair value. |
8) | Debt | |
On March 18, 2009, the Company entered into an amendment to the Optional Advance Demand Grid Note dated August 3, 2004. The unsecured short-term LIBOR based loan agreement with HSBC Bank USA is utilized primarily by the Companys Japanese subsidiary for short-term liquidity purposes. The credit line as amended (a) decreased the maximum amount of the note from $35,000,000 to $5,000,000, (b) decreased the limit for standby letters of credit under the note from $750,000 to $650,000, and (c) established an annual facility fee of 0.0375% of the maximum amount of the note. The Company believes the reduced amount of the note more accurately reflects its anticipated utilization of this line, and minimizes the cost of the new facility fee. The Company had outstanding borrowings under this line of credit of $1,101,000 at December 31, 2008 and no outstanding borrowings under this line of credit at September 30, 2009. |
14
On August 10, 2009, the Company entered into an amendment to the Optional Advance Demand Grid Note Dated August 3, 2004, to extend its maturity date to January 31, 2010. | ||
Additionally, the Companys Japanese subsidiary has credit and short term borrowing arrangements with two financial institutions. Total borrowings outstanding under these arrangements were $10,118,000 and $16,707,000 at September 30, 2009 and December 31, 2008, respectively. |
9) | Product Warranties | |
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 shipment volume, 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 activities were as follows: |
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
Balance at January 1 |
$ | 8,334 | $ | 9,497 | ||||
Provision for product warranties |
617 | 4,481 | ||||||
Direct charges to warranty liability |
(2,730 | ) | (4,970 | ) | ||||
Balance at September 30 |
$ | 6,221 | $ | 9,008 | ||||
10) | Restructuring | |
In the first quarter of 2009, the Company initiated a restructuring plan due to the global financial crisis and its impact on the Companys semiconductor equipment OEM customers and the other markets it serves. The plan included a reduction in the Companys worldwide headcount of approximately 630 people, which represented approximately 24% of its global workforce. | ||
The Company recorded restructuring charges of $168,000 and $5,856,000 during the three and nine months ended September 30, 2009, respectively. The restructuring charges were primarily for severance and other charges associated with the reductions in workforce. As of September 30, 2009, the accrued restructuring costs totaled $593,000 and were included in accrued compensation in the consolidated balance sheets. These costs will be substantially paid by December 31, 2009. | ||
The activity related to the Companys restructuring accrual is shown below: |
Nine Months Ended | ||||
September 30, 2009 | ||||
Beginning balance |
$ | | ||
Charged to expense |
5,856 | |||
Payments |
(5,263 | ) | ||
Ending balance |
$ | 593 | ||
11) | Income Taxes | |
The Companys effective tax rate for the three and nine months ended September 30, 2009 was 280.0% and 12.3%, respectively. The effective tax rate for the three months ended September 30, 2009 is higher than the statutory rate primarily due to increases in the actual and projected taxable income for 2009. The effective tax rate for the nine months ended September 30, 2009 and the related tax benefit are lower than the statutory tax rate. The decreased benefit is primarily due to a non-deductible goodwill impairment charge of $190,705,000 during the second quarter. The Companys effective tax rate for the three and nine months ended September 30, 2008 was 30.9% and 31.3%, respectively. The effective tax rate for the three and nine months ended |
15
September 30, 2008 was less than the statutory tax rate primarily due to the profits of the Companys international subsidiaries being taxed at rates lower than the U.S. statutory tax rate. | ||
The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. With the close of a federal tax audit in the first quarter of 2009, the Company has concluded all U.S. federal income tax matters for years through 2006. As of September 30, 2009, there were ongoing audits in various other tax jurisdictions. | ||
