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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission
File number 0-23621
MKS INSTRUMENTS, INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Massachusetts
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04-2277512
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(State or other Jurisdiction
of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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2 Tech Drive, Suite 201, Andover, Massachusetts
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01810
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants
Telephone Number, including area code
(978) 645-5500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of class
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Name of exchange on which registered
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Common Stock, no par value
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NASDAQ Global Select Market
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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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No
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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):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(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, 2010 based on the closing price of the
registrants Common Stock on such date as reported by the
Nasdaq Global Market: $938,960,587
Number of shares outstanding of the issuers Common Stock,
no par value, as of February 18, 2011: 51,736,456
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for MKS Annual
Meeting of Stockholders to be held on May 2, 2011 are
incorporated by reference into Part III of this
Form 10-K.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 although not all forward
looking statements contain these identifying words. 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.
MKS Instruments, Inc. (the Company or
MKS) was founded in 1961 as a Massachusetts
corporation. We are a leading global provider of instruments,
subsystems and process control solutions that measure, control,
power, monitor and analyze critical parameters of advanced
manufacturing processes to improve process performance and
productivity. We also provide services relating to the
maintenance and repair of our products, software maintenance,
installation services and training.
Our products are used in diverse markets, applications and
processes. The primary markets we serve are manufacturers of
capital equipment for semiconductor devices and for other thin
film applications including flat panel displays, light emitting
diodes (LEDs), solar cells, data storage media and
other advanced coatings. We also leverage our technology into
other markets with advanced manufacturing applications including
medical equipment, pharmaceutical manufacturing, energy
generation and environmental monitoring.
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, control and information technology, power and reactive
gas generation and vacuum technology.
For almost 50 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, LEDs, solar cells, data
storage media and other coating applications; and other
industrial, medical, pharmaceutical manufacturing, energy
generation, environmental monitoring and other advanced
manufacturing companies, as well as university, government and
industrial research laboratories. Our top 10 customers for 2010
were Applied Materials, Benchmark Electronics, Hitachi, Lam
Research, Novellus Systems, Phillips, Precision Flow Tech, PSK
Technologies, Samsung and Tokyo Electron.
We file reports, proxy statements and other documents with the
Securities and Exchange Commission (SEC). You may
read and copy any document we file at the SEC Headquarters at
the 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
http://www.mksinst.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 internet 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
SEC.
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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
certain other advanced market sectors. Approximately 64%, 52%
and 58% of our net sales for the years 2010, 2009 and 2008,
respectively, were to semiconductor capital equipment
manufacturers and semiconductor device manufacturers.
Approximately 36%, 48% and 42% of our net sales in the years
2010, 2009 and 2008, respectively, were for other advanced
manufacturing applications. These include, but are not limited
to, thin film processing equipment applications such as flat
panel displays, LEDs, solar cells, data storage media and other
thin film coatings as well as medical equipment; pharmaceutical
manufacturing, energy generation and environmental monitoring
processes; other industrial manufacturing; and university,
government and industrial research laboratories.
During the year 2010, 2009 and 2008, international net sales
accounted for approximately 43%, 46% and 44% of our net sales,
respectively. International sales include sales by our foreign
subsidiaries, but exclude direct export sales. Net sales by our
Japan subsidiary were 14%, 12% and 15% for the years 2010, 2009
and 2008, respectively. Long-lived assets located in the
U.S. were $54.8 million, $52.1 million and
$60.9 million as of December 31, 2010, 2009 and 2008,
respectively. Long-lived assets located outside the
U.S. were $17.9 million, $17.4 million and
$23.7 million as of December 31, 2010, 2009 and 2008,
respectively.
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,
LEDs, 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.
Light
Emitting Diodes (LEDs)
LEDs are made using vacuum processes similar to semiconductor
chip manufacturing. Because of their high brightness and long
life, as well as environmentally friendly benefits such as lower
power consumption, LEDs have experienced rapid acceptance in
back side lighting of flat screen television displays and are
emerging in general lighting applications.
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.
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Data
Storage Media
Our products are used to manufacture storage media that store
and read data magnetically; optical storage media that 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.
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
applications. 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.
Instruments
and Control Systems
This product group includes pressure measurement and control,
materials delivery, gas composition analysis 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 combines MKS flow, pressure
measurement and control technologies to provide customers with
integrated subsystems and precise control capabilities that are
optimized for a given application.
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-
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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 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,
heating, ventilation and air-conditioning (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.
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,
pharmaceutical, injection molding and other manufacturing
processes.
Power
and Reactive Gas Products
This product group includes power delivery 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, thin film and other market sectors, 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.
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Reactive Gas Generation Products. We design
and manufacture reactive gas generation products, which create
reactive species. A reactive species is an atom or molecule in
an unstable state, which is used to facilitate various chemical
reactions in processing of thin films (deposition of films,
etching and cleaning of films and surface modifications). A
number of different technologies are used to create reactive gas
including different plasma technologies and barrier discharge
technologies.
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.
Vacuum
Products
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, pharmaceutical 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 levels, 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, atomic layer deposition
(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 45%, 37% and 39% of net
sales for the years 2010, 2009 and 2008, respectively. Applied
Materials accounted for approximately 16%, 13% and 19% of our
net sales for the years 2010, 2009 and 2008, 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 and device manufacturers
and manufacturers of other advanced applications. We sell our
products primarily through our direct sales force. As of
December 31, 2010, we had 167 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, who supplement our direct sales
force. We maintain a marketing staff that identifies customer
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requirements, assists in product planning and specifications,
and focuses on future trends in semiconductor and other markets.
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 15 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 24 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 and other advanced manufacturing processes,
thereby enhancing uptime, yield and throughput for our
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 32 nanometers and below and in the flat panel
display and solar markets to larger substrate sizes, which
require more advanced process control technology. 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, 2010, we had 313 research and
development employees, primarily located in the United States.
Our research and development expenses were $62.7 million,
$50.2 million and $72.8 million for the years 2010,
2009 and 2008, respectively. Our research and development
efforts include numerous projects, none of which are
individually material, and generally have a duration of 3 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.
Manufacturing
Our manufacturing facilities are located in China, Germany,
Israel, 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. As of December 31, 2010, we had
1,879 manufacturing related employees located mostly in China
and the United States.
Competition
The market for our products is highly competitive. Principal
competitive factors include:
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historical customer relationships;
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product quality, performance and price;
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breadth of product line;
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manufacturing capabilities; and
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customer service and support.
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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 are well established in
specific product niches. Hitachi 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, 2010, we
owned 351 U.S. patents, 307 foreign patents and had 111
pending U.S. patent applications that expire at various
dates through 2029. 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.
Employees
As of December 31, 2010, we employed 2,673 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.
Discontinued
Operations
During 2010, we executed a plan to divest two product lines, as
their growth potential no longer met our long-term strategic
objectives. We completed the sale of Ion Systems, Inc.
(Ion) during the second quarter of 2010 and the sale
of the assets of the Yield Dynamics, LLC (YDI)
business during the third quarter of 2010. The results of
operations of the two product lines have been classified as
discontinued operations in the consolidated statements of
operations for all periods presented. The assets and liabilities
of these discontinued product lines have not been reclassified
and segregated in the consolidated balance sheets or
consolidated statements of cash flows due to their immaterial
amounts.
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.
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.
Approximately 64%, 52% and 58% of our net sales for the years
2010, 2009 and 2008, 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.
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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. For example, reductions in demand for
the products manufactured by semiconductor capital equipment
manufacturers and semiconductor device manufacturers in 2008 and
early 2009 adversely affected our business. The global economic
uncertainty prolonged a steep downturn in semiconductor capital
equipment spending and adversely affected our business,
financial condition and results of operations. Our net revenues
during 2009 for our semiconductor and capital equipment
manufacturers and semiconductor device manufacturers decreased
by 43%. However in 2010, sales to semiconductor capital
equipment manufacturers and semiconductor device manufacturers
increased by 167%. We cannot be certain of the timing or
magnitude of future semiconductor industry downturns or
recoveries. 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.
We are
exposed to risks associated with instability in the financial
markets and any weakness in the global economy.
The severe tightening of the credit markets, turmoil in the
financial markets, and weak global economy, contributed to
slowdowns in the industries in which we operate in 2008 and
2009. 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 of our customers to push out, cancel, or
refrain from placing equipment or service orders, which may
affect our 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 us. Customers with liquidity issues may lead to
additional bad debt expense for us. These conditions may also
similarly affect key suppliers, which could affect their ability
to deliver parts and result in delays for our products. Further,
these conditions and uncertainty about future economic
conditions make it challenging for us to forecast its operating
results, make business decisions, and identify the risks that
may affect its business, financial condition and results of
operations. If we are not able to timely and appropriately adapt
to changes resulting from a difficult macroeconomic environment,
our business, financial condition or results of operations may
be materially and adversely affected.
International sales accounted for approximately 43%, 46% and
44%, of net sales for the years 2010, 2009 and 2008,
respectively, a substantial portion of which were sales to
Japan, and 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
affecting the global economy generally, as well as economic slow
downs in particular regions, such as Asia or Europe, or specific
countries such as Japan. International sales include sales by
our foreign subsidiaries, but exclude direct export sales.
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 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:
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|
|
the timing of the receipt of orders from major customers;
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|
|
|
shipment delays;
|
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|
|
disruption in sources of supply;
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9
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|
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|
|
seasonal variations in capital spending by customers;
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|
production capacity constraints; and
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|
|
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 45%, 37% and
39% of our net sales for the years 2010, 2009 and 2008,
respectively. During the years 2010, 2009 and 2008, one
customer, Applied Materials, accounted for approximately 16%,
13% and 19%, respectively, of our net sales. 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. 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:
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|
our ability to maintain relationships with existing key
customers;
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|
our ability to attract new customers and satisfy any required
qualification periods;
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|
our ability to introduce new products in a timely manner for
existing and new customers; and
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|
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.
In past years, we made numerous acquisitions and 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 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 may
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.
10
As a result of our previous acquisitions, we now have 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 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. We must develop products that are technologically
advanced so that they are positioned to be chosen for use in
each successive generation of 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 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, 2010, our goodwill and intangible
assets, net, represented approximately $141.8 million, or
14% 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, patents and trademarks and
in-process research and development acquired by
11
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 2009, we
recorded non-cash impairment charges of $205.0 million
related to goodwill and intangible assets. We will continue to
monitor and evaluate the carrying value of goodwill and
intangible assets. If market and economic conditions or business
performance deteriorate, the likelihood of the Company recording
an impairment charge would increase, 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:
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historical customer relationships;
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|
product quality, performance and price;
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breadth of product line;
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manufacturing capabilities; and
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|
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 customers 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. In the
future, we may expand the level of manufacturing and certain
other operations that we perform 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 would anticipate from moving
manufacturing and other operations to a lower cost region. These
foreign operations expose us to operational and political risks
that may harm our business, including:
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political and economic instability;
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|
|
fluctuations in the value of currencies and high levels of
inflation, particularly in Asia and Europe;
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|
|
changes in labor conditions and difficulties in staffing and
managing foreign operations, including, but not limited to, the
formation of labor unions;
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|
reduced or less certain protection for intellectual property
rights;
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|
greater difficulty in collecting accounts receivable and longer
payment cycles;
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burdens and costs of compliance with a variety of foreign laws;
|
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|
increases in duties and taxation;
|
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|
|
costs associated with compliance programs for import and export
regulations;
|
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|
|
imposition of restrictions on currency conversion or the
transfer of funds;
|
|
|
|
changes in export duties and limitations on imports or exports;
|
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|
|
expropriation of private enterprises; and
|
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|
|
unexpected changes in foreign regulations.
|
12
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 regulation could affect results of
operations.
As a global company, we are subject to taxation in the United
States and various other countries. Significant judgment is
required to determine and estimate worldwide tax liabilities.
Our future annual and quarterly effective tax rates could be
affected by numerous factors, including changes in the:
applicable tax laws; composition of pre-tax income in countries
with differing tax rates;
and/or
valuation of our deferred tax assets and liabilities. In
addition, we are subject to regular examination by the Internal
Revenue Service and foreign tax authorities. We regularly assess
the likelihood of favorable or unfavorable outcomes resulting
from these examinations to determine the adequacy of its
provision for income taxes. Although we believe our tax
estimates are reasonable, there can be no assurance that any
final determination will not be materially different from the
treatment reflected in our historical income tax provisions and
accruals, which could materially and adversely affect our
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 sales and marketing
personnel. We cannot be certain that we will be successful in
attracting and retaining such personnel.
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, 2010, we owned 351 U.S. patents,
307 foreign patents and had 111 pending U.S. patent
applications that expire at various dates through 2029. Although
we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot
be certain that:
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we will be able to protect our technology adequately;
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|
competitors will not be able to develop similar technology
independently;
|
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|
any of our pending patent applications will be issued;
|
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|
domestic and international intellectual property laws will
protect our intellectual property rights; or
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|
third parties will not assert that our products infringe patent,
copyright or trade secrets of such parties.
|
13
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. 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, pay royalties, 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. Historically, the market price of shares of our
common stock has fluctuated greatly 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:
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the potential inability to obtain an adequate supply of required
components;
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reduced control over pricing and timing of delivery of
components; and
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the potential inability of our suppliers to develop
technologically advanced products to support our growth and
development of new systems.
|
We believe we could obtain and qualify alternative sources for
most sole, limited source and international supplier parts
however, the transition time may be long. Seeking alternative
sources for these 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 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,
14
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:
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we could be subject to fines;
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our production could be suspended; or
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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.
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.
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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, 2010:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
Lease
|
Location
|
|
Sq. Ft.
|
|
|
Activity
|
|
Manufactured
|
|
Expires
|
|
Akishima, Japan
|
|
|
26,300
|
|
|
Manufacturing, Customer Support and Service
|
|
Materials and Power Delivery Products
|
|
September 11, 2018
|
Andover, Massachusetts
|
|
|
118,000
|
|
|
Manufacturing, Research & Development and Corporate
Headquarters
|
|
Pressure Measurement and Control Products
|
|
(1)
|
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 (2)
|
Boulder, Colorado
|
|
|
124,000
|
|
|
Manufacturing, Customer Support, Service and
Research & Development
|
|
Vacuum Products
|
|
(3)
|
Carmiel, Israel
|
|
|
11,800
|
|
|
Manufacturing and Research & Development
|
|
Control & Information Management Products
|
|
December 31, 2012
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
Lease
|
Location
|
|
Sq. Ft.
|
|
|
Activity
|
|
Manufactured
|
|
Expires
|
|
Cheshire, United Kingdom
|
|
|
16,000
|
|
|
Manufacturing, Sales, Customer Support and Service
|
|
Materials Delivery Products
|
|
November 6, 2018
|
Colorado Springs, Colorado
|
|
|
24,000
|
|
|
Research & Development
|
|
Not applicable
|
|
(4)
|
Filderstadt, Germany
|
|
|
9,300
|
|
|
Sales and Service
|
|
Not applicable
|
|
July 31, 2014
|
Fukuoka, Japan
|
|
|
9,300
|
|
|
Customer Support and Service
|
|
Not applicable
|
|
October 19, 2012
|
Kyunggi, Korea
|
|
|
36,500
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
May 5, 2020
|
Lawrence, Massachusetts
|
|
|
40,000
|
|
|
Manufacturing
|
|
Pressure Measurement and Control Products
|
|
(4)
|
Lod, Israel
|
|
|
7,600
|
|
|
Customer Support and Research & Development
|
|
Not applicable
|
|
May 31, 2012
|
Methuen, Massachusetts
|
|
|
85,000
|
|
|
Manufacturing, Customer Support, Service and
Research & Development
|
|
Pressure Measurement and Control Products and Materials Delivery
Products
|
|
(4)
|
Munich, Germany
|
|
|
14,000
|
|
|
Manufacturing, Sales, Customer Support, Service and
Research & Development
|
|
Pressure Measurement and Control Products and Materials Delivery
Products
|
|
(4)
|
Nogales, Mexico
|
|
|
67,700
|
|
|
Manufacturing
|
|
Pressure Measurement and Control Products and 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
|
|
(4)
|
San Jose, California
|
|
|
52,400
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
(5)
|
Shanghai, China
|
|
|
6,800
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
February 11, 2011(2)
|
Shenzhen, China
|
|
|
242,000
|
|
|
Manufacturing
|
|
Power Delivery Products
|
|
May 31, 2017
|
Shropshire, United Kingdom
|
|
|
25,000
|
|
|
Manufacturing
|
|
Control & Information Management Products
|
|
June 23, 2022
|
Singapore
|
|
|
6,100
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
July 31, 2012
|
Taiwan
|
|
|
21,400
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
August 31, 2012
|
Tokyo, Japan
|
|
|
8,000
|
|
|
Sales and Customer Support
|
|
Not applicable
|
|
December 31, 2012
|
Umea, Sweden
|
|
|
7,000
|
|
|
Sales, Customer Support and Research & Development
|
|
Not applicable
|
|
August 31, 2011
|
Wilmington, Massachusetts
|
|
|
118,000
|
|
|
Manufacturing, Sales, Customer Support, Service and
Research & Development
|
|
Reactive Gas Generation Products and Power Delivery Products
|
|
(4)
|
|
|
|
(1) |
|
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. |
|
(2) |
|
The lease on the Berlin, Germany facility was renewed in January
2011 and expires December 31, 2013. The lease on the
Shanghai, China facility was renewed in February 2011 and
expires August 11, 2011. |
|
(3) |
|
MKS leases two facilities, of which 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. |
|
(4) |
|
This facility is owned by MKS. |
16
|
|
|
(5) |
|
MKS leases two facilities, of which one has 32,000 square
feet of currently vacated space and has a lease expiration of
April 13, 2011 and the other has 20,400 square feet of
space and has a lease expiration of January 31, 2018. |
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, Service and
Support.
|
|
Item 3.
|
Legal
Proceedings
|
Brooks Instrument, LLC filed two lawsuits, in one case along
with their affiliate BI Products, LLC (collectively with Brooks
Instrument, LLC, Brooks), against us in the United
States District Court for the Eastern District of Texas, on
April 29, 2010. Brooks also filed one lawsuit against us in
the United States District Court for the District of
Massachusetts on April 29, 2010. These suits were related
to our digital mass flow controllers and digital pressure
sensors. Brooks sought injunctive relief and damages for alleged
patent infringement, breach of contract and trade secret
violations. None of the lawsuits specified a specific amount of
damages. We responded to the allegations to deny any wrongdoing.
In addition, we filed counterclaims against Brooks in the courts
where they initially brought suit against us, seeking injunctive
relief and damages for alleged patent infringement by Brooks,
relating to their pressure transient insensitive mass flow
controllers. On February 22, 2011, the parties entered into a
settlement agreement, resolving all the issues in the cases, and
on February 23, 2011, the parties filed stipulated dismissals
with the appropriate courts.
We are 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 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 Select Market
under the symbol MKSI. On February 18, 2011, the closing
price of our common stock, as reported on the NASDAQ Global
Select Market, was $30.61 per share. The following table sets
forth for the periods indicated the high and low sales prices
per share of our common stock as reported by the NASDAQ Global
Select Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
20.00
|
|
|
$
|
15.94
|
|
|
$
|
16.29
|
|
|
$
|
11.38
|
|
Second Quarter
|
|
|
24.88
|
|
|
|
17.45
|
|
|
|
17.50
|
|
|
|
12.75
|
|
Third Quarter
|
|
|
22.26
|
|
|
|
16.50
|
|
|
|
20.60
|
|
|
|
13.28
|
|
Fourth Quarter
|
|
|
24.87
|
|
|
|
17.31
|
|
|
|
20.24
|
|
|
|
14.80
|
|
On February 18, 2011, we had approximately 159 stockholders
of record.
Dividend
Policy
Holders of our common stock are entitled to receive dividends
when they are declared by our Board of Directors. On
February 1, 2011, our Board of Directors declared a
quarterly cash dividend of $0.15 per share to be paid on
March 18, 2011 to shareholders of record as of
March 1, 2011. Future dividend declarations, if any, as
well as the record and payment dates for such dividends, are
subject to the final determination of our Board of Directors.
17
Comparative
Stock Performance
The following graph compares the cumulative total shareholder
return (assuming reinvestment of dividends) from investing $100
on December 31, 2005, and plotted at the last trading day
of each of the fiscal years ended December 31, 2006, 2007,
2008, 2009 and 2010, in each of MKS Common Stock; an
industry group index of semiconductor equipment/material
manufacturers (the Morningstar Semiconductor
Equipment & Materials Industry Group index),
compiled by Morningstar, Inc.; and the NASDAQ Market Index of
companies. The stock price performance on the graph below is not
necessarily indicative of future price performance. In recent
years, we included in the performance graph the industry group
index of semiconductor equipment/material manufacturers compiled
by Hemscott Data, but such index is no longer available.
Accordingly, we have selected the Morningstar Semiconductor
Equipment & Materials Industry Group index in its
place. The Companys Common Stock is listed on the NASDAQ
Global Select Market under the ticker symbol MKSI.
Performance
Graph
COMPARISON
OF CUMULATIVE TOTAL RETURN
Assumes $100 invested on December 31, 2005
Assumes dividend reinvested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
MKS Instruments, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
126.22
|
|
|
|
$
|
106.99
|
|
|
|
$
|
82.67
|
|
|
|
$
|
97.26
|
|
|
|
$
|
136.95
|
|
NASDAQ Market Index
|
|
|
$
|
100.00
|
|
|
|
$
|
110.25
|
|
|
|
$
|
121.88
|
|
|
|
$
|
73.10
|
|
|
|
$
|
106.22
|
|
|
|
$
|
125.36
|
|
Morningstar Semiconductor Equipment & Materials
Industry Group
|
|
|
$
|
100.00
|
|
|
|
$
|
116.85
|
|
|
|
$
|
121.73
|
|
|
|
$
|
53.42
|
|
|
|
$
|
88.29
|
|
|
|
$
|
97.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information included under the heading Comparative
Stock Performance 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
18
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.
|
|
Item 6.
|
Selected
Financial Data
|
Selected
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands, except per share data)
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(1)
|
|
$
|
853,114
|
|
|
$
|
392,693
|
|
|
$
|
621,380
|
|
|
$
|
751,445
|
|
|
$
|
747,548
|
|
Gross profit(1)
|
|
|
378,638
|
|
|
|
130,216
|
|
|
|
248,238
|
|
|
|
316,194
|
|
|
|
319,155
|
|
Income (loss) from operations(1)
|
|
|
195,507
|
|
|
|
(171,661
|
)
|
|
|
50,874
|
|
|
|
109,946
|
|
|
|
123,179
|
|
Income (loss) from continuing operations
|
|
|
132,919
|
|
|
|
(149,361
|
)
|
|
|
40,010
|
|
|
|
88,569
|
|
|
|
94,745
|
|
Income (loss) from discontinued operations, net of taxes(2)
|
|
|
9,668
|
|
|
|
(63,298
|
)
|
|
|
(9,893
|
)
|
|
|
(2,209
|
)
|
|
|
(510
|
)
|
Net income (loss)(3)
|
|
$
|
142,587
|
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
$
|
94,235
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.66
|
|
|
$
|
(3.03
|
)
|
|
$
|
0.81
|
|
|
$
|
1.57
|
|
|
$
|
1.71
|
|
Net income (loss)
|
|
$
|
2.85
|
|
|
$
|
(4.31
|
)
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
$
|
1.70
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.61
|
|
|
$
|
(3.03
|
)
|
|
$
|
0.79
|
|
|
$
|
1.55
|
|
|
$
|
1.69
|
|
Net income (loss)
|
|
$
|
2.80
|
|
|
$
|
(4.31
|
)
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
$
|
1.68
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
162,476
|
|
|
$
|
111,009
|
|
|
$
|
119,261
|
|
|
$
|
223,968
|
|
|
$
|
215,208
|
|
Short-term investments
|
|
|
269,457
|
|
|
|
160,786
|
|
|
|
159,608
|
|
|
|
99,797
|
|
|
|
74,749
|
|
Working capital
|
|
|
643,209
|
|
|
|
461,581
|
|
|
|
452,793
|
|
|
|
514,235
|
|
|
|
461,541
|
|
Long-term investments
|
|
|
|
|
|
|
4,853
|
|
|
|
|
|
|
|
|
|
|
|
2,816
|
|
Total assets
|
|
|
982,413
|
|
|
|
774,069
|
|
|
|
984,939
|
|
|
|
1,076,260
|
|
|
|
1,043,720
|
|
Short-term obligations
|
|
|
|
|
|
|
12,885
|
|
|
|
18,678
|
|
|
|
20,203
|
|
|
|
23,021
|
|
Long-term obligations, less current portion
|
|
|
|
|
|
|
|
|
|
|
396
|
|
|
|
5,871
|
|
|
|
6,113
|
|
Stockholders equity
|
|
$
|
847,039
|
|
|
$
|
684,933
|
|
|
$
|
886,698
|
|
|
$
|
954,009
|
|
|
$
|
901,219
|
|
|
|
|
(1) |
|
For the years 2006 through 2009, shown in the table above, the
amounts have been revised to exclude the results of two product
lines that have been classified as discontinued operations. Loss
from operations for 2009 includes an impairment charge of
$143.0 million related to the write-down of goodwill,
intangible and long-lived assets and $5.5 million of
restructuring charges. |
|
(2) |
|
Income from discontinued operations, net of taxes for 2010
includes a $4.4 million gain on the sale of the two
discontinued product lines. Loss from discontinued operations,
net of taxes for 2009 includes charges related to the
discontinued product lines of $53.8 million for the
goodwill impairment and $7.3 million for the intangible
assets impairment. |
|
(3) |
|
Net loss for 2009 includes charges, net of tax, of
$202.7 million related to the write-down of goodwill,
intangible and long-lived assets and $3.6 million of
restructuring charges. Net income for 2008 includes an
impairment charge of $3.8 million, net of tax, related to
the write-down of intangible assets. |
19
|
|
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 of advanced
manufacturing processes to improve process performance.
