e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-23621
MKS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
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Massachusetts
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04-2277512 |
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(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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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) |
Registrants telephone number, including area code (978) 645-5500
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 þ
No 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) |
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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
As of April 30, 2011 the registrant had 52,264,426 shares of common stock outstanding.
MKS INSTRUMENTS, INC.
FORM 10-Q
INDEX
2
PART I. FINANCIAL INFORMATION
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ITEM 1. |
FINANCIAL STATEMENTS. |
MKS INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
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March 31, 2011 |
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December 31, 2010 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
259,207 |
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$ |
162,476 |
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Short-term investments |
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219,913 |
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269,457 |
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Trade accounts receivable, net |
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155,682 |
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138,181 |
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Inventories |
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159,843 |
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156,429 |
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Deferred income taxes |
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13,489 |
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13,775 |
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Other current assets |
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15,440 |
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12,577 |
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Total current assets |
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823,574 |
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752,895 |
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Property, plant and equipment, net |
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68,912 |
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68,976 |
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Long-term marketable securities |
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1,301 |
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Goodwill |
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140,020 |
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140,020 |
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Intangible assets, net |
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1,493 |
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1,743 |
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Other assets |
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14,019 |
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18,779 |
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Total assets |
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$ |
1,049,319 |
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$ |
982,413 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Short-term borrowings |
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$ |
1,511 |
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$ |
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Accounts payable |
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34,856 |
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36,427 |
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Accrued compensation |
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24,895 |
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29,944 |
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Income taxes payable |
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13,077 |
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5,347 |
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Other current liabilities |
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35,713 |
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37,968 |
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Total current liabilities |
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110,052 |
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109,686 |
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Other liabilities |
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27,823 |
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25,688 |
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Commitments and contingencies (Note 15) |
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Stockholders equity: |
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Preferred Stock, $0.01 par value, 2,000,000 shares authorized; none issued
and outstanding |
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Common Stock, no par value, 200,000,000 shares authorized; 52,235,202 and
50,648,601 shares issued and outstanding at March 31, 2011 and December
31, 2010, respectively |
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113 |
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113 |
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Additional paid-in capital |
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694,355 |
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663,792 |
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Retained earnings |
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201,636 |
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171,356 |
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Accumulated other comprehensive income |
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15,340 |
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11,778 |
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Total stockholders equity |
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911,444 |
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847,039 |
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Total liabilities and stockholders equity |
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$ |
1,049,319 |
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$ |
982,413 |
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The accompanying notes are an integral part of the consolidated financial statements.
3
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
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Three Months Ended |
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March 31, |
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2011 |
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2010 |
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Net revenues: |
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Products |
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$ |
207,447 |
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$ |
171,071 |
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Services |
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24,404 |
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21,095 |
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Total net revenues |
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231,851 |
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192,166 |
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Cost of revenues: |
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Cost of products |
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111,215 |
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94,139 |
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Cost of services |
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14,275 |
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12,532 |
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Total cost of revenues |
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125,490 |
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106,671 |
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Gross profit |
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106,361 |
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85,495 |
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Research and development |
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16,896 |
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15,675 |
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Selling, general and administrative |
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32,707 |
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27,812 |
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Amortization of intangible assets |
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250 |
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469 |
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Gain on sale of assets |
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(682 |
) |
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Income from operations |
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56,508 |
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42,221 |
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Interest income |
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276 |
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347 |
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Interest expense |
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5 |
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22 |
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Income from continuing operations before income taxes |
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56,779 |
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42,546 |
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Provision for income taxes |
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18,736 |
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13,548 |
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Income from continuing operations |
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38,043 |
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28,998 |
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Income from discontinued operations, net of taxes |
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227 |
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Net income |
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$ |
38,043 |
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$ |
29,225 |
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Basic income per share: |
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Continuing operations |
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$ |
0.74 |
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$ |
0.58 |
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Discontinued operations |
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0.01 |
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Net income |
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$ |
0.74 |
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$ |
0.59 |
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Diluted income per share: |
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Continuing operations |
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$ |
0.73 |
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$ |
0.57 |
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Discontinued operations |
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0.01 |
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Net income |
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$ |
0.73 |
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$ |
0.58 |
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Cash dividends paid per common share |
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$ |
0.15 |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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51,407 |
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49,601 |
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Diluted |
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52,386 |
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50,600 |
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The accompanying notes are an integral part of the consolidated financial statements.