The total amount of gross unrecognized tax benefits at September 30, 2009 was approximately $8,174,000. At December 31, 2008, the total amount of gross unrecognized tax benefits, which excludes interest and penalties discussed below, was approximately $14,678,000. 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 would impact the Companys effective tax rate. The net decrease from December 31, 2008 was primarily attributable to the release of reserves from the years 2003 to 2006 as a result of the close of the federal tax audit on the 2005 and 2006 tax years. | ||
Within the next 12 months, it is reasonably possible that the Company may recognize $1,600,000 to $1,900,000 of previously unrecognized tax benefits related to various 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: 2007 and 2008, Germany: 2001 to 2008, Korea: 2004 to 2008, Japan: 2004 to 2008, and the United Kingdom: 2007 and 2008. | ||
The Company accrues interest expense and, if applicable, penalties, for any uncertain tax positions. This interest and penalty expense is a component of income tax expense. At September 30, 2009 and December 31, 2008, the Company had approximately $600,000 and $1,730,000, respectively, accrued for interest on unrecognized tax benefits. |
12) | Net Income (Loss) Per Share | |
The following table sets forth the computation of basic and diluted net income (loss) per share: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | (3,973 | ) | $ | 6,791 | $ | (227,606 | ) | $ | 36,407 | ||||||
Denominator: |
||||||||||||||||
Shares used in net income (loss) per common share basic |
49,461 | 48,730 | 49,254 | 50,051 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock options, restricted stock and employee stock purchase plan |
| 1,168 | | 1,061 | ||||||||||||
Shares used in net income (loss) per common share diluted |
49,461 | 49,898 | 49,254 | 51,112 | ||||||||||||
Net income (loss) per common share: |
||||||||||||||||
Basic |
$ | (0.08 | ) | $ | 0.14 | $ | (4.62 | ) | $ | 0.73 | ||||||
Diluted |
$ | (0.08 | ) | $ | 0.14 | $ | (4.62 | ) | $ | 0.71 | ||||||
Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the treasury stock method), if securities containing potentially dilutive common shares (stock options and restricted stock units) had been converted to such common shares, and if such assumed conversion is dilutive. | ||
As of September 30, 2009, stock options and restricted stock units relating to an aggregate of approximately 4,209,000 shares were outstanding. For the three and nine months ended September 30, 2009, all potentially dilutive common shares were |
16
excluded from the dilutive computation as the effect of including such securities in the computation would be anti-dilutive due to our net loss for the periods. | ||
As of September 30, 2008, stock options and restricted stock units relating to an aggregate of approximately 6,506,000 shares were outstanding. For the three and nine months ended September 30, 2008, 3,117,000 and 3,173,000 shares, respectively, were not included in the computation of diluted earnings per share because the exercise price exceeded the average price per share for the period. | ||
Stock Option Exchange Program | ||
Pursuant to the Companys tender offer to exchange outstanding stock options, during the three months ended September 30, 2009, options to purchase 1,330,000 shares of common stock were exchanged for 189,000 restricted stock units with a one year vesting period. Participants exchanged their eligible option awards for restricted stock units of an approximate equal fair value and, as such, no incremental compensation expense was recognized as a result of the exchange. |
13) | Stockholders Equity | |
Comprehensive Income (Loss) Components of comprehensive income (loss) were as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income (loss) |
$ | (3,973 | ) | $ | 6,791 | $ | (227,606 | ) | $ | 36,407 | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Changes in value of financial instruments designated as cash flow
hedges, net of tax |
(341 | ) | 1,137 | (920 | ) | 1,911 | ||||||||||
Foreign currency translation adjustment |
4,262 | (6,350 | ) | 3,900 | (6,951 | ) | ||||||||||
Unrealized gain (loss) on investments, net of tax |
116 | (35 | ) | (34 | ) | (153 | ) | |||||||||
Other comprehensive income (loss) |
4,037 | (5,248 | ) | 2,946 | (5,193 | ) | ||||||||||