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, 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, LEDs, 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, 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, LEDs, solar cells, data storage media and other
coating applications; and other industrial, medical, energy
generation, environmental monitoring and manufacturing
companies, and university, government and industrial research
laboratories. During the years 2010, 2009 and 2008, we estimate
that approximately 64%, 52% and 58% 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.
During 2010, we executed a plan to divest two product lines, as
their growth potential no longer met our long-term strategic
objectives. We completed the sale of Ion Systems, Inc.
(Ion) during the second quarter of 2010 and the sale
of the assets of the Yield Dynamics, LLC (YDI)
business during the third quarter of 2010 and received total net
proceeds of $15.6 million. The results of operations of the
two product lines have been classified as discontinued
operations in the consolidated statements of operations for all
periods presented. The assets and liabilities of these
discontinued product lines have not been reclassified and
segregated in the consolidated balance sheets or consolidated
statements of cash flows due to their immaterial amounts.
We believe an improvement in the global economy in 2010,
compared to 2009, contributed to a significant increase in our
business, financial condition and results of operations for
2010. As a result of the improved global economy, our net
revenues to semiconductor capital equipment manufacturers and
semiconductor device manufacturers increased 167% for 2010
compared to 2009. The semiconductor capital equipment industry
is subject to rapid demand shifts, which are difficult to
predict, and we are uncertain as to the timing or extent of
further increased demand or any future weakness in the
semiconductor capital equipment industry.
Our net revenues sold to other advanced markets, which exclude
semiconductor capital equipment and semiconductor device product
applications, increased 64% in 2010 compared to the prior year.
These advanced and growing markets include LED, medical,
pharmaceutical, environmental, thin films, solar and other
markets. Approximately 36% of our net sales for 2010 were to
other advanced markets and we anticipate that these markets will
continue to grow and will represent a larger portion of our
revenue.
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.
During the years 2010, 2009 and 2008, international net sales
accounted for approximately 43%, 46% and 44% of our net sales,
respectively. A significant portion of our international net
sales were sales in Japan. We expect that international net
sales will continue to represent a significant percentage of our
total net sales.
20
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 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 its estimated net realizable value, if
less than cost, based primarily on our estimated forecast of
product demand. Once our inventory value is written-down and a
new cost basis has been established, the inventory value is not
increased due to demand increases. 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. For the twelve
months ended December 31, 2008, our total charges for
21
excess and obsolete inventory totaled $11.4 million. For
2010 and 2009, our total charges for excess and obsolete
inventory totaled $13.2 million and $20.3 million,
respectively.
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 record
compensation expense for all share-based payment awards to
employees and directors based upon the estimated fair market
value of the underlying instrument. Accordingly, share-based
compensation cost is measured at the grant date, based upon the
fair value of the award.
For the past three years, we have been issuing restricted stock
units (RSUs) as stock-based compensation. For one
year we issued restricted stock awards (RSAs) and
prior to that, we issued share-based options. We also provide
employees the opportunity to purchase shares through an Employee
Stock Purchase Program (ESPP). For restricted stock
units, the fair value is the stock price on the date of grant.
For share-based options and shares issued under our ESPP, we
have estimated the fair value 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, expected life,
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
alone.
Certain RSUs involve stock to be issued upon the achievement of
performance conditions (performance shares) under our stock
incentive plans. Such performance shares become available
subject to time-based vesting conditions if, and to the extent
that, financial or operational performance criteria for the
applicable period are achieved. Accordingly, the number of
performance shares earned will vary based on the level of
achievement of financial or operational performance objectives
for the applicable period. Until such time that our performance
can ultimately be determined, each quarter we estimate the
number of performance shares more likely than not to be earned
based on an evaluation of the probability of achieving the
performance objectives. Such estimates are revised, if
necessary, in subsequent periods when the underlying factors
change our evaluation of the probability of achieving the
performance objectives. Accordingly, share-based compensation
expense associated with performance shares may differ
significantly from the amount recorded in the current period.
The assumptions used in calculating the fair value of
share-based payment awards represents managements best
estimates, but these estimates involve inherent uncertainties
and the application of managements 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.
Definite-lived intangible assets are valued based on estimates
of future cash flows and amortized over their estimated useful
life. Goodwill and indefinite-lived intangible assets are
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 assets are also 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
22
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.
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 of 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 internal 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. 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, we determine 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.
Due to various factors, including market and economic conditions
that contributed to a decline in our forecasted business levels,
and the excess of our consolidated net assets over market
capitalization for a sustained period of time, we concluded an
interim assessment for impairment should be conducted for our
goodwill and intangible assets as of April 30, 2009, the
date of the triggering event. In the interim assessment, we
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, we recorded a
goodwill impairment charge in the second quarter of 2009 of
$193.3 million. We 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. We 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. We estimated future cash flows over the remaining useful
life of each intangible asset. As a result of this analysis, we
determined that certain of our 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
$11.7 million was recorded in the second quarter of 2009.
In 2010, we reclassified $53.8 million and
$11.7 million of the goodwill and intangible asset
impairment charges, respectively, to discontinued operations for
2009 as the charges related to the two discontinued product
lines.
23
As of October 31, 2010, we performed our annual impairment
assessment of goodwill and determined that no additional
impairment charges were required as the fair value of each
reporting units exceeded its book value. We will continue to
monitor and evaluate the carrying value of goodwill. If market
and economic conditions or business performance deteriorate,
this could increase the likelihood of us recording an impairment
charge, however, management believes it is not reasonably likely
that an impairment will occur at any of its reporting units over
the next twelve months.
As a result of a facility consolidation in Asia, we recorded an
asset impairment charge of $3.5 million in the second
quarter of 2009 resulting from the write-down of the value of a
building to its estimated fair value.
During the fourth quarter of 2008, we incurred an intangible
asset impairment charge of $6.1 million related to the
acquired 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. In 2010, we reclassified the $6.1 million
intangible asset impairment charge to discontinued operations
for 2008 as the charge related to the YDI discontinued product
line.
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
capitalize IPR&D as an intangible asset. If the projects
are completed, the intangible asset will be amortized to
earnings over the expected life of the completed product. If the
R&D projects are abandoned, we will write-off the related
intangible asset.
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.
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 consolidated statements of operations. In future periods,
if we were to determine that it was more likely than not that we
would not be able to 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.
Accounting for income taxes requires a two-step approach to
recognize and measure uncertain tax positions. The first step is
to evaluate the tax position for recognition by determining if,
based on the technical merits, 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 re-evaluate 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.
24
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 statements of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
89.5
|
%
|
|
|
82.7
|
%
|
|
|
86.5
|
%
|
Service
|
|
|
10.5
|
|
|
|
17.3
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
49.4
|
|
|
|
55.9
|
|
|
|
51.4
|
|
Service
|
|
|
6.2
|
|
|
|
10.9
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
55.6
|
%
|
|
|
66.8
|
%
|
|
|
60.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
44.4
|
%
|
|
|
33.2
|
%
|
|
|
39.9
|
%
|
Research and development
|
|
|
7.3
|
|
|
|
12.8
|
|
|
|
11.7
|
|
Selling, general and administrative
|
|
|
14.1
|
|
|
|
25.6
|
|
|
|
19.4
|
|
Amortization of acquired intangible assets
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
0.6
|
|
Goodwill and asset impairment
|
|
|
|
|
|
|
36.4
|
|
|
|
|
|
Gain on sale of asset
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
22.9
|
%
|
|
|
(43.7
|
)%
|
|
|
8.2
|
%
|
Interest income, net
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
1.0
|
|
Impairment of investments
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
23.0
|
%
|
|
|
(43.3
|
)%
|
|
|
9.0
|
%
|
Provision (benefit) for income taxes
|
|
|
7.4
|
|
|
|
(5.3
|
)
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
15.6
|
%
|
|
|
(38.0
|
)%
|
|
|
6.4
|
%
|
Income (loss) from discontinued operations, net of taxes
|
|
|
1.1
|
|
|
|
(16.1
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
16.7
|
%
|
|
|
(54.1
|
)%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended 2010 Compared to 2009 and 2008
Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
% Change
|
|
|
% Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
in 2010
|
|
|
in 2009
|
|
|
|
(Dollars in millions)
|
|
|
Product
|
|
$
|
763.4
|
|
|
$
|
325.0
|
|
|
$
|
537.8
|
|
|
|
134.9
|
%
|
|
|
(39.6
|
)%
|
Service
|
|
|
89.7
|
|
|
|
67.7
|
|
|
|
83.6
|
|
|
|
32.4
|
%
|
|
|
(19.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
853.1
|
|
|
$
|
392.7
|
|
|
$
|
621.4
|
|
|
|
117.2
|
%
|
|
|
(36.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues increased $438.5 million or 134.9% during
2010 compared to 2009. During 2010, we believe a recovery in the
global economy has contributed to an increase in demand for our
products in all of the markets we serve. Our increase in overall
product revenues is primarily due to the increase in worldwide
demand from our semiconductor capital equipment manufacturer and
semiconductor device manufacturer customers. Product revenues
related to these customers increased $305.5 million or
175.2% compared to the same period for the prior year. Revenues
related to other advanced markets increased $133.0 million
or 88.3% compared to the same period for the prior year. The
increase in demand in our other advanced markets included the
LED, medical,
25
pharmaceutical, environmental, thin films, solar and other
markets. Our domestic product revenues increased by
$262.5 million or 139.2% mainly due to a high concentration
of sales to the semiconductor capital equipment and device
manufacturer customers. Our international product revenues
increased $176.0 million or 129.1% during 2010. This
increase consists of a $107.7 million increase in product
revenues from our semiconductor customers and an increase in
product revenues of $68.3 million related to other advanced
markets.
Product revenues decreased $212.8 million or 39.6% during
2009 compared to 2008 mainly due to a decrease in worldwide
demand from our semiconductor capital equipment manufacturer and
semiconductor device manufacturer customers. Product revenues
related to these customers decreased $132.3 million or
43.1% compared to the same period for the prior year. Revenues
related to other markets decreased $80.5 million or 34.8%
compared to the same period for the prior year due mainly to the
global recession. Our domestic product revenues decreased by
$127.4 million or 40.3% during 2009 compared to the same
period for the prior year mainly due to a high concentration of
sales to the semiconductor capital equipment and device
manufacturer customers. Our international product revenues
decreased $85.5 million or 38.5% during 2009. This decrease
consists of a $39.4 million decrease in product revenues
from our semiconductor customers and a decrease in product
revenues of $46.1 million related to other markets.
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 $21.9 million or 32.4% during 2010
compared to 2009 as a result of the improvement in the global
economy in 2010. Service revenues decreased $15.9 million
or 19.0% during 2009 compared to 2008 due to lower spending by
our customers on these services as a result of the weakened
global economic conditions in 2009.
Total international net revenues, including product and service,
were $369.0 million for 2010 or 43.2% of net sales compared
to $180.1 million for 2009 or 45.8% of net sales and
$275.0 million or 44.2% of net sales for 2008.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Points
|
|
|
% Points
|
|
|
|
Years Ended December 31,
|
|
|
Change in
|
|
|
Change in
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
|
(As a percentage of net revenues)
|
|
|
Product
|
|
|
44.8
|
%
|
|
|
32.4
|
%
|
|
|
40.6
|
%
|
|
|
12.4
|
%
|
|
|
(8.2
|
)%
|
Service
|
|
|
41.2
|
%
|
|
|
37.0
|
%
|
|
|
35.8
|
%
|
|
|
4.2
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
44.4
|
%
|
|
|
33.2
|
%
|
|
|
39.9
|
%
|
|
|
11.2
|
%
|
|
|
(6.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit on product revenues increased by
12.4 percentage points during 2010 compared to the prior
year. The increase was mainly due to an increase in product
revenue volumes which accounted for 8.2 percentage points
of the overall increase and an increase of 1.6 percentage
points due to favorable product mix. In addition, our gross
profit increased by 2.4 percentage points due to lower
excess and obsolete inventory related net charges. The higher
excess and obsolete inventory related charges in 2009 were
primarily a result of a lower inventory consumption plan in the
first quarter of 2009 that we implemented in response to the
weakness in the markets we served during that period.
Gross profit on product revenues decreased by
8.2 percentage points during 2009 compared to the prior
year. The decrease was due to an unfavorable product mix of
3.1 percentage points and a reduction in product revenue
volumes partially offset by lower overhead spending, which total
2.6 percentage points. In addition, a decrease of
2.2 percentage points was a result of excess and obsolete
inventory related charges. The excess and obsolete inventory
related charges were primarily a result of a lower inventory
consumption plan in the first quarter of 2009 that we
implemented in response to the weakness in the markets we served
during that period.
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 for 2010 increased 4.2 percentage points
compared to the same period for the prior year. The increase is
mainly a result of higher service revenue since a portion of our
overhead costs are fixed. Service gross profit for 2009
increased modestly compared to the same period for the prior
year.
26
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
in 2010
|
|
in 2009
|
|
|
(Dollars in millions)
|
|
Research and development expenses
|
|
$
|
62.7
|
|
|
$
|
50.2
|
|
|
$
|
72.8
|
|
|
|
24.8
|
%
|
|
|
(31.0
|
)%
|
Research and development expenses increased $12.5 million
or 24.8% during 2010 compared to the prior year. The increase
includes a $5.9 million increase in compensation expense, a
$2.4 million increase in spending on project materials, a
$3.0 million increase in consulting and other costs and a
$1.1 million increase in patent and other legal related
costs. The increase in compensation expense is primarily due to
the restoration of both the incentive compensation plan and
certain employee benefits which were suspended as part of cost
control measures in 2009. Our favorable operating profit levels
resulted in an increase in incentive compensation expense, since
our incentive compensation plan is based on achieving certain
operating profit levels.
Research and development expenses decreased $22.5 million
or 31.0% during 2009 compared to the prior year. The decrease
includes a $12.0 million decrease in compensation expense,
a $4.7 million reduction in spending on project materials,
a $1.4 million decrease in consulting costs and a
$4.5 million decrease in other discretionary spending. The
decrease in compensation expense is mainly due to cost reduction
measures that started in the third quarter of 2008 and continued
through the third quarter of 2009, including workforce
reductions that took place from the third quarter of 2008
through the first quarter of 2009.
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.
We have thousands of products and our research and development
efforts primarily consist of a large number of projects related
to these products and new product development, none of which is
individually material to us. Current projects typically have a
duration of 3 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 smaller integrated circuit geometries
and in the flat panel display and solar markets to larger
substrate sizes, 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.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
in 2010
|
|
in 2009
|
|
|
(Dollars in millions)
|
|
Selling, general and administrative expenses
|
|
$
|
119.8
|
|
|
$
|
100.4
|
|
|
$
|
120.6
|
|
|
|
19.3
|
%
|
|
|
(16.7
|
)%
|
Selling, general and administrative expenses increased
$19.4 million or 19.3% during 2010 compared to 2009. The
increase includes a $17.9 million increase in compensation
expense, a $3.1 million increase in consulting,
professional and other fees and a $1.6 million increase in
travel related expenses. The increase was partially offset by a
$1.4 million decrease in the provision of uncollectable
accounts receivable, a $1.1 million decrease in
27
depreciation and facility related costs and by a
$1.1 million favorable impact from foreign exchange
fluctuations. The increase in compensation expense is primarily
due to the restoration of both the incentive compensation plan
and certain employee benefits which were suspended as part of
cost control measures in 2009. Our favorable operating profit
levels resulted in an increase in incentive compensation
expense, since our incentive compensation plan is based on
achieving certain operating profit levels.
Selling, general and administrative expenses decreased
$20.2 million or 16.7% during 2009 compared to 2008. The
decrease includes a $14.6 million decrease in compensation
expense, a $2.4 million decrease in depreciation and
facility related costs and a decrease of $1.5 million in
consulting, professional and other fees. The decrease in
compensation expense is mainly due to cost reduction measures
that started in the third quarter of 2008 and continued through
the third quarter of 2009, including workforce reductions that
took place from the third quarter of 2008 through the first
quarter of 2009.
Amortization
of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
in 2010
|
|
in 2009
|
|
|
(Dollars in millions)
|
|
Amortization of acquired intangible assets
|
|
$
|
1.3
|
|
|
$
|
2.8
|
|
|
$
|
4.0
|
|
|
|
(53.5
|
)%
|
|
|
(30.8
|
)%
|
Amortization expense for 2010 decreased $1.5 million or
53.5% as certain acquired intangible assets became fully
amortized during 2009. Amortization expense for 2009 decreased
$1.2 million or 30.8% as certain acquired intangible assets
became fully amortized during 2008.
Goodwill
and Asset Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Goodwill and asset impairment charges
|
|
$
|
|
|
|
$
|
143.0
|
|
|
$
|
|
|
During 2009, we reviewed our goodwill and long-lived assets for
potential impairment as a result of market and economic
conditions that contributed to a decline in our forecasted
business levels, and the excess of our consolidated net assets
over our market capitalization for a sustained period of time.
As a result of this impairment assessment, we recorded non-cash
goodwill and intangible asset impairment charges of
$193.3 million and $11.7 million, respectively. In
addition, as a result of a facility consolidation in Asia in the
second quarter of 2009, we recorded a non-cash impairment charge
of $3.5 million to continuing operations resulting from the
write-down of the value of a building to its estimated fair
value. In 2010, we reclassified $53.8 million and
$11.7 million of the goodwill and intangible asset
impairment charges, respectively, to discontinued operations for
2009 as the charges related to the two discontinued product
lines.
Gain on
sale of asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Gain on sale of asset
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
|
|
During the first quarter of 2010, we sold two vacated facilities
for proceeds of $2.1 million and recorded a
$0.7 million net gain on the sale.
28
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Restructuring
|
|
$
|
|
|
|
$
|
5.5
|
|
|
$
|
|
|
In light of the global financial crisis and its impact on our
semiconductor equipment OEM customers and the other markets we
serve, we initiated a restructuring plan in the first quarter of
2009. The plan included a reduction in our worldwide headcount
of approximately 630 people, which represented
approximately 24% of our global workforce. The restructuring
charges of $5.5 million in 2009 were primarily for
severance and other charges associated with the reductions in
workforce. The restructuring plan was completed in the first
quarter of 2010.
Interest
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
in 2010
|
|
in 2009
|
|
|
(Dollars in millions)
|
|
Interest income, net
|
|
$
|
0.9
|
|
|
$
|
1.6
|
|
|
$
|
6.4
|
|
|
|
(44.1
|
)%
|
|
|
(74.5
|
)%
|
Net interest income decreased $0.7 million during 2010
compared to the prior year and decreased $4.8 million
during 2009 compared to the prior year mainly related to a
general decrease in market rates and the investment mix of our
portfolio during these periods.
Impairment
of Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Impairment of investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.9
|
)
|
During 2008, we recorded a net impairment charge of
$0.9 million related to 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 settlement of these investments during 2008.
Provision (Benefit) for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Provision (benefit) for income taxes
|
|
$
|
63.5
|
|
|
$
|
(20.7
|
)
|
|
$
|
16.4
|
|
The provision (benefit) for income taxes in 2010, 2009 and 2008
are comprised of U.S. federal, state and foreign income
taxes.
Our effective tax rate for the years 2010, 2009 and 2008 was
32.3%, (12.2)% and 29.1%, respectively. The effective tax rate
in 2010 and related tax provision is lower than the
U.S. statutory tax rate primarily due to geographic mix of
income and profits earned by our international subsidiaries
being taxed at rates lower than the U.S. statutory tax rate.
The effective tax rate in 2009 and related tax benefit was lower
than the U.S. statutory tax rate primarily due to
non-deductible goodwill impairment charges of
$139.5 million during the second quarter of 2009, partially
offset by discrete reserve releases.
The effective tax rate in 2008 and related tax provision was
lower than the U.S. statutory tax rate primarily due to
geographic mix of income and profits earned by our international
subsidiaries being taxed at rates lower than the
29
U.S. statutory tax rate, a tax benefit relating to the
U.S. federal research and development credit, and discrete
reserve releases.
At December 31, 2010, our total amount of gross
unrecognized tax benefits, which excludes interest and
penalties, was approximately $15.3 million. At
December 31, 2009, our total amount of gross unrecognized
tax benefits, which excludes interest and penalties, was
approximately $9.1 million. The net increase from
December 31, 2009 was primarily attributable to an increase
in reserves for existing uncertain tax positions. If these
benefits were recognized in a future period, the timing of which
is not estimable, the net unrecognized tax benefit of
$12.8 million, excluding interest and penalties, would
impact our effective tax rate. We accrue interest expense and,
if applicable, penalties, for any uncertain tax positions.
Interest and penalties are classified as a component of income
tax expense. At December 31, 2010, 2009 and 2008 we had
accrued interest on unrecognized tax benefits of approximately
$1.0 million, $0.7 million and $1.7 million,
respectively.
Over the next 12 months it is reasonably possible that we
may recognize $2.8 million to $3.3 million of
previously unrecognized tax benefits related to various
U.S. federal, state and foreign tax positions as a result
of the conclusion of various audits and the expiration of
statutes of limitations. We are subject to examination by
federal, state and foreign tax authorities. Our
U.S. federal tax filings are open for examination for tax
years 2007 through present. The statute of limitations in our
other tax jurisdictions remains open between fiscal years 2001
through present.
On a quarterly basis, we evaluate both positive and negative
evidence that affect the realizability of net deferred tax
assets and assess the need for a valuation allowance. 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. During 2010, we increased our valuation
allowance by $20.1 million primarily related to capital
losses incurred from our divested business operations as we
determined it is more likely than not that the deferred tax
assets related to these attributes will not be realized. In
2009, we recorded a net benefit to income tax expense of
$5.7 million, excluding interest and penalties, due to
discrete reserve releases primarily related to the close of the
2005 and 2006 U.S. federal tax audits.
During 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
currently due 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 $2.7 million, $0.3 million and
$0.2 million for the years 2010, 2009 and 2008, respectively
Our future effective income tax rate depends on various factors,
such as tax legislation and the geographic composition of our
pre-tax income. We monitor these factors and timely adjust our
effective tax rate accordingly. Additionally, the effective tax
rate could be adversely affected by changes in the valuation of
deferred tax assets and liabilities. In particular, the carrying
value of deferred tax assets, which are predominantly in the
United States, is dependent on our ability to generate
sufficient future taxable income in the United States. While we
believe we have adequately provided for all tax positions,
amounts asserted by taxing authorities could materially differ
from our accrued positions as a result of uncertain and complex
application of tax regulations. Additionally, the recognition
and measurement of certain tax benefits include estimates and
judgment by management and inherently includes subjectivity.
Accordingly, we could record additional provisions due to
U.S. federal, state, and foreign tax-related matters in the
future as we revise estimates or settle or otherwise resolve the
underlying matters.
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Dollars in millions)
|
|
Income (loss) from discontinued operations, net of taxes
|
|
$
|
9.7
|
|
|
$
|
(63.3
|
)
|
|
$
|
(9.9
|
)
|
During 2010, we divested two product lines as their growth
potential no longer met our long-term strategic objectives. We
completed the sale of Ion on May 17, 2010 and the sale of
the assets of our YDI business on August 11, 2010 for a
total of $15.6 million of net cash proceeds, after
expenses, and recorded a $4.4 million pre-tax
30
gain on the combined sales. For the year ended December 31,
2009, the loss from discontinued operations includes
$65.5 million of goodwill and intangible asset impairment
charges. These charges were a result of the interim impairment
assessment performed on April 30, 2009. For the year ended
December 31, 2008, the loss from discontinued operations
includes $6.1 million of intangible asset impairment
charges. These charges were a result of an impairment assessment
performed in the fourth quarter of 2008.
The two product lines have been accounted for as discontinued
operations. Accordingly, their results of operations have been
reclassified to discontinued operations in the consolidated
statements of operations for all periods presented. The assets
and liabilities of these discontinued product lines have not
been reclassified or segregated in the consolidated balance
sheets or consolidated statements of cash flows due to their
immaterial amounts.
Liquidity
and Capital Resources
Cash, cash equivalents and short-term marketable securities
totaled $431.9 million at December 31, 2010, an
increase of $160.1 million compared to $271.8 million
at December 31, 2009. This increase was mainly due to the
net cash provided by operating activities as a result of our net
income of $142.6 million. 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
$163.5 million for 2010 and resulted mainly from net income
of $142.6 million, a $52.1 million increase in
operating liabilities, a $22.8 million decrease in income
taxes receivable, non-cash charges of $13.2 million
provision for excess or obsolete inventory, $13.8 million
for depreciation and amortization and $10.6 million for
stock-based compensation. These increases were partially offset
by an increase of $94.7 million in operating assets and a
$4.4 million gain on the disposal of two discontinued
operations. The $52.1 million increase in operating
liabilities was due to an $11.2 million increase in
accounts payable related to inventory purchases to support our
increased business levels, an increase of $20.6 million in
accrued compensation related to increases in incentive
compensation and accrued salaries and benefits, a
$5.0 million increase in customer deposits and a
$3.3 million increase in the product warranty reserve. The
decrease in income taxes receivable was primarily due to the
collection of an income tax refund of $24.7 million. The
$94.7 million increase in operating assets consisted of a
$42.5 million increase in trade accounts receivable and an
increase of $52.5 million of inventory as a result of our
increased business levels.
Net cash provided by operating activities was $4.9 million
for 2009 and resulted mainly from a net loss of
$212.7 million, a $32.0 million increase in operating
assets and a $4.7 million net decrease in operating
liabilities, offset by a $20.3 million provision for excess
or obsolete inventory, non-cash charges of $208.5 million
for impairment of goodwill, intangibles and other long-lived
assets, $18.8 million for depreciation and amortization and
$8.8 million for stock-based compensation. The increase in
operating assets consisted of a $9.9 million increase in
accounts receivable as a result of higher sales in the last two
months of 2009 compared to 2008 and a $19.9 million
increase in income tax receivable as a result of an income tax
refund due to operating losses. The net decrease in operating
liabilities is mainly caused by a decrease of $5.0 million
in non-current income taxes payable, a decrease of
$2.3 million in accrued compensation and a decrease of
$1.7 million in the product warranty reserve partially
offset by an increase in accounts payable of $6.1 million.
The decrease in accrued compensation is primarily as a result of
the workforce reduction and mandatory time-off.
Net cash used in investing activities was $105.6 million
for 2010 and resulted primarily from the net purchases of
$104.1 million of
available-for-sale
investments and purchases of plant and equipment of
$15.8 million, partially offset by $15.6 million in
net proceeds from the sale of the discontinued product lines.
The $15.8 million increase in plant and equipment was
primarily for the purchase of calibration and test equipment.
Net cash used in investing activities was $9.6 million for
2009 and resulted primarily from the net purchases of
$5.9 million of
31
available-for-sale
investments and purchases of plant and equipment of
$4.2 million which was primarily calibration and test
equipment.
Net cash used in financing activities was $5.0 million for
2010 and consisted primarily of $13.7 million in net
repayment of short-term borrowings, partially offset by
$6.5 million in net proceeds related to stock-based
compensation. Net cash used in financing activities was
$5.6 million for 2009 and consisted primarily of
$4.5 million in net repayment of short-term borrowings.
On July 31, 2010, the Optional Advance Demand Grid Note
dated August 3, 2004 expired without renewal. The unsecured
short-term LIBOR based loan agreement was with HSBC Bank USA and
was utilized primarily by our Japanese subsidiary for short-term
liquidity purposes and had a maximum borrowing amount of
$5.0 million. We did not have outstanding borrowings under
this line of credit at December 31, 2009, or thereafter.
Our Japanese subsidiary has lines of credit and short-term
borrowing arrangements with two financial institutions which
provide for aggregate borrowings as of December 31, 2010 of
up to an equivalent of $30.7 million U.S. dollars,
which generally expire and are renewed at three month intervals.
There were no borrowings outstanding under these arrangements at
December 31, 2010. Total borrowings outstanding under these
arrangements at December 31, 2009 were $12.9 million
at interest rates ranging from 0.76% to 1.48%.
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, 2010, 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, 2010 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
|
|
$
|
29,158
|
|
|
$
|
7,447
|
|
|
$
|
11,815
|
|
|
$
|
6,243
|
|
|
$
|
3,653
|
|
|
$
|
|
|
Purchase obligations(1)
|
|
|
168,373
|
|
|
|
147,275
|
|
|
|
12,119
|
|
|
|
8,979
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities reflected on the Balance Sheet under
GAAP(2)
|
|
|
25,688
|
|
|
|
24
|
|
|
|
48
|
|
|
|
48
|
|
|
|
11,734
|
|
|
|
13,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
223,219
|
|
|
$
|
154,746
|
|
|
$
|
23,982
|
|
|
$
|
15,270
|
|
|
$
|
15,387
|
|
|
$
|
13,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010, we have entered into purchase
commitments for certain inventory components and other equipment
and services used in our normal operations. The majority of
these purchase commitments covered by these arrangements are for
periods of less than one year and aggregate to approximately
$141.6 million. Additionally, as of December 31, 2010,
approximately $26.8 million represents a commitment to
multiple parties engaged to provide certain computer equipment,
IT network services and IT support. These contracts are for
periods ranging from two to five years and 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. |
|
(2) |
|
The majority of this balance relates to income taxes payable and
accrued compensation for certain executives related to
supplemental retirement benefits. |
On February 1, 2011, our Board of Directors authorized a
quarterly cash dividend of $0.15 per share, payable on
March 18, 2011 to shareholders of record as of
March 1, 2011. Future dividend declarations, if any, as
well as the record and payment dates for such dividends, are
subject to the final determination of our Board of Directors.
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, planned capital
expenditure requirements and any future cash dividends declared
by our Board of Directors through at least the next
12 months.
32
Derivatives
We enter into derivative instruments for risk management
purposes only, including derivatives designated as hedging
instruments and those utilized as economic hedges. We operate
internationally, and in the normal course of business, are
exposed to fluctuations in interest rates and foreign exchange
rates. These fluctuations can increase the costs of financing,
investing and operating the business. We have used derivative
instruments, such as forward contracts, to manage certain
foreign currency exposure.
By nature, all financial instruments involve market and credit
risks. We enter into derivative instruments with major
investment grade financial institutions and no collateral is
required. We have policies to monitor the credit risk of these
counterparties. While there can be no assurance, we do not
anticipate any material non-performance by any of these
counterparties.
We hedge a portion of our 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 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.
We do not enter into derivative instruments for trading or
speculative purposes.
To the extent that hedge accounting criteria is not met, the
foreign currency forward contracts are considered economic
hedges and changes in the fair value of these contracts are
recorded immediately 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.
We had forward exchange contracts with notional amounts totaling
$87.7 million outstanding at December 31, 2010 of
which $50.1 million were outstanding to exchange Japanese
yen for U.S. dollars. We had forward exchange contracts
with notional amounts totaling $48.7 million outstanding at
December 31, 2009 of which $29.0 million were
outstanding to exchange Japanese yen for U.S. dollars.
As of December 31, 2010, the unrealized loss that will be
reclassified from accumulated other comprehensive income to
earnings over the next twelve months is $3.1 million. The
ineffective portions of the derivatives are recorded in selling,
general and administrative costs and were immaterial in 2010,
2009 and 2008, 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
immaterial in 2010 and 2009 and the gain of $2.7 million in
2008 was recorded in selling, general and administrative costs.
Realized and unrealized gains and losses on forward exchange
contracts that do not qualify for hedge accounting are
recognized currently 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.
Gains and losses on forward exchange contracts that qualify for
hedge accounting are classified in cost of products, which
totaled a loss of $1.0 million, a gain of $1.1 million
and losses of $1.2 million for the years 2010, 2009 and
2008, 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
33
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 January 2010, the Financial Accounting Standards Board
(FASB) issued updated guidance to amend the
disclosure requirements related to recurring and nonrecurring
fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities in and out of
Level 1 and Level 2 of the fair value hierarchy
(including the reasons for these transfers) and also requires a
reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. In
addition to these new disclosure requirements, this update
clarifies certain existing disclosure requirements. For example,
this update clarifies that reporting entities are required to
provide fair value measurement disclosures for each class of
assets and liabilities rather than each major category of assets
and liabilities. This update also clarifies the requirement for
entities to disclose information about both the valuation
techniques and inputs used in estimating Level 2 and
Level 3 fair value measurements. This update was effective
for companies with interim and annual reporting periods
beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity of purchases,
sales, issuances, and settlements on a gross basis, which will
become effective for interim and annual reporting periods
beginning after December 15, 2010. We adopted the updated
guidance in the first quarter of 2010 and the adoption did not
have an impact on our financial position, results of operations,
or cash flows.
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 affects 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 adoption is permitted. We do not
expect this new guidance to have an impact on our 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
adoption is permitted. We do not expect this new guidance to
have an impact on our consolidated financial statements.
|
|
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-term debt as
well as fluctuations in foreign currency exchange rates.
Foreign
Exchange Rate Risk
We mainly enter into forward exchange contracts to reduce
currency exposure arising from intercompany sales of inventory.
We sometimes also enter into forward exchange contracts to
reduce foreign exchange risks arising from the change in fair
value of certain foreign currency denominated assets and
liabilities.
34
There were forward exchange contracts with notional amounts
totaling $87.7 million and $48.7 million outstanding
at December 31, 2010 and 2009, respectively. Of such
forward exchange contracts, $50.1 million and
$29.0 million, respectively, were outstanding to exchange
Japanese yen for U.S. dollars with the remaining amounts
relating to contracts to exchange the British pound, South
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, 2010 and 2009 would be $9.7 million and
$5.3 million, respectively. The potential losses in 2010
and 2009 were estimated by calculating the fair value of the
forward exchange contracts at December 31, 2010 and 2009
and comparing that with those calculated using hypothetical
forward currency exchange rates.
Interest
Rate Risk
Due to its short-term duration, the fair value of our cash and
investment portfolio at December 31, 2010 and 2009
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.
From time to time, we have outstanding short-term borrowings
with variable interest rates, primarily denominated in Japanese
yen. There were no outstanding borrowings at December 31,
2010. At December 31, 2009, we had $12.9 million
outstanding related to these short-term borrowings at interest
rates ranging from 0.76% to 1.48%. 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.
35
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
To Board of Directors and Shareholders of
MKS Instruments, Inc.:
In our opinion, the accompanying 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, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010 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, 2010,
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 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.
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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 25, 2011
36
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
162,476
|
|
|
$
|
111,009
|
|
Short-term investments
|
|
|
269,457
|
|
|
|
160,786
|
|
Trade accounts receivable, net of allowances of $2,557 and
$2,415 at December 31, 2010 and 2009, respectively
|
|
|
138,181
|
|
|
|
94,215
|
|
Inventories
|
|
|
156,429
|
|
|
|
118,004
|
|
Income tax receivable
|
|
|
|
|
|
|
14,476
|
|
Deferred income taxes
|
|
|
13,775
|
|
|
|
21,505
|
|
Other current assets
|
|
|
12,577
|
|
|
|
12,886
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
752,895
|
|
|
|
532,881
|
|
Property, plant and equipment, net
|
|
|
68,976
|
|
|
|
67,196
|
|
Long-term marketable securities
|
|
|
|
|
|
|
4,853
|
|
Goodwill
|
|
|
140,020
|
|
|
|
144,511
|
|
Intangible assets, net
|
|
|
1,743
|
|
|
|
4,963
|
|
Other assets
|
|
|
18,779
|
|
|
|
19,665
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
982,413
|
|
|
$
|
774,069
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
|
|
|
$
|
12,885
|
|
Accounts payable
|
|
|
36,427
|
|
|
|
26,292
|
|
Accrued compensation
|
|
|
29,944
|
|
|
|
10,658
|
|
Income taxes payable
|
|
|
5,347
|
|
|
|
|
|
Other current liabilities
|
|
|
37,968
|
|
|
|
21,465
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
109,686
|
|
|
|
71,300
|
|
Other liabilities
|
|
|
25,688
|
|
|
|
17,836
|
|
Commitments and contingencies (Note 23)
|
|
|
|
|
|
|
|
|
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;
50,648,601 and 49,514,941 shares issued and outstanding at
December 31, 2010 and 2009, respectively
|
|
|
113
|
|
|
|
113
|
|
Additional paid-in capital
|
|
|
663,792
|
|
|
|
645,411
|
|
Retained earnings
|
|
|
171,356
|
|
|
|
28,769
|
|
Accumulated other comprehensive income
|
|
|
11,778
|
|
|
|
10,640
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
847,039
|
|
|
|
684,933
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
982,413
|
|
|
$
|
774,069
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
37
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
763,452
|
|
|
$
|
324,951
|
|
|
$
|
537,759
|
|
Services
|
|
|
89,662
|
|
|
|
67,742
|
|
|
|
83,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
853,114
|
|
|
|
392,693
|
|
|
|
621,380
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
|
|
|
421,777
|
|
|
|
219,776
|
|
|
|
319,474
|
|
Cost of service
|
|
|
52,699
|
|
|
|
42,701
|
|
|
|
53,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
474,476
|
|
|
|
262,477
|
|
|
|
373,142
|
|
Gross profit
|
|
|
378,638
|
|
|
|
130,216
|
|
|
|
248,238
|
|
Research and development
|
|
|
62,689
|
|
|
|
50,212
|
|
|
|
72,753
|
|
Selling, general and administrative
|
|
|
119,841
|
|
|
|
100,429
|
|
|
|
120,618
|
|
Amortization of acquired intangible assets
|
|
|
1,283
|
|
|
|
2,762
|
|
|
|
3,993
|
|
Goodwill and asset impairment charges
|
|
|
|
|
|
|
142,958
|
|
|
|
|
|
Gain on sale of asset
|
|
|
(682
|
)
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
5,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
195,507
|
|
|
|
(171,661
|
)
|
|
|
50,874
|
|
Interest income
|
|
|
1,052
|
|
|
|
1,703
|
|
|
|
7,001
|
|
Interest expense
|
|
|
135
|
|
|
|
62
|
|
|
|
577
|
|
Impairment of investments
|
|
|
|
|
|
|
|
|
|
|
(906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
196,424
|
|
|
|
(170,020
|
)
|
|
|
56,392
|
|
Provision (benefit) for income taxes
|
|
|
63,505
|
|
|
|
(20,659
|
)
|
|
|
16,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
132,919
|
|
|
|
(149,361
|
)
|
|
|
40,010
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
9,668
|
|
|
|
(63,298
|
)
|
|
|
(9,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
142,587
|
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.66
|
|
|
$
|
(3.03
|
)
|
|
$
|
0.81
|
|
Discontinued operations
|
|
|
0.19
|
|
|
|
(1.28
|
)
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2.85
|
|
|
$
|
(4.31
|
)
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.61
|
|
|
$
|
(3.03
|
)
|
|
$
|
0.79
|
|
Discontinued operations
|
|
|
0.19
|
|
|
|
(1.28
|
)
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2.80
|
|
|
$
|
(4.31
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,077
|
|
|
|
49,318
|
|
|
|
49,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
50,927
|
|
|
|
49,318
|
|
|
|
50,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
38
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 repurchases
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
|
390
|
|
|
|
390
|
|
Changes in unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
(187
|
)
|
|
|
(187
|
)
|
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
|
|
Net issuance under stock-based plans
|
|
|
238,966
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
8,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,845
|
|
Tax benefit from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
(1,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,258
|
)
|
Comprehensive income (loss) (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,659
|
)
|
|
|
|
|
|
|
(212,659
|
)
|
|
|
(212,659
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267
|
|
|
|
267
|
|
|
|
267
|
|
Changes in unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
|
|
92
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
|
|
3,062
|
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(209,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
49,514,941
|
|
|
$
|
113
|
|
|
$
|
645,411
|
|
|
$
|
28,769
|
|
|
$
|
10,640
|
|
|
|
|
|
|
$
|
684,933
|
|
Net issuance under stock-based plans
|
|
|
1,133,660
|
|
|
|
|
|
|
|
6,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,524
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
10,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,604
|
|
Tax expense from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,253
|
|
Comprehensive income (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,587
|
|
|
|
|
|
|
|
142,587
|
|
|
|
142,587
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,600
|
)
|
|
|
(2,600
|
)
|
|
|
(2,600
|
)
|
Changes in unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
143,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
50,648,601
|
|
|
$
|
113
|
|
|
$
|
663,792
|
|
|
$
|
171,356
|
|
|
$
|
11,778
|
|
|
|
|
|
|
$
|
847,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
39
MKS
INSTRUMENTS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
142,587
|
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,823
|
|
|
|
18,759
|
|
|
|
23,524
|
|
Stock-based compensation
|
|
|
10,604
|
|
|
|
8,845
|
|
|
|
15,274
|
|
Provision for excess and obsolete inventory
|
|
|
13,230
|
|
|
|
20,335
|
|
|
|
11,401
|
|
Impairment of goodwill
|
|
|
|
|
|
|
193,255
|
|
|
|
|
|
Impairment of intangibles and other long-lived assets
|
|
|
|
|
|
|
15,242
|
|
|
|
6,069
|
|
Gain on disposal of discontinued operations
|
|
|
(4,432
|
)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
10,097
|
|
|
|
(3,143
|
)
|
|
|
(5,823
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
(2,112
|
)
|
|
|
(40
|
)
|
|
|
(280
|
)
|
Other
|
|
|
(560
|
)
|
|
|
1,003
|
|
|
|
1,300
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(42,540
|
)
|
|
|
(9,935
|
)
|
|
|
23,565
|
|
Inventories
|
|
|
(52,467
|
)
|
|
|
(4,677
|
)
|
|
|
7,088
|
|
Income taxes
|
|
|
22,796
|
|
|
|
(19,939
|
)
|
|
|
(2,199
|
)
|
Other current assets
|
|
|
296
|
|
|
|
2,511
|
|
|
|
(3,730
|
)
|
Accrued expenses and other current liabilities
|
|
|
40,928
|
|
|
|
(10,757
|
)
|
|
|
(4,384
|
)
|
Accounts payable
|
|
|
11,220
|
|
|
|
6,103
|
|
|
|
(9,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
163,470
|
|
|
|
4,903
|
|
|
|
92,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term and long-term
available-for-sale
investments
|
|
|
(410,551
|
)
|
|
|
(254,057
|
)
|
|
|
(324,375
|
)
|
Maturities and sales of short-term and long-term
available-for-sale
investments
|
|
|
306,498
|
|
|
|
248,147
|
|
|
|
263,715
|
|
Purchases of property, plant and equipment
|
|
|
(15,819
|
)
|
|
|
(4,179
|
)
|
|
|
(13,457
|
)
|
Proceeds from sale of assets
|
|
|
2,318
|
|
|
|
128
|
|
|
|
336
|
|
Net proceeds from sale of discontinued operations
|
|
|
15,582
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3,651
|
)
|
|
|
333
|
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(105,623
|
)
|
|
|
(9,628
|
)
|
|
|
(74,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
119,209
|
|
|
|
162,361
|
|
|
|
155,922
|
|
Payments on short-term borrowings
|
|
|
(132,872
|
)
|
|
|
(166,847
|
)
|
|
|
(160,771
|
)
|
Repurchases of common stock
|
|
|
|
|
|
|
|
|
|
|
(115,723
|
)
|
Payments on long-term debt
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Net proceeds (payments) related to employee stock awards
|
|
|
6,524
|
|
|
|
(114
|
)
|
|
|
8,861
|
|
Excess tax benefit from stock-based compensation
|
|
|
2,112
|
|
|
|
40
|
|
|
|
280
|
|
Other
|
|
|
|
|
|
|
(996
|
)
|
|
|
(1,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(5,027
|
)
|
|
|
(5,556
|
)
|
|
|
(117,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,353
|
)
|
|
|
2,029
|
|
|
|
(5,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
51,467
|
|
|
|
(8,252
|
)
|
|
|
(104,707
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
111,009
|
|
|
|
119,261
|
|
|
|
223,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
162,476
|
|
|
$
|
111,009
|
|
|
$
|
119,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
78
|
|
|
$
|
187
|
|
|
$
|
649
|
|
Income taxes
|
|
$
|
47,446
|
|
|
$
|
10,038
|
|
|
$
|
11,625
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
40
MKS
INSTRUMENTS, INC.
(Tables
in thousands, except share and per share data)
MKS Instruments, Inc. (MKS or the
Company) 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 of advanced manufacturing processes
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, control and information
technology, power and reactive gas generation and vacuum
technology.
The consolidated financial statements include the accounts of
MKS Instruments, Inc. and its wholly owned subsidiaries. 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, acquisition 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.
During 2010, the Company divested two product lines, as their
growth potential no longer met the Companys long-term
strategic objectives. The Company completed the sale of Ion
Systems, Inc. (Ion) during the second quarter of
2010 and the sale of the assets of the Yield Dynamics, LLC
(YDI) business during the third quarter of 2010. The
results of operations of the two product lines have been
classified as discontinued operations in the consolidated
statements of operations for all periods presented. The assets
and liabilities of these discontinued product lines have not
been reclassified and segregated in the consolidated balance
sheets or consolidated statements of cash flows due to their
immaterial amounts. Refer to Note 17 for additional
disclosure of the discontinued operations.
For the years 2008 and 2009, shown in the table below, the
Company revised the amounts related to cash provided by
operating activities and cash used in financing activities in
its consolidated statements of cash flows to correct for
immaterial errors. These corrections related to adjusting the
excess tax benefit amounts associated with stock-based
compensation.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
7,368
|
|
|
$
|
89,777
|
|
As adjusted
|
|
|
4,903
|
|
|
|
92,747
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
$
|
(2,465
|
)
|
|
$
|
2,970
|
|
|
|
|
|
|
|
|
|
|
41
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash used in financing activities:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(8,021
|
)
|
|
$
|
(114,791
|
)
|
As adjusted
|
|
|
(5,556
|
)
|
|
|
(117,761
|
)
|
|
|
|
|
|
|
|
|
|
Change
|
|
$
|
2,465
|
|
|
$
|
(2,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
3)
|
Summary
of Significant Accounting Policies
|
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 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 a duration of 3
to 30 months. Acquired in-process research and development
(IPR&D) expenses, which are capitalized at fair
value as an intangible asset until the related project is
completed, are then amortized over the estimated useful life of
the product. Projects that are abandoned are immediately written
off. In prior years, IPR&D was expensed as incurred.
Advertising
Costs
Advertising costs are expensed as incurred and were immaterial
in 2010, 2009 and 2008.
Stock-Based
Compensation
The accounting for share-based compensation expense requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors based
on estimated fair values. For restricted stock units
(RSUs), the fair value is the fair value on the date
of grant. 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,
42
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
expected life, 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 alone. 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.
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.
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 had 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.
The Company had one customer comprising 16%, 13% and 19% of net
sales for 2010, 2009 and 2008, respectively. During the years
2010, 2009 and 2008, the Company estimated that approximately
64%, 52% and 58% of its net sales, respectively, were to
semiconductor capital equipment manufacturers and semiconductor
device manufacturers. There were no customers comprising 10% or
more of the Companys accounts receivable balance as of
December 31, 2010.