Total comprehensive income (loss) |
$ | 64 | $ | 1,543 | $ | (224,660 | ) | $ | 31,214 | |||||||
Stock Repurchase Program | ||
On February 12, 2007, the Companys 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. During the three months ended September 30, 2008, the Company repurchased 616,000 shares of its common stock for $13,785,000 for an average price of $22.36 per share and during the nine months ended September 30, 2008, the Company repurchased 5,667,000 shares of its common stock for $115,723,000 for an average price of $20.42 per share. The Company did not repurchase shares in 2009 and the Program ended effective February 11, 2009. |
14) | Geographic, Product and Significant Customer Information | |
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 revenues 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 revenues. |
17
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Geographic net revenues: |
||||||||||||||||
United States |
$ | 57,466 | $ | 85,120 | $ | 138,424 | $ | 306,025 | ||||||||
Japan |
11,312 | 24,687 | 30,651 | 74,586 | ||||||||||||
Europe |
16,028 | 24,671 | 46,881 | 79,184 | ||||||||||||
Asia (excluding Japan) |
21,456 | 22,886 | 46,180 | 62,019 | ||||||||||||
$ | 106,262 | $ | 157,364 | $ | 262,136 | $ | 521,814 | |||||||||
September 30, 2009 | December 31, 2008 | |||||||
Long-lived assets: |
||||||||
United States |
$ | 53,882 | $ | 60,942 | ||||
Japan |
6,550 | 11,527 | ||||||
Europe |
3,864 | 3,353 | ||||||
Asia (excluding Japan) |
8,119 | 8,812 | ||||||
$ | 72,415 | $ | 84,634 | |||||
The Company groups its products into three product groups. Net product and service revenues for these product groups are as follows: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Instruments and Control Systems |
$ | 57,960 | $ | 80,061 | $ | 142,712 | $ | 267,269 | ||||||||
Power and Reactive Gas Products |
39,240 | 61,677 | 94,895 | 202,463 | ||||||||||||
Vacuum Products |
9,062 | 15,626 | 24,529 | 52,082 | ||||||||||||
$ | 106,262 | $ | 157,364 | $ | 262,136 | $ | 521,814 | |||||||||
The Company had one customer comprising 13% and 12% of net revenues for the three and nine months ended September 30, 2009, respectively. The Company had one customer comprising 18% of net revenues for both the three and nine months ended September 30, 2008. |
15) | Commitments and Contingencies | |
The Company is subject to various 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 Companys results of operations, financial condition or cash flows. | ||
The Company reviewed its contractual obligations and commercial commitments as of September 30, 2009 and determined that there were no significant changes from the ones set forth in the notes to the financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008. | ||
16) | Subsequent Event | |
The Company evaluated its events and transactions subsequent to its September 30, 2009 balance sheet date and determined that there were no significant subsequent events to report through November 6, 2009, which is the date the Company issued its financial statements. |
18
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
19
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net revenues |
||||||||||||||||
Product |
82.1 | % | 86.4 | % | 81.1 | % | 87.3 | % | ||||||||
Services |
17.9 | 13.6 | 18.9 | 12.7 | ||||||||||||
Total net revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of revenues |
||||||||||||||||
Cost of product revenues |
52.3 | 51.5 | 59.4 | 50.6 | ||||||||||||
Cost of service revenues |
10.5 | 8.5 | 11.9 | 8.1 | ||||||||||||
Total cost of revenues |
62.8 | 60.0 | 71.3 | 58.7 | ||||||||||||
Gross profit |
37.2 | 40.0 | 28.7 | 41.3 | ||||||||||||
Research and development |
11.4 | 12.2 | 15.2 | 11.4 | ||||||||||||
Selling, general and administrative |
23.0 | 21.5 | 30.0 | 19.2 | ||||||||||||
Amortization of acquired intangible assets |
0.8 | 1.2 | 1.3 | 1.4 | ||||||||||||
Goodwill and asset impairment charges |
| | 79.5 | | ||||||||||||
Restructuring |
0.2 | | 2.2 | | ||||||||||||
Income (loss) from operations |
1.8 | 5.1 | (99.5 | ) | 9.3 | |||||||||||
Interest income, net |
0.3 | 0.8 | 0.6 | 1.0 | ||||||||||||
Gain (impairment) of investments |
| 0.3 | | (0.2 | ) | |||||||||||
Income (loss) before income taxes |
2.1 | 6.2 | (98.9 | ) | 10.1 | |||||||||||