43
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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, furniture and fixtures and office equipment, which
includes enterprise resource planning (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 names, covenants not to compete and IPR&D.
Intangible assets are amortized from two to eight years on a
straight-line basis which represents the estimated periods of
benefit. During 2009 and 2008, the Company recorded impairments
of indefinite-lived intangible assets of $11,699,000 and
$6,069,000, respectively. These impairment charges are
classified in discontinued operations in the consolidated
statements of operations as the intangible assets relate to the
two discontinued product lines.
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 bases 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 of
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. During 2009, the Company recorded a goodwill
impairment charge of $193,254,000. In 2010, the Company
reclassified $53,840,000 of the goodwill impairment charge to
discontinued operations as it related to the two discontinued
product lines.
Impairment
of Long-Lived Assets
The Company evaluates the recoverability of its long-lived
assets 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
44
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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. During 2009, the Company recorded an impairment
charge of $3,544,000 resulting from the write-down of the value
of a building to its estimated fair value.
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 selling, general and administrative
expenses 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 affects 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. 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 as a component of the provision for income taxes on the
statement of operations. As of December 31, 2008, the
Company had a valuation allowance of $4,653,000 primarily
related to state tax credit carryforwards. During 2009, the
Company increased the valuation allowance by $548,000 primarily
for state tax credit carryforwards, as the Company has
determined it is more likely than not that this tax attribute
will not be realized. As a result, the valuation allowance was
$5,201,000 at December 31, 2009. During 2010, the Company
increased the valuation allowance by $20,066,000 primarily
related to capital losses incurred from its divested business
operations, as the Company determined it is more likely than not
that this tax attribute will not be realized. As a result, the
valuation allowance is $25,267,000 at December 31, 2010.
Accounting for income taxes requires a two-step approach to
recognize and measure uncertain tax positions. The first step is
to evaluate the tax position for recognition by determining if,
based on the technical merits, 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.
|
|
4)
|
Recently
Issued Accounting Pronouncements
|
In January 2010, the Financial Accounting Standards Board
(FASB) issued updated guidance to amend the
disclosure requirements related to recurring and nonrecurring
fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities in and out of
Level 1 and Level 2 of the fair value hierarchy
(including the reasons for these transfers) and also requires a
reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. In
addition to these new disclosure requirements, this update
clarifies certain existing disclosure requirements. For example,
this update clarifies that reporting entities are required to
provide fair value measurement disclosures for each class of
assets and liabilities
45
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
rather than each major category of assets and liabilities. This
update also clarifies the requirement for entities to disclose
information about both the valuation techniques and inputs used
in estimating Level 2 and Level 3 fair value
measurements. This update was effective for companies with
interim and annual reporting periods beginning after
December 15, 2009, except for the requirement to provide
the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will become effective for
interim and annual reporting periods beginning after
December 15, 2010. The Company adopted the updated guidance
in the first quarter of 2010 and the adoption did not have a
material impact on the Companys financial position,
results of operations, or cash flows.
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 affects 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 adoption is permitted. The Company
does not expect this new guidance to have a material impact 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
adoption is permitted. The Company does not expect this new
guidance to have an impact on its consolidated financial
statements.
|
|
5)
|
Cash and
Cash Equivalents and Investments
|
In 2008, the Company recorded net impairment charges of $906,000
related to two investments. The Company liquidated its position
in these two 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:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Money market funds and certificates of deposit
|
|
$
|
15,716
|
|
|
$
|
4,296
|
|
Equity mutual funds
|
|
|
491
|
|
|
|
449
|
|
U.S. agency obligations
|
|
|
230,394
|
|
|
|
150,648
|
|
Corporate obligations
|
|
|
22,856
|
|
|
|
5,393
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
269,457
|
|
|
$
|
160,786
|
|
|
|
|
|
|
|
|
|
|
46
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The fair value of long-term
available-for-sale
investments with maturities or estimated lives of one to five
years consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
U.S. agency obligations
|
|
$
|
|
|
|
$
|
4,853
|
|
|
|
|
|
|
|
|
|
|
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, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity mutual funds
|
|
$
|
659
|
|
|
$
|
|
|
|
$
|
(168
|
)
|
|
$
|
491
|
|
U.S. agency obligations
|
|
|
168,713
|
|
|
|
35
|
|
|
|
(28
|
)
|
|
|
168,720
|
|
Corporate obligations
|
|
|
27,980
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
27,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,352
|
|
|
$
|
42
|
|
|
$
|
(203
|
)
|
|
$
|
197,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity mutual funds
|
|
$
|
649
|
|
|
$
|
|
|
|
$
|
(200
|
)
|
|
$
|
449
|
|
U.S. agency obligations
|
|
|
147,354
|
|
|
|
75
|
|
|
|
(82
|
)
|
|
|
147,347
|
|
Corporate obligations
|
|
|
1,493
|
|
|
|
1
|
|
|
|
|
|
|
|
1,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
149,496
|
|
|
$
|
76
|
|
|
$
|
(282
|
)
|
|
$
|
149,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
equity mutual funds consisted of certain U.S. and
international equity mutual funds associated with the
Companys supplemental defined contribution retirement
benefits.
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
2010, 2009 and 2008.
|
|
6)
|
Fair
Value Measurements
|
In accordance with the provisions of fair value accounting, a
fair value measurement assumes that a 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.
47
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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
money market funds, 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 corporate obligations 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, 2010, 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
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds and certificates of deposit
|
|
$
|
22,748
|
|
|
$
|
22,748
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity mutual funds(1)
|
|
|
491
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
Available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
|
267,712
|
|
|
|
267,712
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
30,329
|
|
|
|
30,329
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
321,649
|
|
|
$
|
321,280
|
|
|
$
|
369
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental retirement benefits(2)
|
|
$
|
707
|
|
|
$
|
707
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives currency forward contracts
|
|
|
3,463
|
|
|
|
|
|
|
|
3,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
4,170
|
|
|
$
|
707
|
|
|
$
|
3,463
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Assets and liabilities of the Company measured at fair value on
a recurring basis as of December 31, 2009, 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
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds and certificates of deposit
|
|
$
|
8,071
|
|
|
$
|
8,071
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity mutual funds(1)
|
|
|
449
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
Available-for-sale
debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency obligations
|
|
|
158,665
|
|
|
|
158,665
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
5,393
|
|
|
|
5,393
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
|
1,505
|
|
|
|
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
174,083
|
|
|
$
|
172,578
|
|
|
$
|
1,505
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental retirement benefits(2)
|
|
$
|
546
|
|
|
$
|
546
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives currency forward contracts
|
|
|
423
|
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
969
|
|
|
$
|
546
|
|
|
$
|
423
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to short-term investments associated with the
Companys supplemental defined contribution retirement
benefits. |
|
(2) |
|
Relates to the Companys obligations to pay benefits under
its supplemental defined contribution retirement benefits, which
are included in Other liabilities. |
Money Market Funds and Certificates of Deposit
As of December 31, 2010, this asset class consisted of time
deposits denominated in the Euro currency and a money market
portfolio that comprises Federal government and
U.S. Treasury securities. The asset class is classified
within Level 1 of the fair value hierarchy because its
underlying investments are valued using quoted market prices in
active markets for identical assets. As of December 31,
2009, this asset class consisted primarily of certificates of
deposit at financial institutions.
Available-For-Sale
Equity Securities
As of December 31, 2010 and December 31, 2009,
available-for-sale
equity securities consisted of certain U.S. and
international equity mutual funds, classified within
Level 1 of the fair value hierarchy because they are valued
using quoted market prices in an active market for identical
assets.
Available-For-Sale
Debt Securities
As of December 31, 2010 and December 31, 2009,
available-for-sale
debt securities consisted of U.S. agency and corporate
obligations classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices in
an active market for identical assets.
49
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Supplemental
Retirement Benefits
As of December 31, 2010 and December 31, 2009,
supplemental defined contribution retirement benefit liabilities
were measured at fair-value based on the market return of
certain U.S. and international equity mutual funds,
classified within Level 1 of the fair value hierarchy
because they are valued using quoted market prices in an active
market for identical assets.
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 principal market in which
the Company executes its foreign currency contracts is the
institutional market in an
over-the-counter
environment with a relatively high level of price transparency.
The market participants usually are large commercial banks. The
forward foreign currency exchange contracts are valued using
broker quotations, or market transactions and are classified
within Level 2 of the fair value hierarchy.
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, 2009 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
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total Losses
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill(1)
|
|
$
|
144,511
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
144,511
|
|
|
$
|
193,254
|
|
Definite-lived intangible assets(2)
|
|
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
4,963
|
|
|
|
11,699
|
|
Long-lived assets held and used
|
|
|
1,297
|
|
|
|
|
|
|
|
1,297
|
|
|
|
|
|
|
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
150,771
|
|
|
$
|
|
|
|
$
|
1,297
|
|
|
$
|
149,474
|
|
|
$
|
208,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the twelve months ended December 31, 2009, the goodwill
impairment charge of $193,254,000 includes $53,840,000 of
charges classified in discontinued operations in the
consolidated statement of operations. |
|
(2) |
|
For the twelve months ended December 31, 2009, the
definite-lived intangible asset impairment charge of $11,699,000
is classified in discontinued operations in the consolidated
statement of operations. |
In accordance with the provisions of accounting for goodwill and
other intangible assets, during the second quarter of 2009,
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 such quarter. In accordance with the provisions of
accounting for the impairment of long-lived assets, during the
second quarter of 2009, definite-lived intangible assets with a
carrying amount of $18,866,000, were written down to their fair
value of $7,167,000, resulting in an impairment charge of
$11,699,000, which was included in earnings in such quarter.
Refer to Note 10 for the information and description used
to develop the inputs and the fair value determination of the
Level 3 goodwill and other definite-lived intangible assets.
The long-lived asset held with a carrying amount of $4,841,000
was written down in the second quarter of 2009 to its fair value
of $1,297,000, resulting in a loss of $3,544,000, which was
included in earnings in such quarter. During the first quarter
of 2010, the Company sold this long-lived asset for its net
realizable value of approximately
50
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
$1,297,000. In addition, the Company sold a vacated facility
during the first quarter of 2010 and received net proceeds of
$785,000 and recorded a net gain on the sale of $682,000.
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 off-setting 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 OCI in
stockholders equity. These changes in fair value will
subsequently be reclassified into earnings, 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 is not met, the
related foreign currency forward contracts are considered as
economic hedges and changes in the fair value of these contracts
are recorded immediately 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 December 31, 2010 and 2009, the Company had
outstanding forward foreign exchange contracts with gross
notional values of $87,666,000 and $48,724,000, respectively.
The following tables provide a summary of the primary net
hedging positions and corresponding fair values held as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Gross Notional
|
|
|
|
|
Currency Hedged (Buy/Sell)
|
|
Value
|
|
|
Fair Value(1)
|
|
|
U.S. Dollar/Japanese Yen
|
|
$
|
50,104
|
|
|
$
|
(2,876
|
)
|
U.S. Dollar/South Korean Won
|
|
|
27,574
|
|
|
|
(563
|
)
|
U.S. Dollar/Euro
|
|
|
6,934
|
|
|
|
305
|
|
U.S. Dollar/U.K. Pound Sterling
|
|
|
3,054
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,666
|
|
|
$
|
(3,094
|
)
|
|
|
|
|
|
|
|
|
|
51
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Gross Notional
|
|
|
|
|
Currency Hedged (Buy/Sell)
|
|
Value
|
|
|
Fair Value(1)
|
|
|
U.S. Dollar/Japanese Yen
|
|
$
|
28,980
|
|
|
$
|
1,220
|
|
U.S. Dollar/South Korean Won
|
|
|
8,477
|
|
|
|
(338
|
)
|
U.S. Dollar/Euro
|
|
|
8,069
|
|
|
|
149
|
|
U.S. Dollar/U.K. Pound Sterling
|
|
|
3,198
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,724
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the net receivable (payable) amount included in the
consolidated balance sheet. |
The following table provides a summary of the fair value amounts
of the Companys derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Derivatives Designated as Hedging Instruments
|
|
2010
|
|
|
2009
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
369
|
|
|
$
|
1,505
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
(3,463
|
)
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
Total net derivative asset (liability) designated as hedging
instruments(1)
|
|
$
|
(3,094
|
)
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The derivative asset of $369,000 and derivative liability of
$3,463,000 are classified in other current assets and other
current liabilities, respectively, in the consolidated balance
sheet as of December 31, 2010. The derivative asset of
$1,505,000 and derivative liability of $423,000 are classified
in other current assets and other current liabilities,
respectively, in the consolidated balance sheet as of
December 31, 2009. |
The following table provides a summary of the gains (losses) on
derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Derivatives Designated as Cash Flow Hedging Relationships
|
|
2010
|
|
2009
|
|
2008
|
|
Forward exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in OCI(1)
|
|
$
|
(3,346
|
)
|
|
$
|
1,290
|
|
|
$
|
465
|
|
Net gain (loss) reclassified from accumulated OCI into income(2)
|
|
|
(957
|
)
|
|
|
1,062
|
|
|
|
(1,176
|
)
|
Net gain (loss) recognized in income(3)
|
|
|
|
|
|
|
313
|
|
|
|
(223
|
)
|
|
|
|
(1) |
|
Net change in the fair value of the effective portion classified
in OCI. |
|
(2) |
|
Effective portion classified as cost of products. |
|
(3) |
|
Ineffective portion 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Derivatives Not Designated as Hedging Instruments
|
|
2010
|
|
2009
|
|
2008
|
|
Forward exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain recognized in income(1)
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
2,669
|
|
|
|
|
(1) |
|
Classified in selling, general and administrative. |
52
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The $2,669,000 gain recognized in 2008 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.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw material
|
|
$
|
82,012
|
|
|
$
|
56,083
|
|
Work in process
|
|
|
21,891
|
|
|
|
16,501
|
|
Finished goods
|
|
|
52,526
|
|
|
|
45,420
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156,429
|
|
|
$
|
118,004
|
|
|
|
|
|
|
|
|
|
|
Inventory related excess and obsolete charges of $13,230,000,
$20,335,000 and $11,401,000 were recorded in cost of products in
the years ended December 31, 2010, 2009 and 2008,
respectively.
|
|
9)
|
Property,
Plant and Equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
8,131
|
|
|
$
|
9,086
|
|
Buildings
|
|
|
63,633
|
|
|
|
64,786
|
|
Machinery and equipment
|
|
|
97,888
|
|
|
|
92,136
|
|
Furniture and fixtures and office equipment
|
|
|
50,642
|
|
|
|
52,844
|
|
Leasehold improvements
|
|
|
18,385
|
|
|
|
18,050
|
|
Construction in progress
|
|
|
3,968
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,647
|
|
|
|
238,257
|
|
Less: accumulated depreciation and amortization
|
|
|
173,671
|
|
|
|
171,061
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
68,976
|
|
|
$
|
67,196
|
|
|
|
|
|
|
|
|
|
|
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.
Depreciation and amortization of property, plant and equipment
totaled $12,298,000, $14,352,000 and $14,523,000 for the years
2010, 2009 and 2008, respectively. In 2010, the Company
reclassified $85,000, $264,000 and $531,200 of depreciation and
amortization of property, plant and equipment to discontinued
operations for the years 2010, 2009 and 2008, respectively.
53
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
10)
|
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.
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 was derived from a group of comparable companies. The
cash flows employed in the DCF analysis were 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.
The Company determined that during the second quarter of 2010,
an interim assessment for impairment was required for the
goodwill allocated to its CIT reporting unit, since a component
of the reporting unit was sold, and a second component was
classified as held for sale. During this interim assessment, the
Company determined that the estimated fair value of its CIT
reporting unit exceeded its carrying amount and as a result, the
goodwill of the reporting unit was not impaired and the second
step of the impairment test was not required.
During the second quarter of 2009, the Company determined an
interim assessment for impairment should be conducted for its
goodwill due to various factors, including market and economic
conditions that 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. During this 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. In 2010, the Company
reclassified $53,840,000 of the goodwill impairment charge to
discontinued operations for 2009 as it related to the two
discontinued product lines.
As of October 31, 2010, the Company performed its annual
impairment assessment of goodwill and determined that no
additional impairment charges were required, as the fair value
of each reporting unit exceeded its book value.
54
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The changes in the carrying amount of goodwill and accumulated
impairment losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
|
Carrying
|
|
|
Impairment
|
|
|
|
|
|
Carrying
|
|
|
Impairment
|
|
|
|
|
|
|
Amount
|
|
|
Loss
|
|
|
Net
|
|
|
Amount
|
|
|
Loss
|
|
|
Net
|
|
|
Beginning balance at January 1
|
|
$
|
337,765
|
|
|
$
|
(193,254
|
)
|
|
$
|
144,511
|
|
|
$
|
337,765
|
|
|
$
|
|
|
|
$
|
337,765
|
|
Acquired goodwill
|
|
|
2,292
|
|
|
|
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of discontinued operations(1)
|
|
|
(60,623
|
)
|
|
|
53,840
|
|
|
|
(6,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193,254
|
)
|
|
|
(193,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31
|
|
$
|
279,434
|
|
|
$
|
(139,414
|
)
|
|
$
|
140,020
|
|
|
$
|
337,765
|
|
|
$
|
(193,254
|
)
|
|
$
|
144,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In 2010, the Company sold its Ion business and assets of its YDI
business and as a result charged the related net goodwill to the
gain on sale of discontinued operations. |
|
(2) |
|
For the twelve months ended December 31, 2009, $53,840,000
of the goodwill impairment charge is classified in discontinued
operations in the consolidated statement of operations. |
In 2010, the Company purchased a technology company for
$2,447,000 to enhance its product portfolio. The Company
recorded $2,292,000 of goodwill in connection with the
acquisition.
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 market and
economic conditions that 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. This impairment charge is classified in
discontinued operations in the consolidated statement of
operations as the intangible assets relate to the two
discontinued product lines.
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 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. This impairment charge is classified in
discontinued operations in the consolidated statement of
operations as the intangible assets relate to a discontinued
product line.
55
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
As of December 31, 2010:
|
|
Gross(1)
|
|
|
Amortization(1)
|
|
|
Net
|
|
|
Completed technology
|
|
$
|
76,829
|
|
|
$
|
(76,230
|
)
|
|
$
|
599
|
|
Customer relationships
|
|
|
8,940
|
|
|
|
(8,083
|
)
|
|
|
857
|
|
Patents, trademarks, trade names and other
|
|
|
24,638
|
|
|
|
(24,351
|
)
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,407
|
|
|
$
|
(108,664
|
)
|
|
$
|
1,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $18,299,000 and $16,603,000 from gross and accumulated
amortization, respectively, as a result of the Companys
sale of its Ion business and assets of its YDI business. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Accumulated
|
|
|
|
|
As of December 31, 2009:
|
|
Gross
|
|
|
Charges(1)
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
$
|
88,855
|
|
|
$
|
(3,812
|
)
|
|
$
|
(82,705
|
)
|
|
$
|
2,338
|
|
Customer relationships
|
|
|
21,879
|
|
|
|
(7,113
|
)
|
|
|
(13,326
|
)
|
|
|
1,440
|
|
Patents, trademarks, trade names and other
|
|
|
29,672
|
|
|
|
(774
|
)
|
|
|
(27,713
|
)
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,406
|
|
|
$
|
(11,699
|
)
|
|
$
|
(123,744
|
)
|
|
$
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the twelve months ended December 31, 2009, the
intangible asset impairment charge of $11,699,000 is classified
in discontinued operations in the consolidated statement of
operations. |
Aggregate amortization expense related to acquired intangibles
for the years 2010, 2009 and 2008 were $1,525,000, $4,407,000
and $9,001,000, respectively. In 2010, the Company reclassified
$242,000, $1,645,000 and $5,008,000 of amortization expense to
discontinued operations for the years 2010, 2009 and 2008,
respectively. Estimated amortization expense for each of the
three remaining fiscal years is as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2011
|
|
$
|
988
|
|
2012
|
|
|
389
|
|
2013
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
15,076
|
|
|
$
|
17,373
|
|
Other
|
|
|
3,703
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
18,779
|
|
|
$
|
19,665
|
|
|
|
|
|
|
|
|
|
|
56
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Other Current Liabilities:
|
|
|
|
|
|
|
|
|
Product warranties
|
|
$
|
9,865
|
|
|
$
|
6,560
|
|
Deferred revenue
|
|
|
4,970
|
|
|
|
4,101
|
|
Non-income taxes
|
|
|
5,715
|
|
|
|
2,479
|
|
Other
|
|
|
17,418
|
|
|
|
8,325
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
37,968
|
|
|
$
|
21,465
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Long-term income tax payable
|
|
$
|
13,688
|
|
|
$
|
6,773
|
|
Accrued compensation
|
|
|
11,064
|
|
|
|
10,424
|
|
Other
|
|
|
936
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
25,688
|
|
|
$
|
17,836
|
|
|
|
|
|
|
|
|
|
|
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. The product warranty liability is
included in other current liabilities in the consolidated
balance sheets.
Product warranty activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
6,560
|
|
|
$
|
8,334
|
|
Provisions for product warranties
|
|
|
9,518
|
|
|
|
2,520
|
|
Direct charges to warranty liability
|
|
|
(6,213
|
)
|
|
|
(4,294
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,865
|
|
|
$
|
6,560
|
|
|
|
|
|
|
|
|
|
|
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 $5,812,000 during
2009. The restructuring charges were primarily for severance and
other charges associated with the reductions in workforce. As of
December 31, 2009, the accrued restructuring costs totaled
$220,000 and were included in accrued compensation in the
consolidated balance sheet. The restructuring plan was completed
in the first quarter of 2010.
57
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The activity related to the Companys restructuring accrual
is shown below:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
220
|
|
|
$
|
|
|
Severance and employee related costs(1)
|
|
|
|
|
|
|
5,812
|
|
Payments
|
|
|
(220
|
)
|
|
|
(5,592
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
$
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the twelve months ended December 31, 2009,
restructuring charges of $296,000 are classified in discontinued
operations in the consolidated statement of operations. |
Credit
Agreements and Short-Term Borrowings
On July 31, 2010, the Optional Advance Demand Grid Note
dated August 3, 2004 expired without renewal. The unsecured
short-term LIBOR-based loan agreement was with HSBC Bank USA and
was utilized primarily by the Companys Japanese subsidiary
for short-term liquidity purposes and had a maximum borrowing
amount of $5,000,000. The Company did not have outstanding
borrowings under this line of credit at December 31, 2009
or thereafter.
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, 2010 of up to an equivalent of $30,656,000
U.S. dollars, which generally expire and are renewed at
three month intervals. There were no borrowings outstanding
under these arrangements at December 31, 2010. Total
borrowings outstanding under these arrangements at
December 31, 2009 were $12,885,000 at interest rates
ranging from 0.76% to 1.48%.
A reconciliation of the Companys effective tax rate to the
U.S. federal statutory rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S. Federal income tax statutory rate
|
|
|
35.0
|
%
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
Federal and state tax credits
|
|
|
(1.1
|
)
|
|
|
(2.2
|
)
|
|
|
(4.0
|
)
|
State income taxes, net of federal benefit
|
|
|
1.0
|
|
|
|
(0.6
|
)
|
|
|
1.6
|
|
Effect of foreign operations taxed at various rates
|
|
|
(2.4
|
)
|
|
|
(2.2
|
)
|
|
|
(8.4
|
)
|
Qualified production activity tax benefit
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
(2.8
|
)
|
Non-deductible goodwill
|
|
|
|
|
|
|
27.2
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
|
|
6.1
|
|
Other
|
|
|
0.7
|
|
|
|
0.9
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.3
|
%
|
|
|
(12.2
|
)%
|
|
|
29.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
110,779
|
|
|
$
|
(193,341
|
)
|
|
$
|
6,665
|
|
Foreign
|
|
|
85,645
|
|
|
|
23,321
|
|
|
|
49,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,424
|
|
|
$
|
(170,020
|
)
|
|
$
|
56,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
27,789
|
|
|
$
|
(24,606
|
)
|
|
$
|
9,454
|
|
State
|
|
|
3,323
|
|
|
|
(175
|
)
|
|
|
1,488
|
|
Foreign
|
|
|
22,296
|
|
|
|
7,265
|
|
|
|
11,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,408
|
|
|
|
(17,516
|
)
|
|
|
22,205
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
|
10,021
|
|
|
|
(394
|
)
|
|
|
(8,330
|
)
|
State and Foreign
|
|
|
76
|
|
|
|
(2,749
|
)
|
|
|
2,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,097
|
|
|
|
(3,143
|
)
|
|
|
(5,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
63,505
|
|
|
$
|
(20,659
|
)
|
|
$
|
16,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of the deferred tax assets and
deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loss carryforwards and credits
|
|
$
|
27,604
|
|
|
$
|
8,131
|
|
Inventory and warranty reserves
|
|
|
17,116
|
|
|
|
19,611
|
|
Accounts receivable and other accruals
|
|
|
2,794
|
|
|
|
2,568
|
|
Depreciation and amortization
|
|
|
|
|
|
|
6,370
|
|
Stock-based compensation
|
|
|
5,692
|
|
|
|
6,602
|
|
Executive supplemental retirement benefits
|
|
|
4,584
|
|
|
|
3,305
|
|
Other
|
|
|
3,824
|
|
|
|
2,547
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
61,614
|
|
|
$
|
49,134
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
|
(3,927
|
)
|
|
|
(5,015
|
)
|
Depreciation and amortization
|
|
|
(1,621
|
)
|
|
|
|
|
Other
|
|
|
(1,950
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(7,498
|
)
|
|
|
(5,055
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(25,267
|
)
|
|
|
(5,201
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
28,849
|
|
|
$
|
38,878
|
|
|
|
|
|
|
|
|
|
|
59
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
At December 31, 2010, the Company had gross Massachusetts
research credit carryforwards of $6,588,000. These credit
carryforwards will expire at various dates through 2025. In
addition, at December 31, 2010, the Company had
U.S. federal capital loss carryforwards of $1,655,000 and
$59,524,000 that will expire in 2013 and 2015, respectively.
During 2010, the Company sold the assets of its YDI business
that resulted in the expiration of business credit carryforwards
of $810,000 and U.S. federal net operating losses of
$1,936,000. U.S. federal net operating losses remain
available to the Company in the amount of $3,553,000 which will
expire at various dates through 2027.
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, 2010 should these positions be challenged by
the applicable tax authority and additional tax assessed on
audit.
A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
9,085
|
|
|
$
|
14,678
|
|
|
$
|
16,123
|
|
Increase (decrease) for prior years
|
|
|
(6
|
)
|
|
|
(41
|
)
|
|
|
49
|
|
Increases for the current year
|
|
|
6,795
|
|
|
|
1,693
|
|
|
|
1,680
|
|
Reductions related to settlements with taxing authorities
|
|
|
|
|
|
|
(7,245
|
)
|
|
|
(1,533
|
)
|
Reductions related to expiration of statute of limitations
|
|
|
(604
|
)
|
|
|
|
|
|
|
(1,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
15,270
|
|
|
$
|
9,085
|
|
|
$
|
14,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the total amount of gross
unrecognized tax benefits, which excludes interest and
penalties, was approximately $15,270,000. The net increase from
December 31, 2009 was primarily attributable to an increase
in reserves for existing uncertain tax positions. At
December 31, 2010, if these benefits were recognized in a
future period, the timing of which is not estimable, the net
unrecognized tax benefit of $12,789,000, excluding interest and
penalties, would impact the Companys effective tax rate.
The Company accrues interest expense and, if applicable,
penalties, for any uncertain tax positions. Interest and
penalties are classified as a component of income tax expense.
At December 31, 2010, 2009 and 2008 we had accrued interest
on unrecognized tax benefits of approximately $986,000, $651,000
and $1,730,000, respectively.
Over the next 12 months it is reasonably possible that the
Company may recognize $2,800,000 to $3,300,000 of previously
unrecognized tax benefits related to various U.S. federal,
state and foreign tax positions as a result of the conclusion of
various audits and the expiration of the statute of limitations.
The Company is subject to examination by federal, state and
foreign tax authorities. The Companys U.S. federal
tax filings are open for examination for tax years 2007 through
present. The statute of limitations in the Companys other
tax jurisdictions remains open between fiscal year 2001 through
present.
On a quarterly basis, the Company evaluates both positive and
negative evidence that affects 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 2010, the Company increased
its valuation allowance by $20,066,000 primarily related to
capital losses incurred from the Companys divested
business operations, as the Company has determined it is more
likely than not that the deferred tax assets related to these
attributes will not be realized.
Through December 31, 2010, 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
60
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
because such liability, if any, is dependent on circumstances
existing if and when remittance occurs. At December 31,
2010, the Company had $321,462,000 of undistributed earnings in
its foreign subsidiaries.
During 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
currently due 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 $2,700,000, $300,000 and $200,000 for the years
2010, 2009 and 2008, respectively.
|
|
17)
|
Discontinued
Operations
|
During 2010, the Company executed a plan to divest two product
lines, as their growth potential no longer met the
Companys long-term strategic objectives. The Company
completed the sale of Ion on May 17, 2010 for $15,092,000
of net cash proceeds after expenses and recorded a pre-tax gain
on the sale of $4,208,000. The Company completed the sale of the
assets of its YDI business on August 11, 2010 for $490,000
of net cash proceeds after expenses and recorded a pre-tax gain
on the sale of $224,000.
The two product lines have been accounted for as discontinued
operations. Accordingly, their results of operations have been
reclassified to discontinued operations in the consolidated
statements of operations for all periods presented. The assets
and liabilities of these discontinued businesses have not been
reclassified or segregated in the consolidated balance sheets or
consolidated statements of cash flows due to their immaterial
amounts. Net revenues and income (loss) from discontinued
operations are below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net revenues
|
|
$
|
11,974
|
|
|
$
|
18,713
|
|
|
$
|
25,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes
|
|
$
|
2,320
|
|
|
$
|
(68,837
|
)
|
|
$
|
(15,340
|
)
|
Gain from disposal of discontinued operations before income taxes
|
|
|
4,432
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)
|
|
|
(2,916
|
)
|
|
|
(5,539
|
)
|
|
|
(5,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
9,668
|
|
|
$
|
(63,298
|
)
|
|
$
|
(9,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2009, the loss from discontinued operations before income
taxes includes $65,539,000 of goodwill and intangible asset
impairment charges. These charges were a result of the interim
impairment assessment performed on April 30, 2009. For
2008, the loss from discontinued operations before income taxes
includes $6,069,000 of intangible asset impairment charges.
These charges were a result of an impairment assessment
performed in the fourth quarter of 2008.
Stock
Option Exchange Program
Pursuant to the Companys tender offer to exchange
outstanding stock options, during the third quarter 2009,
options to purchase 1,330,000 shares of common stock were
exchanged for 189,000 RSUs with a one year vesting period.
Participants exchanged their eligible option awards for RSUs of
an approximate equal fair value and, as such, no incremental
compensation expense was recognized as a result of the exchange.
61
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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 1,950,000 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 Select Market on the day that each offering
commences or (2) 85% of the closing price on the day that
each offering terminates. During 2010 and 2009, the Company
issued 67,132 and 106,841 shares, respectively, of Common
Stock to employees who participated in the Purchase Plan at an
exercise price of $16.19 per share in 2010 and $11.08 per share
in 2009, respectively. As of December 31, 2010, there were
630,131 shares reserved for future issuance under the
Purchase Plan. During 2009, the Company suspended the June 1 and
December 1 Purchase Plan cycles and as a result, no shares were
issued for these cycles. The Company reinstated the Purchase
Plan on June 1, 2010.
The Companys Second Amended and Restated International
Employee Stock Purchase Plan (the Foreign Purchase
Plan) authorizes the issuance of up to an aggregate of
400,000 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
Select Market on the day that each offering commences or
(2) 85% of the closing price on the day that each offering
terminates. During 2010 and 2009, the Company issued 15,063 and
19,571 shares, respectively, of Common Stock to employees
who participated in the Foreign Purchase Plan at an exercise
price of $16.19 per share in 2010 and $11.08 per share in 2009,
respectively. As of December 31, 2010, there were
256,392 shares reserved for future issuance under the
Foreign Purchase Plan. During 2009, the Company suspended the
June 1 and December 1 Foreign Purchase Plan cycles and as a
result, no shares were issued for these cycles. The Company
reinstated the Foreign Purchase Plan on June 1, 2010.
Equity
Incentive Plans
The Company has granted options to employees under the 2004
Stock Incentive Plan (the 2004 Plan) and under the
Second Restated 1995 Stock Incentive Plan (the 1995
Plan), and to directors under the 1997 Director Stock
Plan (the 1997 Director 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 long-term growth
of the Company. Employees may be granted RSUs, 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, 2010, there were
15,000,000 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, RSUs, stock appreciation rights and other stock-based
awards to employees, officers, directors, consultants and
advisors under the 2004 Plan. As of December 31, 2010,
there were 12,650,169 shares available for future grants
under the 2004 Plan.
62
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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 which may be exercised 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 which may be exercised under this plan.
Stock options were 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, vested 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
2001 vested 20% after one year and 5% per quarter thereafter,
and expired 10 years after the grant date. Options granted
to directors generally vested 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. All stock options are fully vested as of
December 31, 2010. RSUs generally vest three years from the
date of grant. RSUs granted to employees who are at least
60 years old and have a combined years of age plus years of
service (as defined) equal to 70 or more, are expensed
immediately. RSUs 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. Certain equity incentive
awards involve RSUs that are subject to performance conditions
(performance shares) under the Companys stock
incentive plans. Such performance shares are available, subject
to time-based vesting conditions if, and to the extent that,
financial or operational performance criteria for the applicable
period are achieved. Accordingly, the number of performance
shares earned will vary based on the level of achievement of
financial or operational performance objectives for the
applicable period.
The following table presents the activity for RSUs under the
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
Average Grant
|
|
|
Non-vested
|
|
|
Average Grant
|
|
|
|
RSUs
|
|
|
Date Fair Value
|
|
|
RSUs
|
|
|
Date Fair Value
|
|
|
Non-vested RSUs beginning of period
|
|
|
1,581,883
|
|
|
$
|
19.77
|
|
|
|
1,824,990
|
|
|
$
|
21.87
|
|
Granted
|
|
|
555,995
|
|
|
$
|
19.63
|
|
|
|
682,156
|
|
|
$
|
15.27
|
|
Vested
|
|
|
(706,224
|
)
|
|
$
|
20.65
|
|
|
|
(666,247
|
)
|
|
$
|
21.91
|
|
Forfeited or expired
|
|
|
(104,348
|
)
|
|
$
|
18.32
|
|
|
|
(259,016
|
)
|
|
$
|
17.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested RSUs end of period
|
|
|
1,327,306
|
|
|
$
|
18.34
|
|
|
|
1,581,883
|
|
|
$
|
19.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the activity for options under the
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding beginning of period
|
|
|
2,514,822
|
|
|
$
|
21.67
|
|
|
|
4,558,838
|
|
|
$
|
23.44
|
|
|
|
5,123,056
|
|
|
$
|
22.74
|
|
Exercised
|
|
|
(568,464
|
)
|
|
$
|
16.49
|
|
|
|
(134,118
|
)
|
|
$
|
14.54
|
|
|
|
(425,256
|
)
|
|
$
|
14.32
|
|
Forfeited or expired
|
|
|
(153,144
|
)
|
|
$
|
32.51
|
|
|
|
(1,909,898
|
)
|
|
$
|
26.18
|
|
|
|
(138,962
|
)
|
|
$
|
25.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of period
|
|
|
1,793,214
|
|
|
$
|
22.38
|
|
|
|
2,514,822
|
|
|
$
|
21.67
|
|
|
|
4,558,838
|
|
|
$
|
23.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
1,793,214
|
|
|
$
|
22.38
|
|
|
|
2,514,197
|
|
|
$
|
21.67
|
|
|
|
4,535,282
|
|
|
$
|
23.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The following table summarizes information with respect to
options outstanding and exercisable under the Plans at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
Shares
|
|
|
Price
|
|
|
(In Years)
|
|
|
(In thousands)
|
|
|
$13.54 $18.44
|
|
|
549,306
|
|
|
$
|
16.07
|
|
|
|
2.86
|
|
|
$
|
4,628
|
|
$20.02 $27.77
|
|
|
1,121,798
|
|
|
$
|
24.47
|
|
|
|
1.68
|
|
|
|
637
|
|
$29.00 $38.30
|
|
|
122,110
|
|
|
$
|
31.51
|
|
|
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793,214
|
|
|
|
|
|
|
|
|
|
|
$
|
5,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options
exercisable was 2.1 years at December 31, 2010.
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value, based on the Companys
closing stock price of $24.50 as of December 31, 2010,
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, 2010 was 907,834.
The total cash received from employees as a result of employee
stock option exercises during the years 2010 and 2009 was
approximately $9,375,000 and $1,950,000, respectively. In
connection with these exercises, the tax benefits realized by
the Company for the years 2010 and 2009 were approximately
$1,262,000 and $93,000, respectively.
The Company settles employee stock option exercises and
restricted stock vesting 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, 2008
|
|
$
|
7,039
|
|
|
$
|
303
|
|
|
$
|
(123
|
)
|
|
$
|
7,219
|
|
Foreign currency translation adjustment, net of taxes of $0
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
Changes in value of financial instruments designated as cash
flow hedges, net of tax of $83
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
267
|
|
Change in unrealized gain on investments, net of tax of $29
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
10,101
|
|
|
$
|
570
|
|
|
$
|
(31
|
)
|
|
$
|
10,640
|
|
Foreign currency translation adjustment, net of taxes of $0
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
|
|
3,710
|
|
Changes in value of financial instruments designated as cash
flow hedges, net of tax benefit of $1,576
|
|
|
|
|
|
|
(2,600
|
)
|
|
|
|
|
|
|
(2,600
|
)
|
Change in unrealized gain on investments, net of tax of $17
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
13,811
|
|
|
$
|
(2,030
|
)
|
|
$
|
(3
|
)
|
|
$
|
11,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
19)
|
Stock-Based
Compensation
|
The Company recognized the full impact of its share-based
payment plans in the consolidated statements of operations for
the years 2010, 2009 and 2008. As of December 31, 2010 and
2009, the Company capitalized $471,000 of such cost on its
consolidated balance sheet. The following table reflects the
effect of recording stock-based compensation for the years 2010,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stock-based compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
$
|
|
|
|
$
|
158
|
|
|
$
|
1,936
|
|
Restricted stock
|
|
|
10,026
|
|
|
|
8,218
|
|
|
|
12,210
|
|
Employee stock purchase plan
|
|
|
578
|
|
|
|
469
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
10,604
|
|
|
|
8,845
|
|
|
|
15,274
|
|
Tax effect on stock-based compensation
|
|
|
(1,253
|
)
|
|
|
1,258
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income or net loss
|
|
$
|
9,351
|
|
|
$
|
10,103
|
|
|
$
|
15,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net earnings or loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax effect within the consolidated statements of
operations of recording stock-based compensation for the years
2010, 2009 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of sales
|
|
$
|
1,452
|
|
|
$
|
1,298
|
|
|
$
|
2,272
|
|
Research and development expense
|
|
|
2,391
|
|
|
|
2,026
|
|
|
|
3,698
|
|
Selling, general and administrative expense
|
|
|
6,761
|
|
|
|
5,521
|
|
|
|
9,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax stock-based compensation expense
|
|
$
|
10,604
|
|
|
$
|
8,845
|
|
|
$
|
15,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
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
except for retirement eligible employees in which the Company
expenses the fair value of the grant in the period the grant is
issued. 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 2010, 2009 and 2008. The
total intrinsic value of options exercised during 2010, 2009 and
2008 was approximately $3,518,000, $327,000 and $3,802,000,
respectively.
65
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The weighted average fair value per share of employee stock
purchase rights granted in 2010, 2009 and 2008 was $5.48, $4.44
and $4.62, respectively. The fair value of the employees
purchase rights was estimated using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Employee stock purchase rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life (years)
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Risk-free interest rate
|
|
|
0.2
|
%
|
|
|
0.5
|
%
|
|
|
2.6
|
%
|
Expected volatility
|
|
|
48.7
|
%
|
|
|
68.0
|
%
|
|
|
47.3
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatilities for 2010, 2009 and 2008 are based on a
combination of implied and historical volatilities of the
Companys common stock; 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 total intrinsic value of options exercised and the total
fair value of shares vested during 2010, 2009 and 2008 was
approximately $16,846,000, $10,188,000 and $6,087,000,
respectively. As of December 31, 2010, the unrecognized
compensation cost related to non-vested stock options was zero.
As of December 31, 2010, the unrecognized compensation cost
related to restricted stock was approximately $10,306,000, and
will be recognized over an estimated weighted average
amortization period of 1.8 years.
|
|
20)
|
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
Internal Revenue Service. The Company, at its discretion, may
provide a matching contribution of 50% of each
participants contributions up to 6% of eligible salary. 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 $1,472,000,
$929,000 and $2,755,000 for 2010, 2009 and 2008, respectively.
The Company temporarily suspended the employer match portion of
the 401(k) profit-sharing plan between April 2009 and March 2010
as a result of cost control measures.
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 $18,972,000,
$881,000 and zero in 2010, 2009 and 2008, respectively.
The Company provides supplemental retirement benefits for
certain of its officers and executive officers. The total cost
of these benefits was $3,428,000, $3,138,000 and $2,054,000 for
2010, 2009 and 2008, respectively. The accumulated benefit
obligation was $12,225,000 and $8,813,000 at December 31,
2010 and 2009, respectively and was included in other long-term
liabilities.
|
|
21)
|
Net
Income (Loss) Per Share
|
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
66
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
potentially dilutive common shares (stock options and restricted
stock units) had been converted to such common shares, and if
such assumed conversion is dilutive.
The following is a reconciliation of basic to diluted net income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
132,919
|
|
|
$
|
(149,361
|
)
|
|
$
|
40,010
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
9,668
|
|
|
|
(63,298
|
)
|
|
|
(9,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
142,587
|
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income (loss) per common share
basic
|
|
|
50,077,000
|
|
|
|
49,318,000
|
|
|
|
49,717,000
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and employee stock purchase plan
|
|
|
850,000
|
|
|
|
|
|
|
|
1,037,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income (loss) per common share
diluted
|
|
|
50,927,000
|
|
|
|
49,318,000
|
|
|
|
50,754,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.66
|
|
|
$
|
(3.03
|
)
|
|
$
|
0.81
|
|
Discontinued operations
|
|
|
0.19
|
|
|
|
(1.28
|
)
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2.85
|
|
|
$
|
(4.31
|
)
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.61
|
|
|
$
|
(3.03
|
)
|
|
$
|
0.79
|
|
Discontinued operations
|
|
|
0.19
|
|
|
|
(1.28
|
)
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2.80
|
|
|
$
|
(4.31
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, 2009 and 2008, stock options and
restricted stock units relating to an aggregate of approximately
3,120,520, 4,096,705 and 6,383,828 shares, respectively,
were outstanding. For 2010, 1,255,679 shares were not
included in the computation of diluted earnings per share
because the exercise price exceeded the average price per share
for the period and the effect would have been anti-dilutive. For
2009, all potentially dilutive common shares were excluded from
the dilutive computation as the effect of including such
securities in the computation would be anti-dilutive due to the
Companys net loss for the year. For 2008,
3,152,261 shares were not included in the computation of
diluted earnings per share because the exercise price exceeded
the average price per share for the period.
|
|
22)
|
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 operating
decision-maker reviews consolidated operating results to make
decisions about allocating resources and assessing performance
for the entire Company.
67
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Geographic net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
484,139
|
|
|
$
|
212,639
|
|
|
$
|
346,402
|
|
Japan
|
|
|
118,537
|
|
|
|
47,704
|
|
|
|
92,657
|
|
Europe
|
|
|
96,545
|
|
|
|
63,876
|
|
|
|
95,360
|
|
Asia
|
|
|
153,893
|
|
|
|
68,474
|
|
|
|
86,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
853,114
|
|
|
$
|
392,693
|
|
|
$
|
621,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Long lived assets(1)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
54,840
|
|
|
$
|
52,143
|
|
Japan
|
|
|
4,273
|
|
|
|
5,886
|
|
Europe
|
|
|
4,970
|
|
|
|
3,621
|
|
Asia
|
|
|
8,597
|
|
|
|
7,838
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,680
|
|
|
$
|
69,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-lived assets include property, plant and equipment, net and
other assets. |
The Company groups its products into three product groups. Net
sales for these product groups are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Instruments and Control Systems
|
|
$
|
430,468
|
|
|
$
|
205,877
|
|
|
$
|
313,702
|
|
Power and Reactive Gas Products
|
|
|
343,827
|
|
|
|
148,191
|
|
|
|
243,789
|
|
Vacuum and Other Products
|
|
|
78,819
|
|
|
|
38,625
|
|
|
|
63,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
853,114
|
|
|
$
|
392,693
|
|
|
$
|
621,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had one customer comprising 16%, 13% and 19% of net
sales for 2010, 2009 and 2008, respectively. During the years
2010, 2009 and 2008, the Company estimated that approximately
64%, 52% and 58% of its net sales, respectively, were to
semiconductor capital equipment manufacturers and semiconductor
device manufacturers.
|
|
23)
|
Commitments
and Contingencies
|
Brooks Instrument, LLC filed two lawsuits, in one case along
with their affiliate BI Products, LLC (collectively with Brooks
Instrument, LLC, Brooks), against the Company in the
United States District Court for the Eastern District of Texas,
on April 29, 2010. Brooks also filed one lawsuit against
the Company in the United States District Court for the District
of Massachusetts on April 29, 2010. These suits were
related to the Companys digital mass flow controllers and
digital pressure sensors. Brooks sought injunctive relief and
damages for alleged patent infringement, breach of contract and
trade secret violations. None of the lawsuits specified a
specific amount of damages. The Company responded to the
allegations to deny any wrongdoing. In addition, the Company
filed
68
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
counterclaims against Brooks in the courts where they initially
brought suit against the Company, seeking injunctive relief and
damages for alleged patent infringement by Brooks, relating to
their pressure transient insensitive mass flow controllers. On
February 22, 2011, the parties entered into a settlement
agreement, resolving all the issues in the cases, and on
February 23, 2011, the parties filed stipulated dismissals
with the appropriate courts.
The Company is 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
Companys results of operations, financial condition or
cash flows.
The Company leases certain of its facilities and machinery and
equipment under operating leases expiring in various years
through 2015 and thereafter. Generally, the facility leases
require the Company to pay maintenance, insurance and real
estate taxes. Rental expense under operating leases totaled
$8,304,000, $8,974,000 and $9,952,000 for 2010, 2009 and 2008,
respectively.
Minimum lease payments under operating leases are as follows:
|
|
|
|
|
|
|
Operating Leases
|
|
|
Year ending December 31,
|
|
|
|
|
2011
|
|
$
|
7,447
|
|
2012
|
|
|
6,633
|
|
2013
|
|
|
5,182
|
|
2014
|
|
|
3,483
|
|
2015
|
|
|
2,760
|
|
Thereafter
|
|
|
3,653
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
29,158
|
|
|
|
|
|
|
As of December 31, 2010, 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 $141,609,000. Additionally, the Company has
engaged multiple parties to provide certain computer equipment,
IT network services and IT support. These contracts range for
periods between two and five years and the obligation at
December 31, 2010 of approximately $26,764,000 will be paid
over the term of the multiple arrangements. Average annual
payments are expected to be approximately $5,353,000.
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. The Company believes that the estimated exposure
for these indemnification obligations is currently not material.
Accordingly, the Company has no material liabilities recorded
for these requirements as of December 31, 2010.
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
69
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
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, 2010.
As part of past acquisitions and divestitures of businesses or
assets, the Company has provided a variety of indemnifications
to the sellers and purchasers for certain events or occurrences
that took place prior to the date of the acquisition or
divestiture. Typically certain of the indemnifications expire
after a defined period of time following the transaction, but
certain indemnifications may survive indefinitely. 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
material 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 indemnification 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.
On February 1, 2011, the Companys Board of Directors
authorized a quarterly cash dividend of $0.15 per share, payable
on March 18, 2011 to shareholders of record as of
March 1, 2011. Future dividend declarations, as well as the
record and payment dates for such dividends, are subject to the
final determination of the Companys Board of Directors
70
MKS
INSTRUMENTS, INC.