Provision (benefit) for income taxes |
5.8 | 1.9 | (12.1 | ) | 3.2 | |||||||||||
Net income (loss) |
(3.7 | )% | 4.3 | % | (86.8 | )% | 6.9 | % | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Net Revenues |
||||||||||||||||||||||||
Product |
$ | 87.3 | $ | 135.9 | (35.8 | )% | $ | 212.6 | $ | 455.7 | (53.3 | )% | ||||||||||||
Service |
19.0 | 21.5 | (11.5 | ) | 49.5 | 66.1 | (25.0 | ) | ||||||||||||||||
Total net revenues |
$ | 106.3 | $ | 157.4 | (32.5 | )% | $ | 262.1 | $ | 521.8 | (49.8 | )% | ||||||||||||
20
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Points Change | 2009 | 2008 | % Points Change | |||||||||||||||||||
Gross profit as percentage of net revenues |
||||||||||||||||||||||||
Product |
36.2 | % | 40.4 | % | (4.2 | )% | 26.8 | % | 42.0 | % | (15.2 | )% | ||||||||||||
Service |
41.4 | 37.6 | 3.8 | 37.1 | 36.2 | 0.9 | ||||||||||||||||||
Total gross profit percentage |
37.2 | % | 40.0 | % | (2.8 | )% | 28.7 | % | 41.3 | % | (12.6 | )% | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Research and development expenses |
$ | 12.1 | $ | 19.2 | (37.0 | )% | $ | 39.9 | $ | 59.3 | (32.7 | )% |
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Selling, general and administrative expenses |
$ | 24.4 | $ | 33.8 | (27.8 | )% | $ | 78.5 | $ | 100.3 | (21.7 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Amortization of acquired intangible assets |
$ | 0.9 | $ | 2.0 | (55.6 | )% | $ | 3.5 | $ | 7.1 | (49.9 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Goodwill and asset impairment charges |
$ | | $ | | | % | $ | 208.5 | $ | | 100.0 | % |
22
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Restructuring |
$ | 0.2 | $ | | 100.0 | % | $ | 5.9 | $ | | 100.0 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Interest income, net |
$ | 0.3 | $ | 1.3 | (80.2 | )% | $ | 1.5 | $ | 5.1 | (71.1 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2009 | 2008 | % Change | 2009 | 2008 | % Change | |||||||||||||||||||
Gain (impairment) of investments |
$ | | $ | 0.5 | (100.0 | )% | $ | | $ | (0.9 | ) | 100.0 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Provision (benefit) for income taxes |
$ | 6.2 | $ | 3.0 | $ | (31.8 | ) | $ | 16.6 |
23
24
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 4. CONTROLS AND PROCEDURES. |
26
ITEM 1. | LEGAL PROCEEDINGS. |
ITEM 1A. | RISK FACTORS. |
ITEM 6. | EXHIBITS. |
Exhibit No. | Exhibit Description | |
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 | |
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 | ||
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 |
(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 filed with the Securities and Exchange Commission on January 28, 1999, as amended. |
MKS INSTRUMENTS, INC. |
||||
November 6, 2009 | By: | /s/ Ronald C. Weigner | ||
Ronald C. Weigner | ||||
Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
27
1. | I have reviewed this Quarterly Report on Form 10-Q 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 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 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 change in the registrants internal control over financial reporting that occurred during the registrants most recent 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 the 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. |
Date: November 6, 2009 | /s/ Leo Berlinghieri | |||
Leo Berlinghieri | ||||
Chief Executive Officer and President (Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q 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 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 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 change in the registrants internal control over financial reporting that occurred during the registrants most recent 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 the 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. |
Date: November 6, 2009 | /s/ Ronald C. Weigner | |||
Ronald C. Weigner | ||||
Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
(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: November 6, 2009 | /s/ Leo Berlinghieri | |||
Leo Berlinghieri | ||||
Chief Executive Officer and President | ||||
Dated: November 6, 2009 | /s/ Ronald C. Weigner | |||
Ronald C. Weigner | ||||
Vice President, Chief Financial Officer and Treasurer | ||||