SUPPLEMENTAL FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
|
|
(Table in thousands, except per share data)
|
|
|
(Unaudited)
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
192,166
|
|
|
$
|
220,647
|
|
|
$
|
221,323
|
|
|
$
|
218,978
|
|
Gross profit
|
|
|
85,495
|
|
|
|
97,319
|
|
|
|
98,503
|
|
|
|
97,321
|
|
Income from continuing operations
|
|
|
28,998
|
|
|
|
33,144
|
|
|
|
36,601
|
|
|
|
34,176
|
|
Income from discontinued operations, net of taxes(1)
|
|
|
227
|
|
|
|
5,633
|
|
|
|
2,035
|
|
|
|
1,773
|
|
Net income
|
|
$
|
29,225
|
|
|
$
|
38,777
|
|
|
$
|
38,636
|
|
|
$
|
35,949
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.58
|
|
|
$
|
0.66
|
|
|
$
|
0.73
|
|
|
$
|
0.68
|
|
Net income
|
|
$
|
0.59
|
|
|
$
|
0.77
|
|
|
$
|
0.77
|
|
|
$
|
0.71
|
|
Diluted income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.57
|
|
|
$
|
0.65
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
Net income
|
|
$
|
0.58
|
|
|
$
|
0.76
|
|
|
$
|
0.76
|
|
|
$
|
0.70
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
72,265
|
|
|
$
|
75,623
|
|
|
$
|
102,028
|
|
|
$
|
142,777
|
|
Gross profit
|
|
|
8,518
|
|
|
|
24,250
|
|
|
|
37,874
|
|
|
|
59,574
|
|
Income (loss) from continuing operations(2)
|
|
|
(14,973
|
)
|
|
|
(146,348
|
)
|
|
|
(2,446
|
)
|
|
|
14,406
|
|
Income (loss) from discontinued operations, net of taxes(3)
|
|
|
(1,526
|
)
|
|
|
(60,786
|
)
|
|
|
(1,527
|
)
|
|
|
541
|
|
Net income (loss)(4)
|
|
$
|
(16,499
|
)
|
|
$
|
(207,134
|
)
|
|
$
|
(3,973
|
)
|
|
$
|
14,947
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.31
|
)
|
|
$
|
(2.97
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.29
|
|
Net income (loss)
|
|
$
|
(0.34
|
)
|
|
$
|
(4.20
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.30
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.31
|
)
|
|
$
|
(2.97
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
0.29
|
|
Net income (loss)
|
|
$
|
(0.34
|
)
|
|
$
|
(4.20
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.30
|
|
|
|
|
(1) |
|
Income from discontinued operations, net of taxes for the
quarter ended June 30, 2010 includes a $4.2 million
gain on the sale of the Companys Ion product line. |
|
(2) |
|
Loss from operations for the quarter ended March 31, 2009
includes $5.4 million of restructuring charges. Loss from
operations for the quarter ended June 30, 2009 includes a
write-down of goodwill, intangible and long-lived assets of
$143.0 million. |
|
(3) |
|
Loss from discontinued operations, net of taxes for the quarter
ended June 30, 2009 includes charges related to the
discontinued product lines of $53.8 million for the
goodwill impairment and $7.3 million for the intangible
asset impairment. |
|
(4) |
|
Net (loss) for the quarter ended March 31, 2009 includes a
benefit of $6.4 million attributable to the reversal of
reserve items for uncertain tax positions, as a result of a U.S.
federal tax audit close. |
71
|
|
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, 2010. 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 an issuer that are designed to ensure that information
required to be disclosed by the issuer 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
an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
issuers management, including its principal executive and
principal financial officers, or persons performing similar
functions 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, 2010, 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 Exchange Act as a process designed by, or
under the supervision of, the Companys Chief Executive
Officer and Chief Financial Officer or persons performing
similar functions 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.
72
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2010.
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.
Based on our assessment, management concluded that, as of
December 31, 2010, our internal control over financial
reporting was effective based on those criteria.
Our internal controls over financial reporting as of
December 31, 2010 have been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their attestation report which
appears on page 36.
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.
|
|
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 2011 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 will be set forth under the
caption Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive proxy statement for the 2011
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.
|
|
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 2011 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.
|
|
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 2011 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.
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 2011 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.
73
|
|
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 2011
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.
|
|
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 2011 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.
|
|
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:
|
|
|
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
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.
|
|
|
|
|
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)*
|
|
Second Amended and Restated 1997 Director Stock Option
Plan, and forms of option agreements thereto
|
|
10
|
.2*
|
|
2004 Stock Incentive Plan, as amended (the 2004
Plan)
|
74
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
+10
|
.3(6)*
|
|
Form of Nonstatutory Stock Option Agreement to be granted under
the 2004 Plan
|
|
+10
|
.4(7)*
|
|
Form of Restricted Stock Unit Agreement for Initial Grant to
Non-Employee Directors under the 2004 Plan
|
|
+10
|
.5(7)*
|
|
Form of Restricted Stock Unit Agreement for Annual Grant to
Non-Employee Directors under the 2004 Plan
|
|
+10
|
.6(7)*
|
|
Form of Performance-Based Restricted Stock Unit Agreement under
the 2004 Plan
|
|
+10
|
.7(7)*
|
|
Form of Time-Based Restricted Stock Unit Agreement under the
2004 Plan
|
|
10
|
.8*
|
|
Form of Time-Based Restricted Stock Unit Agreement and Form of
Performance-Based Restricted Stock Unit Agreement under the 2004
Plan (grants beginning in 2011)
|
|
+10
|
.9(8)*
|
|
Second Restated 1995 Stock Incentive Plan (the 1995
Plan)
|
|
+10
|
.10(9)*
|
|
Form of Nonstatutory Stock Option Agreement under the 1995 Plan
|
|
+10
|
.11(9)*
|
|
Employment Agreement dated as of July 30, 2004 between John
Smith and the Registrant (the Smith Employment
Agreement)
|
|
+10
|
.12(10)*
|
|
Employment Agreement dated as of July 1, 2005 between John
Bertucci and the Registrant
|
|
+10
|
.13(10)*
|
|
Employment Agreement dated as of July 1, 2005 between
William D. Stewart and the Registrant
|
|
+10
|
.14(11)*
|
|
Employment Agreement dated July 1, 2005 between Leo
Berlinghieri and the Registrant, as amended on November 13,
2007
|
|
+10
|
.15(12)*
|
|
Employment Agreement dated as of April 25, 2005 between
Gerald Colella and the Registrant
|
|
+10
|
.16(13)*
|
|
2010 Management Incentive Bonus Plans for Named Executive
Officers
|
|
+10
|
.17(14)
|
|
Global Supply Agreement dated April 12, 2005 by and between
the Registrant and Applied Materials, Inc.
|
|
+10
|
.18(15)*
|
|
Amendment, dated October 19, 2009, to the Amended
Berlinghieri Employment Agreement
|
|
+10
|
.19(15)*
|
|
Amendment, dated October 19, 2009, to the Amended Colella
Employment Agreement
|
|
+10
|
.20(16)*
|
|
Amendment, dated November 10, 2008, to Employment Agreement
between Leo Berlinghieri and the Registrant, dated July 1,
2005, as amended on November 13, 2007 (the Amended
Berlinghieri Employee Agreement)
|
|
+10
|
.21(16)*
|
|
Amendment, dated November 10, 2008, to the Smith Employment
Agreement
|
|
+10
|
.22(16)*
|
|
Amendment, dated November 10, 2008, to Employment Agreement
between Gerald Colella and the Registrant, dated April 25,
2005 (the Amended Colella Employment Agreement)
|
|
10
|
.23*
|
|
Employment Agreement dated as of January 6, 2006 between
Seth Bagshaw and the Registrant
|
|
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
|
|
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
|
|
101
|
|
|
The following materials from MKS Instruments, Inc.s Annual
Report on
Form 10-K
for the year ended December 31, 2010, formatted in XBRL
(Extensible Business Reporting Language): (i) the
Consolidated Balance Sheets, (ii) the Consolidated
Statements of Operations, (iii) the Consolidated Statements
of Stockholders Equity, (iv) the Consolidated
Statements of Cash Flows, (v) Notes to Consolidated
Financial Statements, and (vi) Schedule
II Valuation and Qualifying Accounts, tagged as
blocks of text
|
|
|
|
+ |
|
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. |
75
|
|
|
(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
March 2, 1999. |
|
(5) |
|
Incorporated by reference to the Registrants Annual Report
on Form 10-K
for the year ended December 31, 2004. |
|
(6) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2004. |
|
(7) |
|
Incorporated by reference to the Registrants Annual Report
on Form 10-K
for the year ended December 31, 2006. |
|
(8) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2002. |
|
(9) |
|
Incorporated by reference to the Registrants Current
Report on Form
10-Q filed
with the Securities and Exchange Commission on June 30,
2004. |
|
(10) |
|
Incorporated by reference to the Registrants Current
Report on Form
8-K filed
with the Securities and Exchange Commission on July 5, 2005. |
|
(11) |
|
Incorporated by reference to the Registrants Annual Report
on Form 10-K
for the year ended December 31, 2007. |
|
(12) |
|
Incorporated by reference to the Registrants Current
Report on Form
8-K filed
with the Securities and Exchange Commission on April 27,
2005. |
|
(13) |
|
Incorporated by reference to the Registrants Current
Report on Form
8-K filed
with the Securities and Exchange Commission on February 12,
2010. |
|
(14) |
|
Incorporated by reference to the Registrants Current
Report on Form
8-K filed
with the Securities and Exchange Commission on April 27,
2005. |
|
(15) |
|
Incorporated by reference to the Registrants Current
Report on Form
8-K filed
with the Securities and Exchange Commission on October 23,
2009. |
|
(16) |
|
Incorporated by reference to the Registrants Annual Report
on Form 10-K
for the year ended December 31, 2008. |
(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
Schedule
MKS
INSTRUMENTS, INC.
SCHEDULE II VALUATION AND
QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
|
|
|
|
|
Beginning of
|
|
Costs and
|
|
Charged to
|
|
Deductions &
|
|
Balance at
|
Description
|
|
Year
|
|
Expenses
|
|
Other Accounts
|
|
Write-offs
|
|
End of Year
|
|
|
(Dollars in thousands)
|
|
Accounts receivable allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
2,415
|
|
|
$
|
3,637
|
|
|
$
|
|
|
|
$
|
3,495
|
|
|
$
|
2,557
|
|
2009
|
|
$
|
2,148
|
|
|
$
|
3,655
|
|
|
$
|
|
|
|
$
|
3,388
|
|
|
$
|
2,415
|
|
2008
|
|
$
|
2,379
|
|
|
$
|
4,612
|
|
|
$
|
|
|
|
$
|
4,843
|
|
|
$
|
2,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
|
|
|
|
|
Beginning of
|
|
Costs and
|
|
Charged to
|
|
|
|
Balance at
|
Description
|
|
Year
|
|
Expenses
|
|
Other Accounts
|
|
Deductions
|
|
End of Year
|
|
|
(Dollars in thousands)
|
|
Valuation allowance on deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
5,201
|
|
|
$
|
|
|
|
$
|
20,833
|
|
|
$
|
767
|
|
|
$
|
25,267
|
|
2009
|
|
$
|
4,653
|
|
|
$
|
|
|
|
$
|
548
|
|
|
$
|
|
|
|
$
|
5,201
|
|
2008
|
|
$
|
534
|
|
|
$
|
4,119
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,653
|
|
77
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 22, 2011
|
/s/ Leo
Berlinghieri
Leo
Berlinghieri
|
|
Chief Executive Officer, President and Director (Principal
Executive Officer)
|
|
February 25, 2011
|
/s/ Seth
H. Bagshaw
Seth
H. Bagshaw
|
|
Vice President and Chief Financial Officer (Principal Financial
and Accounting Officer)
|
|
February 25, 2011
|
/s/ Cristina
H. Amon
Cristina
H. Amon
|
|
Director
|
|
February 18, 2011
|
/s/ Robert
R. Anderson
Robert
R. Anderson
|
|
Director
|
|
February 22, 2011
|
/s/ Gregory
R. Beecher
Gregory
R. Beecher
|
|
Director
|
|
February 25, 2011
|
/s/ Richard
S. Chute
Richard
S. Chute
|
|
Director
|
|
February 18, 2011
|
/s/ Peter
R. Hanley
Peter
R. Hanley
|
|
Director
|
|
February 18, 2011
|
/s/ Hans-Jochen
Kahl
Hans-Jochen
Kahl
|
|
Director
|
|
February 19, 2011
|
/s/ Louis
P. Valente
Louis
P. Valente
|
|
Director
|
|
February 22, 2011
|
78
exv10w2
Exhibit 10.2
MKS INSTRUMENTS, INC.
2004 STOCK INCENTIVE PLAN
(amended and restated as of February 24, 2011)
1. Purpose
The purpose of this 2004 Stock Incentive Plan (the Plan) of MKS Instruments, Inc., a
Massachusetts corporation (the Company), is to advance the interests of the Companys
stockholders by enhancing the Companys ability to attract, retain and motivate persons who are
expected to make important contributions to the Company and by providing such persons with equity
ownership opportunities and performance-based incentives that are intended to better align their
interests with those of the Companys stockholders. Except where the context otherwise requires,
the term Company shall include any of the Companys present or future subsidiary corporations as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder (the Code) and any other business venture (including, without limitation,
joint venture or limited liability company) in which the Company has a controlling interest, as
determined by the Board of Directors of the Company (the Board).
2. Eligibility
All of the Companys employees, officers, directors, consultants and advisors are eligible to
receive options, restricted stock awards, stock appreciation rights and other stock-based awards
(each, an Award) under the Plan. Each person who receives an Award under the Plan is deemed a
Participant.
3. Administration and Delegation
(a) Administration by Board of Directors. The Plan will be administered by the Board.
The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may
correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in
the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be
the sole and final judge of such expediency. All decisions by the Board shall be made in the
Boards sole discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination relating to or under the
Plan made in good faith.
(b) Appointment of Committees.
(1) To the extent permitted by applicable law, the Board may delegate any or all of its powers
under the Plan to one or more committees or subcommittees of the Board (a Committee). During
such time as the common stock, no par value per share, of the Company (the Common Stock) is
registered under the Securities Exchange Act of 1934 (the Exchange Act), the Board shall appoint
one such Committee of not less than two members, each member
of which shall be an outside director within the meaning of Section 162(m) of the Code and a
non-employee director as defined in Rule 16b-3 promulgated under the Exchange Act.
(2) To the extent permitted by applicable law, the Board may delegate to one or more officers
of the Company, who, if required by law, are also members of the Board, the power to make Awards
and exercise such other powers under the Plan as the Board shall determine, provided that the Board
shall fix the maximum number of shares subject to Awards to be made by any such person and such
other terms as the Board may determine are appropriate.
(3) All references in the Plan to the Board shall mean the Board, a Committee of the Board
or any person described in subsection (2) above, to the extent that the Boards powers or authority
under the Plan have been delegated to such Committee or person.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 9, the number of shares of
Common Stock available for Awards under the Plan: (i) shall annually increase by 5% of the total
shares of the Companys outstanding Common Stock on January 1 of each year; and (ii) in the event
of an increase in the total shares of the Companys Common Stock after January 1 of any such year
in connection with the acquisition of any corporation, partnership or other business entity by the
Company (whether by merger, stock purchase or otherwise), shall increase by 5% of such increased
amount. Such increases shall occur until such time as the aggregate number of shares of Common
Stock which may be issued under the Plan is 15,000,000 shares, subject to adjustment under Section
9. If any Award expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part (including as the result of shares of Common Stock
subject to such Award being repurchased by the Company at the original issuance price pursuant to a
contractual repurchase right) or results in any Common Stock not being issued, the unused Common
Stock covered by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any
limitations under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 9, the maximum number
of shares of Common Stock with respect to which Awards may be granted to any Participant under the
Plan shall be 900,000 per calendar year. The per-Participant limit described in this Section 4(b)
shall be construed and applied consistently with Section 162(m) of the Code.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each, an Option)
and determine the number of shares of Common Stock to be covered by each Option, the exercise price
of each Option and the conditions and limitations applicable to the exercise of each Option,
including conditions relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as
hereinafter defined) shall be designated a Nonstatutory Stock Option.
(b) Incentive Stock Options. An Option that the Board intends to be an incentive
stock option as defined in Section 422 of the Code (an Incentive Stock Option) shall only be
-2-
granted to employees of MKS Instruments, Inc., any of MKS Instruments, Inc.s present or
future subsidiary corporations as defined in Section 424(f) of the Code, and any other entities the
employees of which are eligible to receive Incentive Stock Options under the Code, and shall be
subject to and shall be construed consistently with the requirements of Section 422 of the Code.
The Company shall have no liability to a Participant, or any other party, if an Option (or any part
thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or for
any action taken by the Board pursuant to Section 10(f), including without limitation the
conversion of an Incentive Stock Option to a Nonstatutory Stock Option.
(c) Exercise Price. The Board shall establish the exercise price of each Option and
specify such exercise price in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Board may specify in the applicable option agreement; provided,
however, that no Option will be granted for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the Company of a
written notice of exercise signed by the proper person or by any other form of notice (including
electronic notice) approved by the Board together with payment in full as specified in Section 5(f)
for the number of shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option
granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an option agreement, by (i) delivery of an
irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax withholding or (ii)
delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions
to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the
exercise price and any required tax withholding;
(3) to the extent permitted by applicable law and by the Board, by (i) delivery of a
promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment
of such other lawful consideration as the Board may determine; or
(4) by any combination of the above permitted forms of payment.
(g) Option Exchange. The Board may authorize a one-time option exchange program (the
Exchange Offer) to be completed prior to November 4, 2009. Under the Exchange Offer, employee
holders (who are not members of the Board or executive officers (as such term is defined under Rule
3b-7 of the Securities Exchange Act of 1934, as amended)) (the Exchange Act) of outstanding stock
options having an exercise price in excess of the highest closing price for the Common Stock on the
Nasdaq Global Select Market in the 52 week period preceding the commencement of the Exchange Offer
(the Old Options) would have the right to elect to exchange such Old Options for a lesser number
of restricted stock units (the New RSUs). The number of New RSUs to be granted in exchange for
each Old Option would be that number of
-3-
RSUs (rounded down to the nearest whole) that would be derived by dividing the fair value of
such Old Option by the closing sale price of the Common Stock at the close of the Exchange Offer.
The New RSUs would have a new vesting period of one year (provided that if the Old Option is still
subject to vesting at the time of surrender, the vesting period shall be one year plus such
remaining vesting period) and would be granted promptly after cancellation of the Old Options.
6. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right, or SAR, is an
Award entitling the holder on exercise to receive an amount in cash or Common Stock or a
combination thereof (such form to be determined by the Board) determined in whole or in part by
reference to appreciation, from and after the date of grant, in the fair market value of a share of
Common Stock. SARs may be based solely on appreciation in the fair market value of Common Stock or
on a comparison of such appreciation with some other measure of market growth such as (but not
limited to) appreciation in a recognized market index. The date as of which such appreciation or
other measure is determined shall be the exercise date unless another date is specified by the
Board in the SAR Award.
(b) Grants. Stock Appreciation Rights may be granted in tandem with, or independently
of, Options granted under the Plan.
(c) Exercise. Any exercise of a Stock Appreciation Right must be in writing, signed
by the proper person and delivered or mailed to the Company, accompanied by any other documents
required by the Board.
7. Restricted Stock.
(a) Grants. The Board may grant Awards entitling recipients to acquire shares of
Common Stock, subject to the right of the Company to repurchase all or part of such shares at their
issue price or other stated or formula price (or to require forfeiture of such shares if issued at
no cost) from the recipient in the event that conditions specified by the Board in the applicable
Award are not satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a Restricted Stock Award).
(b) Terms and Conditions. The Board shall determine the terms and conditions of a
Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue
price, if any.
(c) Stock Certificates. Any stock certificates issued in respect of a Restricted
Stock Award shall be registered in the name of the Participant and, unless otherwise determined by
the Board, deposited by the Participant, together with a stock power endorsed in blank, with the
Company (or its designee). At the expiration of the applicable restriction periods, the Company
(or such designee) shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a manner determined
by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the
event of the Participants death (the Designated Beneficiary). In the absence of an effective
designation by a Participant, Designated Beneficiary shall mean the Participants estate.
-4-
(d) Deferred Delivery of Shares. The Board may, at the time any Restricted Stock
Award is granted, provide that, at the time Common Stock would otherwise be delivered pursuant to
the Award, the Participant shall instead receive an instrument evidencing the right to future
delivery of Common Stock at such time or times, and on such conditions, as the Board shall specify.
The Board may at any time accelerate the time at which delivery of all or any part of the Common
Stock shall take place.
8. Other Stock-Based Awards.
Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part
by reference to, or are otherwise based on, shares of Common Stock or other property, may be
granted hereunder to Participants (Other Stock Unit Awards), including without limitation Awards
entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other
Stock Unit Awards shall also be available as a form of payment in the settlement of other Awards
granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise
entitled. Other Stock Unit Awards may be paid in shares of Common Stock or cash, as the Board
shall determine. Subject to the provisions of the Plan, the Board shall determine the conditions
of each Other Stock Unit Award, including any purchase price applicable thereto. At the time any
Award is granted, the Board may provide that, at the time Common Stock would otherwise be delivered
pursuant to the Award, the Participant will instead receive an instrument evidencing the
Participants right to future delivery of the Common Stock.
9. Adjustments for Changes in Common Stock and Certain Other Events.
(a) Changes in Capitalization. In the event of any stock split, reverse stock split,
stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or
other similar change in capitalization or event, or any distribution to holders of Common Stock
other than an ordinary cash dividend, (i) the number and class of securities available under this
Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the number and class of
securities and exercise price per share of each outstanding Option, (iv) the repurchase price per
share subject to each outstanding Restricted Stock Award and (v) the share- and per-share-related
provisions of each outstanding Stock Appreciation Right and Other Stock Unit Award, shall be
appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to prevent
enlargement or dilution of rights to the extent determined by the Board.
(b) Reorganization Events.
(1) Definition. A Reorganization Event shall mean: (a) any merger or consolidation
of the Company with or into another entity as a result of which all of the Common Stock of the
Company is converted into or exchanged for the right to receive cash, securities or other property,
(b) any exchange of all of the Common Stock of the Company for cash, securities or other property
pursuant to a share exchange transaction or (c) any liquidation or dissolution of the Company.
(2) Consequences of a Reorganization Event on Awards Other than Restricted Stock
Awards. In connection with a Reorganization Event, the Board shall take any one or more
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of the following actions as to all or any outstanding Awards on such terms as the Board
determines: (i) provide that Awards shall be assumed, or substantially equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon
written notice to a Participant, provide that the Participants unexercised Options or other
unexercised Awards shall become exercisable in full and will terminate immediately prior to the
consummation of such Reorganization Event unless exercised by the Participant within a specified
period following the date of such notice, (iii) provide that outstanding Awards shall become
realizable or deliverable, or restrictions applicable to an Award shall lapse, in whole or in part
prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the
terms of which holders of Common Stock will receive upon consummation thereof a cash payment for
each share surrendered in the Reorganization Event (the Acquisition Price), make or provide for a
cash payment to a Participant equal to (A) the Acquisition Price times the number of shares of
Common Stock subject to the Participants Options or other Awards (to the extent the exercise price
does not exceed the Acquisition Price) minus (B) the aggregate exercise price of all such
outstanding Options or other Awards, in exchange for the termination of such Options or other
Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards
shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise
price thereof) and (vi) any combination of the foregoing.
For purposes of clause (i) above, an Option shall be considered assumed if, following
consummation of the Reorganization Event, the Option confers the right to purchase, for each share
of Common Stock subject to the Option immediately prior to the consummation of the Reorganization
Event, the consideration (whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock held immediately
prior to the consummation of the Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if the consideration received as a result of the
Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an
affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to consist solely of
common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in
fair market value to the per share consideration received by holders of outstanding shares of
Common Stock as a result of the Reorganization Event.
To the extent all or any portion of an Option becomes exercisable solely as a result of clause
(ii) above, the Board may provide that upon exercise of such Option the Participant shall receive
shares subject to a right of repurchase by the Company or its successor at the Option exercise
price; such repurchase right (x) shall lapse at the same rate as the Option would have become
exercisable under its terms and (y) shall not apply to any shares subject to the Option that were
exercisable under its terms without regard to clause (ii) above.
(3) Consequences of a Reorganization Event on Restricted Stock Awards. Upon the
occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the
repurchase and other rights of the Company under each outstanding Restricted Stock Award shall
inure to the benefit of the Companys successor and shall apply to the cash, securities or other
property which the Common Stock was converted into or exchanged for pursuant to such Reorganization
Event in the same manner and to the same extent as they applied
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to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a
Reorganization Event involving the liquidation or dissolution of the Company, except to the extent
specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or
any other agreement between a Participant and the Company, all restrictions and conditions on all
Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.
10. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise determine or provide
in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by
the person to whom they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution or, other than in the case of an Incentive Stock Option,
pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced in such form (written, electronic or
otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to
those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award may be
made alone or in addition or in relation to any other Award. The terms of each Award need not be
identical, and the Board need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award of the
disability, death, retirement, authorized leave of absence or other change in the employment or
other status of a Participant and the extent to which, and the period during which, the
Participant, or the Participants legal representative, conservator, guardian or Designated
Beneficiary, may exercise rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make provision
satisfactory to the Company for payment of, any taxes required by law to be withheld in connection
with an Award to such Participant. The Company may, to the extent permitted by law, deduct any
such tax obligations from any payment of any kind otherwise due to a Participant.
(f) Amendment of Award. Subject to Section (g) below, the Board may amend, modify or
terminate any outstanding Award, including but not limited to, substituting therefor another Award
of the same or a different type, changing the date of exercise or realization, and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participants consent to
such action shall be required unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
(g) Limitation on Repricing and Cash Buyouts. Unless such action is approved by the
Companys stockholders, the Company may not (except as provided for under Section 9): (1) amend
any outstanding Option granted under the Plan to provide an exercise price per share that is lower
than the then-current exercise price per share of such outstanding Option, (2) cancel any
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outstanding option (whether or not granted under the Plan) and grant in substitution therefor
new Awards under the Plan covering the same or a different number of shares of Common Stock and
having an exercise price per share lower than the then-current exercise price per share of the
cancelled option, (3) cancel in exchange for a cash payment any outstanding Option with an exercise
price per share above the then-current Fair Market Value, other than pursuant to Section 9, or (4)
take any other action under the Plan that constitutes a repricing within the meaning of the rules
of the NASDAQ Stock Market.
(h) Conditions on Delivery of Stock. The Company will not be obligated to deliver any
shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously
delivered under the Plan until (i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Companys counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market rules and regulations,
and (iii) the Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.
(i) Acceleration. The Board may at any time provide that any Award shall become
immediately exercisable in full or in part, free of some or all restrictions or conditions, or
otherwise realizable in full or in part, as the case may be.
11. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be construed as giving a Participant
the right to continued employment or any other relationship with the Company. The Company
expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no
Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any
shares of Common Stock to be distributed with respect to an Award until becoming the record holder
of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the number of shares
subject to such Option are adjusted as of the date of the distribution of the dividend (rather than
as of the record date for such dividend), then an optionee who exercises an Option between the
record date and the distribution date for such stock dividend shall be entitled to receive, on the
distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such
Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of
business on the record date for such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on the date on
which it is adopted by the Board, but no Award may be granted unless and until the Plan has been
approved by the Companys stockholders. No Awards shall be granted under the Plan after the
completion of 10 years from the earlier of (i) the date on which the Plan was adopted by the
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Board or (ii) the date the Plan was approved by the Companys stockholders, but Awards
previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any
portion thereof at any time; provided that, to the extent determined by the Board, no amendment
requiring stockholder approval under any applicable legal, regulatory or listing requirement shall
become effective until such stockholder approval is obtained. No Award shall be made that is
conditioned upon stockholder approval of any amendment to the Plan.
(e) Provisions for Foreign Participants. The Board may modify Awards or Options
granted to Participants who are foreign nationals or employed outside the United States or
establish subplans or procedures under the Plan to recognize differences in laws, rules,
regulations or customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
(f) Governing Law. The provisions of the Plan and all Awards made hereunder shall be
governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to any applicable conflicts of law.
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As approved by the Board of Directors
on March 4, 2004 and by the
stockholders on May 13, 2004; amended
by the Board of Directors on October
25, 2006; amended by the Board of
Directors on February 9, 2009 and by
the stockholders on May 4, 2009; and
amended by the Compensation Committee
of the Board of Directors on February
24, 2011 |
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exv10w8
Exhibit 10.8
MKS INSTRUMENTS, INC.
Restricted Stock Unit Agreement
Granted Under the 2004 Stock Incentive Plan
AGREEMENT made (the Grant Date), between MKS Instruments, Inc., a Massachusetts
corporation (the Company), and «First_Name» «Last_Name» (the Participant).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:
1. General.
The Company has granted to the Participant restricted stock units (RSUs) with respect to the
number of shares set forth in Exhibit A hereto (the Shares) of common stock, no par value, of the
Company (Common Stock), subject to the terms and conditions set forth in this Agreement and in
the Companys 2004 Stock Incentive Plan (the Plan). The RSUs represent a promise by the Company
to deliver Shares upon vesting.
(a) Definitions. Forfeiture shall mean any forfeiture of RSUs pursuant to Section
2. Vesting Date is defined on Exhibit A hereto. Determination Date (if applicable) is defined
on Exhibit A hereto. For purposes of this Agreement, employ or employment with the Company
shall include employment with a parent or subsidiary of the Company as defined in Sections 424(e)
or (f) of the Internal Revenue Code.
(b) Vesting Period. Subject to the terms and conditions of this Agreement (including
the Forfeiture provisions described in Section 2 below), the RSUs shall vest according to the terms
set forth in Exhibit A. As soon as practicable after each applicable Vesting Date, but in any
event, within the period ending on the later to occur of the date that is 2 1/2 months from the end
of (i) the Participants tax year that includes the Vesting Date or (ii) the Companys tax year
that includes the Vesting Date, the Company shall instruct its transfer agent to deposit the Shares
subject to the RSUs into the Participants existing equity account at Fidelity Stock Plan Services,
LLC, or such other broker with which the Company has established a relationship (Broker), subject
to payment in accordance with Section 6 of all applicable withholding taxes.
2. Forfeiture.
(a) Cessation of Employment. In the event that the Participant ceases to be employed
by the Company for any reason or no reason (except for death, disability or retirement), with or
without cause, prior to a Vesting Date, all of the Participants unvested RSUs shall automatically
be forfeited as of such cessation. In the event that the Participant ceases to be employed by the
Company by reason of death, disability or retirement prior to a Vesting Date, then 100% of the
Participants RSUs shall become immediately and fully vested and shall no longer be subject to the
Forfeiture provisions under this Agreement.
For the purpose of this Section 2, disability shall mean disability as defined in Section
216(i)(1) of the U.S. Social Security Act.
Retirement means a voluntary termination of employment by the Participant after he or she is at
least age sixty (60) and has a combination of years of age plus Years of Service with the Company
equal to seventy (70) or more. Years of Service means the total number of days of employment
since Participants original hire with the Company (or subsidiary of the Company, provided that
service with a subsidiary shall only be counted towards Years of Service during the time in which
such subsidiary is owned (directly or indirectly) by the Company) and provided that in the event
the employee left or was terminated and then rehired by the Company, the Company shall include
previous employment period in the calculation of the Years of Service provided that the absence
from the Company or subsidiary has been five (5) years or less and only if the total number of days
employed by the Company (or its subsidiary, as provided above) exceeds the total number of days
that the employee was not employed by the Company (or its subsidiary, as provided above).
(b) Change in Control. Notwithstanding the foregoing, if, prior to any Vesting Date,
and within two years after the effectiveness of a Change in Control (as defined below), the
Participant is (i) terminated by the Company without Cause (as defined below) or (ii) terminates
his employment for Good Reason (as defined below), then, 100% of the Participants RSUs shall
become immediately and fully vested and shall no longer be subject to the Forfeiture provisions
under this Agreement. For purposes of this section Change in Control means the first to
occur of any of the following events: (I) 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; (II)
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; or (III) 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. For purposes of this Agreement,
Cause shall mean conviction for the commission of a felony, willful failure by the
Participant to perform his responsibilities to the Company, or willful misconduct by the
Participant. For purposes of this section, Good Reason shall mean termination of the
Participants employment by the Participant within 90 days following (I) a material diminution in
the Participants positions, duties and responsibilities from those described in the Participants
Employment Agreement, (II) a material reduction in the Participants base salary (other than a
reduction which is part of a general salary reduction program affecting senior executives of the
Company), (III) a material reduction in the aggregate value of the pension and welfare benefits
provided to the Participant 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 the Participants Employment Agreement by the Company or (V) the Companys requiring the
Participant to be based at a location that creates for the Participant a one way commute in excess
of 60 miles from his primary residence, except for required travel on the Companys business to an
extent substantially consistent with the business travel obligations of the
2
Participant under the Participants Employment Agreement. Notwithstanding the foregoing, a
termination shall not be treated as a termination for Good Reason (I) if the Participant shall have
consented in writing to the occurrence of the event giving rise to the claim of termination for
Good Reason or (II) unless the Participant shall have delivered a written notice to the Company
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.
3. Restrictions on Transfer.
The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of,
by operation of law or otherwise (collectively transfer) any RSUs, or any interest therein,
except that the Participant may transfer such RSUs (i) to or for the benefit of any spouse,
children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the
Board of Directors (collectively, Approved Relatives) or to a trust established solely for the
benefit of the Participant and/or Approved Relatives, provided that such RSUs shall remain
subject to this Agreement (including without limitation the terms of Forfeiture and the
restrictions on transfer set forth in this Section 3) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument confirming that such
transferee shall be bound by all of the terms and conditions of this Agreement.
4. Provisions of the Plan.
This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the
Participant with this Agreement.
5. No Compensation Deferral. Neither the Plan nor this Agreement is intended to
provide for an elective deferral of compensation that would be subject to Section 409A (Section
409A) of the U.S. Internal Revenue Code of 1986, as amended. The Company reserves the right, to
the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend
or modify the Plan and/or this Agreement to ensure that no awards (including without limitation,
the RSUs) become subject to the requirements of Section 409A.
6. Withholding Taxes.
(a) The Companys obligation to deliver Shares to the Participant upon the vesting of RSUs
shall be subject to the satisfaction of all income tax (including federal, state and local taxes),
social insurance, payroll tax, payment on account or other tax related withholding requirements
(Withholding Taxes). In order to satisfy all Withholding Taxes due upon vesting of the
Participants RSUs, the Participant agrees to the following:
(b) As a condition to receiving any Shares upon vesting of the RSUs, on the date of this
Agreement, the Participant hereby irrevocably instructs the Company to take the actions described
in this subsection 6(b). On each Vesting Date, the Participant hereby elects to satisfy all
Withholding Taxes obligation then due through the retention by the Company of Shares. Accordingly,
the Participant hereby instructs the Company, with no further action by the
3
Participant, on each Vesting Date to deduct and retain from the number of Shares to which the
Participant is entitled from the RSUs then scheduled to vest such number of Shares as is equal to
the value of the Withholding Taxes. The Participant understands that the fair market value of the
surrendered Shares will be based on the closing price of the Companys Common Stock on the trading
day preceding the Vesting Date.
(c) Participant has reviewed with the Participants own tax advisors the federal, state, local
and foreign tax consequences of this grant and the transactions contemplated by this Agreement.
The Participant is relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Participant understands that the Participant (and not the
Company) shall be responsible for the Participants own tax liability that may arise as a result of
this grant or the transactions contemplated by this Agreement.
(d) The Participant represents to the Company that, as of the date hereof, he/she is not aware
of any material nonpublic information about the Company or the Common Stock. The Participant and
the Company have structured this Agreement to constitute a binding contract relating to the
retention by the Company of Common Stock pursuant to this Section 6, consistent with the
affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934 under
Rule 10b5-1(c) promulgated under such Act.
7. Nature of the Grant. In signing this Agreement, the Participant acknowledges that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and
may be modified, amended, suspended or terminated by the Company at any time, unless
otherwise provided in the Plan and this Agreement;
(b) the grant of RSUs is voluntary and occasional and does not create any contractual or
other right to receive future awards of RSUs, or benefits in lieu of RSUs even if RSUs have
been awarded repeatedly in the past;
(c) all decisions with respect to future grants of RSUs, if any, will be at the sole
discretion of the Company;
(d) the Participants participation in the Plan is voluntary;
(e) RSUs are an extraordinary item that do not constitute compensation of any kind for
services of any kind rendered to the Company or to the Participants employer, and RSUs are
outside the scope of the Participants employment contract, if any;
(f) RSUs are not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculation of any severance, resignation, termination,
redundancy, end of service payments, bonuses, long-service awards, pension or retirement
benefits or similar payments and in no event should be considered as compensation for, or
relating in any way to, past services for the Company or the Participants employer;
(g) the future value of the underlying Shares is unknown and cannot be predicted with
certainty;
4
(h) if the Participant receives Shares upon vesting, the value of such Shares acquired on
vesting of RSUs may increase or decrease in value;
(i) in consideration of the grant of RSUs, no claim or entitlement to compensation or
damages arises from termination of the RSUs or diminution in value of the RSUs or Shares
received upon vesting of RSUs resulting from termination of the Participants employment by
the Company or the Participants employer (for any reason whatsoever and whether or not in
breach of local labor laws) and the Participant irrevocably releases the Company and his or
her employer from any such claim that may arise; if, notwithstanding the foregoing, any such
claim is found by a court of competent jurisdiction to have arisen, then, by signing this
Agreement, the Participant shall be deemed irrevocably to have waived his or her entitlement
to pursue such claim; and
(j) further, if the Participant ceases to be a employee (whether or not in breach of local
labor laws), the Participants right to receive RSUs and vest under the Plan, if any, will
terminate effective as of the date that the Participant is no longer actively employed by
the Company and will not be extended by any notice period mandated under local law (e.g.,
active employment would not include a period of garden leave or similar period pursuant to
local law); the Committee shall have the exclusive discretion to determine when the
Participant is no longer actively employed for purposes of the Plan.
8. Data Privacy Notice and Consent. The Participant hereby explicitly and
unambiguously consents to the collection, use and transfer, in electronic or other form, of his or
her personal data as described in this paragraph, by and among, as applicable, the Participants
employer and the Company and its subsidiaries and affiliates for, among other purposes,
implementing, administering and managing the Participants participation in the Plan. The
Participant understands that the Company and its subsidiaries hold certain personal information
about the Participant, including the Participants name, home address and telephone number, date of
birth, social security number or identification number, salary, nationality, job title, any Shares
or directorships held in the Company, details of all options or any other entitlement to Shares
awarded, canceled, exercised, vested, unvested or outstanding in the Participants favor, for the
purpose of managing and administering the Plan (Data). The Participant further understands that
the Company and/or its subsidiaries will transfer Data amongst themselves as necessary for
employment purposes, including implementation, administration and management of the Participants
participation in the Plan, and that the Company and/or any of its subsidiaries may each further
transfer Data to Broker or such other stock plan service provider or other third parties assisting
the Company with processing of Data. The Participant understands that these recipients may be
located in the United States, and that the recipients country may have different data privacy laws
and protections than in the Participants country. The Participant authorizes them to receive,
possess, use, retain and transfer the Data, in electronic or other form, for the purposes described
in this section, including any requisite transfer to Broker or such other stock plan service
provider or other third party as may be required for the administration of the Plan and/or the
subsequent holding of Shares of stock on the Participants behalf. The Participant understands
that he or she may, at any time, request access to the Data, request any necessary amendments to it
or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his
or her local human
5
resources representative. The Participant understands, however, that withdrawal of consent
may affect the Participants ability participate in or realize benefits from the Plan. For more
information on the consequences of refusal to consent or withdrawal of consent, the Participant
understands that he or she may contact his or her local human resources representative.
9. Miscellaneous.
(a) No Rights to Employment. The Participant acknowledges and agrees that the vesting
of the RSUs pursuant to Section 1 and Exhibit A hereof is earned only in accordance with the terms
of such sections. The Participant further acknowledges and agrees that the transactions
contemplated hereunder and the vesting schedule set forth herein do not constitute an express or
implied promise of continued engagement as an employee for the vesting period, for any period, or
at all.
(b) Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
and each other provision of this Agreement shall be severable and enforceable to the extent
permitted by law.
(c) Waiver. Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of Directors of the
Company.
(d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the Company and the Participant and their respective heirs, executors, administrators, legal
representatives, successors and assigns, subject to the restrictions on transfer set forth in
Section 3 of this Agreement.
(e) Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given upon personal delivery or five days after deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to the other party hereto
at the address shown beneath his or its respective signature to this Agreement, or at such other
address or addresses as either party shall designate to the other in accordance with this Section
9(e).
(f) Pronouns. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa.
(g) Language. If the Participant has received this Agreement or any other document
related to the Plan translated into a language other than English and if the translated version is
different than the English version, the English version will control.
(h) Electronic Delivery. The Company may, in its sole discretion, decide to deliver
any documents related to participation in the Plan, RSUs granted under the Plan or future RSUs that
may be granted under the Plan by electronic means or to request the Participants consent to
participate in the Plan by electronic means. The Participant hereby consents to receive such
documents by electronic delivery and, if requested, to agree to participate in the Plan through an
on-
6
line or electronic system established and maintained by the Company or another third party
designated by the Company.
(i) Entire Agreement. This Agreement and the Plan constitute the entire agreement
between the parties, and supersedes all prior agreements and understandings, relating to the
subject matter of this Agreement.
(j) Amendment. This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Participant.
(k) Governing Law. This Agreement shall be construed, interpreted and enforced in
accordance with the internal laws of the Commonwealth of Massachusetts without regard to any
applicable conflicts of laws.
(l) The Participants Acknowledgments. The Participant acknowledges that he or she:
(i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of the Participants own choice or has voluntarily
declined to seek such counsel; and (iii) understands the terms and consequences of this Agreement;
and (iv) is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
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MKS INSTRUMENTS, INC.
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By: |
/s/ Leo Berlinghieri
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Title: Chief Executive Officer & President |
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2 Tech Drive, Suite 201
Andover, MA 01810
«First_Name» «Last_Name»
Participants Signature |
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7
Exhibit A
Participant: «First_Name» «Last_Name»
Grant Date:
Restricted Stock Units Granted: <<NumShares>>
Subject to the terms and conditions of this Agreement (including the Forfeiture provisions
described in Section 2 above), the RSUs shall vest in three (3) equal installments as follows: (a)
the first third will vest upon the the first anniversary of the Grant Date; (b) an additional one
third will vest on the second anniversary of the Grant Date, and (c) the final one third will vest
on the third anniversary of the Grant Date. The date upon which each such installment vests shall
be considered a Vesting Date for the portion of the RSUs vesting on that date.
8
MKS INSTRUMENTS, INC.
Restricted Stock Unit Agreement
Granted Under the 2004 Stock Incentive Plan
AGREEMENT made this X day of March 2011 (the Grant Date), between MKS Instruments, Inc., a
Massachusetts corporation (the Company), and «First_Name» «Last_Name» (the Participant).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as
follows:
1. General.
The Company has granted to the Participant restricted stock units (RSUs) with respect to the
number of shares set forth in Exhibit A hereto (the Shares) of common stock, no par value, of the
Company (Common Stock), subject to the terms and conditions set forth in this Agreement and in
the Companys 2004 Stock Incentive Plan (the Plan). The RSUs represent a promise by the Company
to deliver Shares upon vesting.
(a) Definitions. Forfeiture shall mean any forfeiture of RSUs pursuant to Section
2. Vesting Date is defined on Exhibit A hereto. Determination Date (if applicable) is defined
on Exhibit A hereto. For purposes of this Agreement, employ or employment with the Company
shall include employment with a parent or subsidiary of the Company as defined in Sections 424(e)
or (f) of the Internal Revenue Code.
(b) Vesting Period. Subject to the terms and conditions of this Agreement (including
the Forfeiture provisions described in Section 2 below), the RSUs shall vest according to the terms
set forth in Exhibit A. As soon as practicable after each applicable Vesting Date, but in any
event, within the period ending on the later to occur of the date that is 2 1/2 months from the end
of (i) the Participants tax year that includes the Vesting Date or (ii) the Companys tax year
that includes the Vesting Date, the Company shall instruct its transfer agent to deposit the Shares
subject to the RSUs into the Participants existing equity account at Fidelity Stock Plan Services,
LLC, or such other broker with which the Company has established a relationship (Broker), subject
to payment in accordance with Section 6 of all applicable withholding taxes.
2. Forfeiture.
(a) Cessation of Employment. In the event that the Participant ceases to be employed
by the Company for any reason or no reason (except for death, disability or retirement), with or
without cause, prior to a Vesting Date, all of the Participants unvested RSUs shall automatically
be forfeited as of such cessation. In the event that the Participant ceases to be employed by the
Company by reason of death, disability or retirement prior to a Vesting Date, then 100% of the
Participants RSUs shall become immediately and fully vested and shall no longer be subject to
the Forfeiture provisions under this Agreement.
For the purpose of this Section 2, disability shall mean disability as defined in Section
216(i)(1) of the U.S. Social Security Act.
Retirement means a voluntary termination of employment by the Participant after he or she is at
least age sixty (60) and has a combination of years of age plus Years of Service with the Company
equal to seventy (70) or more. Years of Service means the total number of days of employment
since Participants original hire with the Company (or subsidiary of the Company, provided that
service with a subsidiary shall only be counted towards Years of Service during the time in which
such subsidiary is owned (directly or indirectly) by the Company) and provided that in the event
the employee left or was terminated and then rehired by the Company, the Company shall include
previous employment period in the calculation of the Years of Service provided that the absence
from the Company or subsidiary has been five (5) years or less and only if the total number of days
employed by the Company (or its subsidiary, as provided above) exceeds the total number of days
that the employee was not employed by the Company (or its subsidiary, as provided above).
(b) Change in Control. Notwithstanding the foregoing, if, prior to any Vesting Date,
and within two years after the effectiveness of a Change in Control (as defined below), the
Participant is (i) terminated by the Company without Cause (as defined below) or (ii) terminates
his employment for Good Reason (as defined below), then, 100% of the Participants RSUs shall
become immediately and fully vested and shall no longer be subject to the Forfeiture provisions
under this Agreement. For purposes of this section Change in Control means the first to
occur of any of the following events: (I) 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; (II)
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; or (III) 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. For purposes of this Agreement,
Cause shall mean conviction for the commission of a felony, willful failure by the
Participant to perform his responsibilities to the Company, or willful misconduct by the
Participant. For purposes of this section, Good Reason shall mean termination of the
Participants employment by the Participant within 90 days following (I) a material diminution in
the Participants positions, duties and responsibilities from those described in the Participants
Employment Agreement, (II) a material reduction in the Participants base salary (other than a
reduction which is part of a general salary reduction program affecting senior executives of the
Company), (III) a material reduction in the aggregate value of the pension and welfare benefits
provided to the Participant 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 the Participants Employment Agreement by the Company or (V) the
2
Companys requiring the Participant to be based at a location that creates for the Participant
a one way commute in excess of 60 miles from his primary residence, except for required travel on
the Companys business to an extent substantially consistent with the business travel obligations
of the Participant under the Participants Employment Agreement. Notwithstanding the foregoing, a
termination shall not be treated as a termination for Good Reason (I) if the Participant shall have
consented in writing to the occurrence of the event giving rise to the claim of termination for
Good Reason or (II) unless the Participant shall have delivered a written notice to the Company
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.
3. Restrictions on Transfer.
The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of,
by operation of law or otherwise (collectively transfer) any RSUs, or any interest therein,
except that the Participant may transfer such RSUs (i) to or for the benefit of any spouse,
children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the
Board of Directors (collectively, Approved Relatives) or to a trust established solely for the
benefit of the Participant and/or Approved Relatives, provided that such RSUs shall remain
subject to this Agreement (including without limitation the terms of Forfeiture and the
restrictions on transfer set forth in this Section 3) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument confirming that such
transferee shall be bound by all of the terms and conditions of this Agreement.
4. Provisions of the Plan.
This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the
Participant with this Agreement.
5. No Compensation Deferral. Neither the Plan nor this Agreement is intended to
provide for an elective deferral of compensation that would be subject to Section 409A (Section
409A) of the U.S. Internal Revenue Code of 1986, as amended. The Company reserves the right, to
the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend
or modify the Plan and/or this Agreement to ensure that no awards (including without limitation,
the RSUs) become subject to the requirements of Section 409A.
6. Withholding Taxes.
(a) The Companys obligation to deliver Shares to the Participant upon the vesting of RSUs
shall be subject to the satisfaction of all income tax (including federal, state and local taxes),
social insurance, payroll tax, payment on account or other tax related withholding requirements
(Withholding Taxes). In order to satisfy all Withholding Taxes due upon vesting of the
Participants RSUs, the Participant agrees to the following:
(b) As a condition to receiving any Shares upon vesting of the RSUs, on the date of this
Agreement, the Participant hereby irrevocably instructs the Company to take the actions described
3
in this subsection 6(b). On each Vesting Date, the Participant hereby elects to satisfy all
Withholding Taxes obligation then due through the retention by the Company of Shares. Accordingly,
the Participant hereby instructs the Company, with no further action by the Participant, on each
Vesting Date to deduct and retain from the number of Shares to which the Participant is entitled
from the RSUs then scheduled to vest such number of Shares as is equal to the value of the
Withholding Taxes. The Participant understands that the fair market value of the surrendered
Shares will be based on the closing price of the Companys Common Stock on the trading day
preceding the Vesting Date.
(c) Participant has reviewed with the Participants own tax advisors the federal, state, local
and foreign tax consequences of this grant and the transactions contemplated by this Agreement.
The Participant is relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Participant understands that the Participant (and not the
Company) shall be responsible for the Participants own tax liability that may arise as a result of
this grant or the transactions contemplated by this Agreement.
(d) The Participant represents to the Company that, as of the date hereof, he/she is not aware
of any material nonpublic information about the Company or the Common Stock. The Participant and
the Company have structured this Agreement to constitute a binding contract relating to the
retention by the Company of Common Stock pursuant to this Section 6, consistent with the
affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934 under
Rule 10b5-1(c) promulgated under such Act.
7. Nature of the Grant. In signing this Agreement, the Participant acknowledges that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and
may be modified, amended, suspended or terminated by the Company at any time, unless
otherwise provided in the Plan and this Agreement;
(b) the grant of RSUs is voluntary and occasional and does not create any contractual or
other right to receive future awards of RSUs, or benefits in lieu of RSUs even if RSUs have
been awarded repeatedly in the past;
(c) all decisions with respect to future grants of RSUs, if any, will be at the sole
discretion of the Company;
(d) the Participants participation in the Plan is voluntary;
(e) RSUs are an extraordinary item that do not constitute compensation of any kind for
services of any kind rendered to the Company or to the Participants employer, and RSUs are
outside the scope of the Participants employment contract, if any;
(f) RSUs are not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculation of any severance, resignation, termination,
redundancy, end of service payments, bonuses, long-service awards, pension or retirement
benefits or similar payments and in no event should be considered as compensation for, or
relating in any way to, past services for the Company or the Participants employer;
4
(g) the future value of the underlying Shares is unknown and cannot be predicted with
certainty;
(h) if the Participant receives Shares upon vesting, the value of such Shares acquired on
vesting of RSUs may increase or decrease in value;
(i) in consideration of the grant of RSUs, no claim or entitlement to compensation or
damages arises from termination of the RSUs or diminution in value of the RSUs or Shares
received upon vesting of RSUs resulting from termination of the Participants employment by
the Company or the Participants employer (for any reason whatsoever and whether or not in
breach of local labor laws) and the Participant irrevocably releases the Company and his or
her employer from any such claim that may arise; if, notwithstanding the foregoing, any such
claim is found by a court of competent jurisdiction to have arisen, then, by signing this
Agreement, the Participant shall be deemed irrevocably to have waived his or her entitlement
to pursue such claim; and
(j) further, if the Participant ceases to be a employee (whether or not in breach of local
labor laws), the Participants right to receive RSUs and vest under the Plan, if any, will
terminate effective as of the date that the Participant is no longer actively employed by
the Company and will not be extended by any notice period mandated under local law (e.g.,
active employment would not include a period of garden leave or similar period pursuant to
local law); the Committee shall have the exclusive discretion to determine when the
Participant is no longer actively employed for purposes of the Plan.
8. Data Privacy Notice and Consent. The Participant hereby explicitly and
unambiguously consents to the collection, use and transfer, in electronic or other form, of his or
her personal data as described in this paragraph, by and among, as applicable, the Participants
employer and the Company and its subsidiaries and affiliates for, among other purposes,
implementing, administering and managing the Participants participation in the Plan. The
Participant understands that the Company and its subsidiaries hold certain personal information
about the Participant, including the Participants name, home address and telephone number, date of
birth, social security number or identification number, salary, nationality, job title, any Shares
or directorships held in the Company, details of all options or any other entitlement to Shares
awarded, canceled, exercised, vested, unvested or outstanding in the Participants favor, for the
purpose of managing and administering the Plan (Data). The Participant further understands that
the Company and/or its subsidiaries will transfer Data amongst themselves as necessary for
employment purposes, including implementation, administration and management of the Participants
participation in the Plan, and that the Company and/or any of its subsidiaries may each further
transfer Data to Broker or such other stock plan service provider or other third parties assisting
the Company with processing of Data. The Participant understands that these recipients may be
located in the United States, and that the recipients country may have different data privacy laws
and protections than in the Participants country. The Participant authorizes them to receive,
possess, use, retain and transfer the Data, in electronic or other form, for the purposes described
in this section, including any requisite transfer to Broker or such other stock plan service
provider or other third party as may be required for the administration of the Plan and/or the
subsequent holding
5
of Shares of stock on the Participants behalf. The Participant understands that he or she
may, at any time, request access to the Data, request any necessary amendments to it or refuse or
withdraw the consents herein, in any case without cost, by contacting in writing his or her local
human resources representative. The Participant understands, however, that withdrawal of consent
may affect the Participants ability participate in or realize benefits from the Plan. For more
information on the consequences of refusal to consent or withdrawal of consent, the Participant
understands that he or she may contact his or her local human resources representative.
9. Miscellaneous.
(a) No Rights to Employment. The Participant acknowledges and agrees that the vesting
of the RSUs pursuant to Section 1 and Exhibit A hereof is earned only in accordance with the terms
of such sections. The Participant further acknowledges and agrees that the transactions
contemplated hereunder and the vesting schedule set forth herein do not constitute an express or
implied promise of continued engagement as an employee for the vesting period, for any period, or
at all.
(b) Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement,
and each other provision of this Agreement shall be severable and enforceable to the extent
permitted by law.
(c) Waiver. Any provision for the benefit of the Company contained in this Agreement
may be waived, either generally or in any particular instance, by the Board of Directors of the
Company.
(d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the Company and the Participant and their respective heirs, executors, administrators, legal
representatives, successors and assigns, subject to the restrictions on transfer set forth in
Section 3 of this Agreement.
(e) Notice. All notices required or permitted hereunder shall be in writing and
deemed effectively given upon personal delivery or five days after deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to the other party hereto
at the address shown beneath his or its respective signature to this Agreement, or at such other
address or addresses as either party shall designate to the other in accordance with this Section
9(e).
(f) Pronouns. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa.
(g) Language. If the Participant has received this Agreement or any other document
related to the Plan translated into a language other than English and if the translated version is
different than the English version, the English version will control.
(h) Electronic Delivery. The Company may, in its sole discretion, decide to deliver
any documents related to participation in the Plan, RSUs granted under the Plan or future
6
RSUs that may be granted under the Plan by electronic means or to request the Participants
consent to participate in the Plan by electronic means. The Participant hereby consents to receive
such documents by electronic delivery and, if requested, to agree to participate in the Plan
through an on-line or electronic system established and maintained by the Company or another third
party designated by the Company.
(i) Entire Agreement. This Agreement and the Plan constitute the entire agreement
between the parties, and supersedes all prior agreements and understandings, relating to the
subject matter of this Agreement.
(j) Amendment. This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Participant.
(k) Governing Law. This Agreement shall be construed, interpreted and enforced in
accordance with the internal laws of the Commonwealth of Massachusetts without regard to any
applicable conflicts of laws.
(l) The Participants Acknowledgments. The Participant acknowledges that he or she:
(i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of the Participants own choice or has voluntarily
declined to seek such counsel; and (iii) understands the terms and consequences of this Agreement;
and (iv) is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
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MKS INSTRUMENTS, INC.
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By: |
/s/ Leo Berlinghieri
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Title: Chief Executive Officer & President |
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2 Technology Drive
Andover, MA 01810
«First_Name» «Last_Name»
Participants Signature |
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7
exv10w23
Exhibit 10.23
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated January 5, 2006,(Employment Agreement), by and between MKS
Instruments, Inc., a Massachusetts Corporation (the Corporation), and of, Seth H. Bagshaw , (the
Employee).
WHEREAS, the Corporation and the Employee desire to provide for the employment of the Employee by
the Corporation:
NOW, THEREFORE, in consideration of the premises and the mutual premises contained herein, the
Corporation and the Employee hereby agree as follows:
(1) Term of Employment
(a) The Corporation hereby employs the Employee, and the Employee hereby accepts
employment with the Corporation, for a period commencing as of (start date) and continuing
thereafter until terminated as provided in this Section (1) or Section (5).
(b) The Corporation may terminate Employees employment at any time for any reason, or
no reason, by notifying Employee of such termination. The employment of the Employee under
this Employment Agreement shall terminate thirty (30) days after the date of such notice;
provided, however, that the employment of the Employee under this Employment Agreement is
subject to prior termination as hereinafter provided in Section (5)(b) and (c).
Notwithstanding the above, the Corporation shall be entitled, at its sole discretion, to
waive its obligation to continue active employment of the Employee during the 30 day notice
period. In the event the Corporation elects at any time to waive its obligation to continue
active employment of the Employee during the 30 day notice period, the Corporation shall
continue to pay the Employee his customary Base Salary (as defined in Section (4)) and will
reimburse Employee for the premiums (if any) he pays for continuation of life insurance
should he elect to exercise the conversion feature (if any) of the Corporations group life
policy then in effect and for the premiums (if any) for the continuation under the federal
COBRA program of such medical/dental insurance as Employee may then receive through the
balance of the 30 day notice period.
(c) Employee may terminate employment by delivering notice of resignation no later than
thirty (30) days prior to the intended date of termination of employment (Resignation
Date); provided, however, that the Corporation may at any time and for any reason, or no
reason, accelerate the Resignation Date to any date prior thereto up to and including the
date Employee delivers such notice of resignation, which such acceleration shall not, in any
event, be deemed a termination by Corporation of Employees employment. Unless the
employment is terminated pursuant to Section (5), the Corporation shall, if it terminates
the employment prior to the Resignation Date, continue to pay Employee his customary Base
Salary (as defined in Section 4)) and will
reimburse Employee for the premiums (if any) he pays for continuation of life
insurance should he elect to exercise the conversion feature (if any) of the Corporations
group life policy then in effect and for the premiums (if any) for continuation under the
federal COBRA program of such medical/dental insurance as Employee may then receive, through
the balance of the 30 day notice period.
(2) Capacity: Employee is being paid to perform such duties and exercise such
powers, authorities and discretions in relation to the Corporation as are customary and incidental
to Employees position and such other services that are delegated or assigned to him by the CEO &
President of the Corporation or his designee, including any authorized manager or supervisor of the
Employee. It shall be a condition to Employees employment hereunder that Employee execute and
deliver to the Corporation that Confidential Information Agreement of MKS Instruments, Inc.
(Confidential Information Agreement) attached hereto as Attachment 1, and by execution of this
Employment Agreement, Employee (i) acknowledges receipt of the Confidential Information Agreement
and (ii) agrees to be bound by all of the terms of the Confidential Information Agreement.
(3) Extent of Services: During the term of employment of the Employee under this
Employment Agreement, the Employee shall devote his full time to, and use his best efforts in the
furtherance of, the business of the Corporation and shall not perform similar duties in any other
capacity for any other person or engage in any other business activity which interferes in any way
with the Employee performance of his duties to the Corporation, whether or not such business
activity is pursued for gain or any other pecuniary advantage, without the prior written consent of
the Corporation. Employee agrees and understands that Employee owes the Corporation fidelity and
loyalty during his term of employment with the Corporation.
(4) Compensation: In consideration of the services to be rendered by the Employee
under this Employment Agreement, the Corporation agrees to pay, and the Employee agrees to accept,
the following compensation:
(a) Base Salary: A base salary at the rate of two-hundred thousand dollars
($200,000) per year for the term of employment of the Employee under this Employment
Agreement. The base salary shall be payable in equal biweekly installments subject to usual
withholding requirements. This salary will be reviewed regularly according to the practices
of the Corporation and will be subject to any changes in pay policies implemented by the
Corporation from time to time. As an exempt employee, the Employee shall not be entitled to
receive any overtime pay from the Corporation.
(b) MKS Instruments, Inc. Profit Sharing and 401-K Plan: The Employee shall
be eligible to become a participant under the profit sharing plan of the Corporation on
fulfilling the conditions set forth in the MKS Instruments, Inc. Profit Sharing and 401-K
Plan, subject to any changes thereto that may be implemented from time to time.
(c) Vacation: The Employee shall be entitled to an annual vacation leave of
15 days at full pay during each year of this Employment Agreement, subject to the Employee
arranging such vacation so as not to affect adversely the ability of the
2
Corporation to transact its business. Such vacation leave shall accrue and be administered
according to the policies and practices of the Corporation.
(d) Life Insurance: The Corporation shall provide and pay such premiums for
such term life insurance for the Employee during the term of employment of the Employee
under this Employment Agreement as may be applicable to the Employee, subject to any changes
in the term life insurance policies that may be implemented by the Corporation from time to
time.
(e) Medical/Dental Insurance: The Corporation shall provide and pay such
premiums for such group medical/dental insurance for the Employee during the term of
employment of the Employee under this Employment Agreement as may be applicable to the
Employee, subject to any changes in the medical/dental insurance policies that may be
implemented by the Corporation from time to time.
(f) Other Benefits: The Corporation shall provide other benefits for the
employee under the Plans of the Corporation applicable to the Employee during the term of
employment of the Employee under this Employment Agreement.
(5) Termination: The employment of the Employee under this Employment
Agreement shall terminate:
(a) On the expiration of the period of employment as provided in Section (1).
(b) Upon the death of the Employee, or the disability of the Employee as defined in
Section (6) (e) below.
(c) Upon Corporations delivery of notice of the existence of Cause. Cause shall
mean: (i) Employees refusal to follow directions from the CEO & President of the
Corporation or his designee that are not inconsistent with Employees position, (ii)
Employees failure to perform his duties other than as a result of Disability or death,
(iii) Employees disregard of or failure to comply with the Corporations directives,
policies or procedures other than as a result of Disability or death, (iv) Employees
engaging in negligent, reckless or intentional conduct injurious to the Corporation, any of
its subsidiaries or affiliates or any of its directors or officers, (v) Employees
conviction of a felony or a serious misdemeanor or plea of other than not guilty to any
felony or serious misdemeanor charge, (vi) Employees engaging in conduct that is injurious
to the Corporations name or reputation or (vii) Employees breach of this Employment
Agreement or the Confidential Information Agreement.
(6) Payment Upon Termination:
(a) Upon the termination of employment as provided in Section (1), the Employee shall
not be entitled to any further compensation or benefits, and the
Corporation shall have no obligation to provide the Employee any further compensation or benefits, except as provided in this Employment Agreement.
3
(b) If the employment of the Employee is terminated by death, the Corporation shall
pay to the estate of the Employee the compensation which would otherwise be payable to the
Employee at the end of the month in which his death occurs and other unpaid amounts to which
Employee would have been at that time entitled as an Employee under any applicable
compensation or benefit plan or program.
(c) In the event the employment of the Employee is terminated by the Corporation for
Cause pursuant to Section (5) (c) hereof, the Corporation shall have no obligation to pay
the Employee any amounts, except for Base Salary through the last full day of actual work
for the Corporation.
(d) In the event the Employee voluntarily resigns, the Corporation shall have no
obligation to pay the Employee any amounts, except for Base Salary through the last full day
of actual work for the Corporation, or, if applicable, amounts payable in accordance with
Section (1.c), and other unpaid amounts to which Employee is at that time entitled under any
applicable compensation or benefit plan or program.
(e) If Employee is incapacitated by a physical or mental condition, illness, or injury
that prevents Employee from being able to perform his duties under this Employment Agreement
in a satisfactory manner for substantially all of a twelve (12) consecutive week period (or
such longer period as may be required by law or that the CEO & President of the Corporation
or his designee may, in his discretion, determine) with any reasonable accommodation that
may be required by law, then Employee shall be deemed to be unable to perform his job (any
such physical or mental condition, illness, or injury, a Disability). In such event, the
Corporation may terminate Employees employment, in which case Employee shall receive (i)
any accrued but unpaid Base Salary and other unpaid amounts to which Employee is at that
time entitled under any applicable compensation or benefit plan or program and (ii) al
applicable disability benefits consistent with any applicable benefits program. The
Corporation shall have no further obligations to Employee. Nothing in this paragraph is
intended to or shall operate to excuse the Corporation from any legal obligations it may
have under applicable laws.
(f) The Corporation shall deduct from the amounts payable to Employee pursuant to this
Agreement all required withholding amounts and deductions, including but not limited to
federal, state and local withholding amounts in accordance all applicable laws and
regulations and deductions authorized by Employee. Employee shall be solely responsible for
and shall pay all taxes associated with the amounts payable under this Agreement
(7) Noncompetition Agreement: Employee shall not, without the written consent of the
Corporation, during the term of employment with the Corporation and for the period of one year
thereafter (the Non-Compete Period), engage in or otherwise carry on, directly or indirectly
anywhere in the world (either as principal, agent, employee, employer, investor, shareholder
(except for holdings of no great than 1% of the total outstanding shares in a publicly-traded
4
company), consultant, partner, member, financier or in any other individual or representative
capacity of any kind whatsoever), any business or activity competitive with the Corporation but
solely to the extent such business or activity is related to, similar to or competitive with the
activities of the business unit(s), division(s), laborator(y)(ies), facilit(y)(ies) and other
operational unit(s) in or for which Employee performed work for the Corporation or about which
Employee acquired Proprietary Information (as defined in the Confidential Information Agreement).
The Non-Compete Period shall be extended for any period during which Employee is in breach of this
Agreement or the Confidential Information Agreement.
(8) Notice: Any and all notices under this Employment Agreement shall be in writing
and, if to the Corporation, shall be duly given if sent to the Corporation by registered or
certified mail, postage prepaid, return receipt requested, at the address of the Corporation set
forth under its name below or at such other address as the Corporation may hereafter designate to
the Employee in writing for the purpose, and if to the Employee, shall be duly given if delivered
to the Employee by hand or if sent to the Employee by registered or certified mail, postage
prepaid, return receipt requested, at the address of the Employee set forth under his name below or
at such other address as the Employee may hereafter designate to the Corporation in writing for the
purpose.
(9) Assignment: The rights and obligations of the Corporation under this Employment
Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of
the Corporation. The rights and obligations of the Employee under this Employment Agreement shall
inure to the benefit of, and shall be binding upon, the heirs, executors and legal representatives
of the Employee.
(10) Entire Agreement and Severability:
(a) This Employment Agreement and the Confidential Information Agreement supersede any
and all other agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Employee by the Corporation and contains all of the covenants and
agreements between the parties with respect to such employment. Each party to this
Employment Agreement acknowledges that no representations, inducements, promises or
agreement, oral or otherwise, have been made by any party, or any one acting on behalf of
any party, which are not embodied herein, and that no other agreement, statement or promise
not contained in this Employment Agreement shall be valid and binding. Any modification of
this Employment Agreement will be effective only if it is in writing signed by both parties
to this Employment Agreement.
(b) If any provision in this Employment Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions shall
nevertheless continue in full force and effect without being impaired or invalidated in any
way.
(c) All pronouns used herein shall include the masculine, feminine, and neuter gender
as the context requires.
5
(11) Miscellaneous: This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts, excluding (but only to the extent permitted by law) its conflict of laws and choice
of law rules, and jurisdiction over any action to enforce this Agreement, or any dispute arising
from or relating to this Agreement shall subsist solely in the state and/or federal courts located
within the Commonwealth of Massachusetts. The parties hereto further agree that service of any
process, summons, notice or document by U.S. certified mail or overnight delivery by a generally
recognized commercial courier service to Employees last known address (or any mode of service
recognized to be effective by applicable law) will be effective service of process for any action,
suit or proceeding brought against Employee in any such court. This Agreement may be executed in
any number of counterparts, each of which, when executed by both parties to this Agreement shall be
deemed to be an original, and all of which counterparts together shall constitute one and the same
instrument. The failure of either party hereto to enforce any right under this Agreement shall not
be construed to be a waiver of that right, or of damages caused thereby, or of any other rights
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed, in the Commonwealth of Massachusetts, this
Employment Agreement as a sealed instrument, all as of the day, month and year first written above.
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MKS INSTRUMENTS, INC. |
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By:
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/s/ Leo Berlinghieri
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CEO & President |
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90 Industrial Way |
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Wilmington, MA 01887 |
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/s/ Seth H. Bagshaw
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Legal Signature |
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Seth Bagshaw |
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5 Bayns Hill Road |
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Boxford, MA 01921 |
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6
exv21w1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
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SUBSIDIARY |
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JURISDICTION OF INCORPORATION |
ASTeX GmbH
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Germany |
MKS (Bermuda) Ltd.
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Bermuda |
MKS Denmark APS
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Denmark |
MKS Germany Holding GmbH
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Germany |
MKS Instruments (Asia) Ltd.
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Bermuda |
MKS Instruments (China) Company Ltd.
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China |
MKS Instruments Deutschland GmbH
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Germany |
MKS Instruments France S.A.S.
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France |
MKS Instruments (Hong Kong) Ltd.
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Hong Kong |
MKS Instruments (Shanghai) Ltd.
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Shanghai |
MKS Instruments (Singapore) Pte. Ltd.
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Singapore |
MKS Instruments U.K. Limited
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United Kingdom |
MKS Japan, Inc.
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Japan |
MKS Korea Co., Ltd.
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Korea |
MKS Luxembourg S.A.R.L.
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Luxembourg |
MKS MSC, Inc.
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Massachusetts |
MKS Taiwan Technology Ltd.
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Taiwan |
MKS Technology Limited
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United Kingdom |
MKS Tega Ltd.
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Israel |
MKS Tenta Products Ltd.
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Israel |
MKS Umetrics AB
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Sweden |
Orion Metrology, Inc.
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California |
Spectra Sensortech, Ltd.
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United Kingdom |
Telvac Engineering Limited
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United Kingdom |
Tianjin Yield Co, Ltd.
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China |
Umetrics, Inc.
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New Jersey |
Umetrics (UK) Ltd.
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UK |
Yield Dynamics, LLC
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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 25, 2011 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 25, 2011
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. |
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I have reviewed this annual report on Form 10-K of MKS Instruments, Inc.; |
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2. |
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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; |
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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; |
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4. |
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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: |
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a) |
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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; |
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b) |
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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; |
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c) |
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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 |
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d) |
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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 |
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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): |
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a) |
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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 |
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b) |
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Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
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Dated: February 25, 2011 |
/s/ Leo Berlinghieri
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Leo Berlinghieri |
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Chief Executive Officer and President
(Principal Executive Officer) |
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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, Seth H. Bagshaw, certify that:
1. |
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I have reviewed this annual report on Form 10-K of MKS Instruments, Inc.; |
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2. |
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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; |
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3. |
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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; |
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4. |
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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: |
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a) |
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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; |
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b) |
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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; |
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c) |
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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 |
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d) |
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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. |
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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): |
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a) |
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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 |
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b) |
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Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
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Dated: February 25, 2011 |
/s/ Seth H. Bagshaw
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Seth H. Bagshaw |
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Vice President and Chief Financial Officer
(Principal Financial Officer) |
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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, 2010 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 Seth H. Bagshaw, Vice President and Chief Financial Officer 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:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company. |
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Dated: February 25, 2011 |
/s/ Leo Berlinghieri
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Leo Berlinghieri |
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Chief Executive Officer and President |
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Dated: February 25, 2011 |
/s/ Seth H. Bagshaw
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Seth H. Bagshaw |
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Vice President and Chief Financial Officer |
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