4
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2011 |
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2010 |
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Cash flows from operating activities: |
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Net income |
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$ |
38,043 |
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$ |
29,225 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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3,177 |
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3,830 |
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Stock-based compensation |
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3,092 |
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2,137 |
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Provision for excess and obsolete inventory |
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3,066 |
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1,925 |
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Deferred income taxes |
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2,993 |
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506 |
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Excess tax benefits from stock-based compensation |
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(5,032 |
) |
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(80 |
) |
Other |
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(289 |
) |
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(797 |
) |
Changes in operating assets and liabilities: |
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Trade accounts receivable |
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(16,838 |
) |
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(40,850 |
) |
Inventories |
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(5,984 |
) |
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(10,907 |
) |
Income taxes |
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12,161 |
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10,570 |
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Other current assets |
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(1,048 |
) |
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(145 |
) |
Accrued expenses and other current liabilities |
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(4,847 |
) |
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10,581 |
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Accounts payable |
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(1,726 |
) |
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10,722 |
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Net cash provided by operating activities |
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26,768 |
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16,717 |
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Cash flows from investing activities: |
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Purchases of short-term and long-term available-for-sale investments |
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(103,721 |
) |
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(73,470 |
) |
Maturities, sales and settlements of short-term and long-term
available-for-sale investments |
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152,514 |
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81,808 |
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Purchases of property, plant and equipment |
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(2,331 |
) |
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(3,274 |
) |
Proceeds from sale of assets |
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4 |
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2,113 |
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Other |
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(35 |
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190 |
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Net cash provided by investing activities |
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46,431 |
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7,367 |
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Cash flows from financing activities: |
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Proceeds from short-term borrowings |
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2,988 |
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39,454 |
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Payments on short-term borrowings |
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(1,462 |
) |
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(42,717 |
) |
Net proceeds (payments) related to employee stock awards |
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22,672 |
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(2,593 |
) |
Dividend payment to common stockholders |
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(7,763 |
) |
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Excess tax benefit from stock-based compensation |
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5,032 |
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80 |
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Net cash provided by (used in) financing activities |
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21,467 |
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(5,776 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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2,065 |
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(1,012 |
) |
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Increase in cash and cash equivalents |
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96,731 |
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17,296 |
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Cash and cash equivalents at beginning of period |
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162,476 |
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111,009 |
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Cash and cash equivalents at end of period |
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$ |
259,207 |
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$ |
128,305 |
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The accompanying notes are an integral part of the consolidated financial statements.
5
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except share and per share data)
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The terms MKS and the Company refer to MKS Instruments, Inc. and its subsidiaries. The
interim financial data as of March 31, 2011 and for the three months ended March 31, 2011 and
2010 are unaudited; however, in the opinion of MKS, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods. The consolidated balance sheet presented as of
December 31, 2010 has been derived from the audited consolidated financial statements as of
that date. The unaudited consolidated financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by United States generally accepted accounting
principles (U.S. GAAP). The consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the MKS
Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and
Exchange Commission on February 25, 2011. |
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The preparation of these consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue
recognition, stock-based compensation, inventory, intangible assets, goodwill and other
long-lived assets, 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. |
2) |
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Recently Issued Accounting Pronouncements |
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In October 2009, the Financial Accounting Standards Board (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. The Company
adopted the new guidance in the first quarter of 2011, and the adoption did not have a
material impact on the Companys financial position, results of operations or cash flows. |
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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 includes 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. The Company adopted the new guidance in the
first quarter of 2011, and the adoption did not have a material impact on the Companys
financial position, results of operations or cash flows. |
3) |
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Cash and Cash Equivalents and Investments |
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The fair value of short-term available-for-sale investments with maturities or estimated
lives of less than one year consists of the following: |
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March 31, 2011 |
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December 31, 2010 |
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Time deposits and drafts |
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$ |
1,072 |
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$ |
15,716 |
|
Equity mutual funds |
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|
510 |
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|
491 |
|
U.S. agency obligations |
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|
218,331 |
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|
253,250 |
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$ |
219,913 |
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$ |
269,457 |
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6
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
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The fair value of long-term available-for-sale investments with maturities or estimated lives
of more than one year consists of the following: |
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March 31, 2011 |
|
December 31, 2010 |
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U.S. agency obligations |
|
$ |
1,301 |
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|
$ |
|
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The following tables show the gross unrealized gains and (losses) aggregated by investment
category: |
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Gross |
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Gross |
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Unrealized |
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Unrealized |
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Estimated |
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Cost |
|
Gains |
|
(Losses) |
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Fair Value |
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As of March 31, 2011: |
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|
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Money market funds |
|
$ |
19,771 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,771 |
|
Time deposits and drafts |
|
|
30,107 |
|
|
|
|
|
|
|
|
|
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|
30,107 |
|
Equity mutual funds |
|
|
659 |
|
|
|
|
|
|
|
(149 |
) |
|
|
510 |
|
U.S. agency obligations |
|
|
327,554 |
|
|
|
73 |
|
|
|
(8 |
) |
|
|
327,619 |
|
|
|
|
|
|
$ |
378,091 |
|
|
$ |
73 |
|
|
$ |
(157 |
) |
|
$ |
378,007 |
|
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Reported as follows: |
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|
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Cash and cash equivalents (1) |
|
$ |
156,791 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
156,793 |
|
Short-term investments |
|
|
220,000 |
|
|
|
70 |
|
|
|
(157 |
) |
|
|
219,913 |
|
Long-term marketable securities |
|
|
1,300 |
|
|
|
1 |
|
|
|
|
|
|
|
1,301 |
|
|
|
|
|
|
$ |
378,091 |
|
|
$ |
73 |
|
|
$ |
(157 |
) |
|
$ |
378,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross |
|
Gross |
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|
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Unrealized |
|
Unrealized |
|
Estimated |
|
|
Cost |
|
Gains |
|
(Losses) |
|
Fair Value |
|
|
|
As of December 31, 2010: |
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
7,032 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,032 |
|
Time deposits and drafts |
|
|
18,554 |
|
|
|
|
|
|
|
|
|
|
|
18,554 |
|
Equity mutual funds |
|
|
659 |
|
|
|
|
|
|
|
(168 |
) |
|
|
491 |
|
U.S. agency obligations |
|
|
298,034 |
|
|
|
42 |
|
|
|
(35 |
) |
|
|
298,041 |
|
|
|
|
|
|
$ |
324,279 |
|
|
$ |
42 |
|
|
$ |
(203 |
) |
|
$ |
324,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
$ |
54,664 |
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
54,661 |
|
Short-term investments |
|
|
269,615 |
|
|
|
42 |
|
|
|
(200 |
) |
|
|
269,457 |
|
|
|
|
|
|
$ |
324,279 |
|
|
$ |
42 |
|
|
$ |
(203 |
) |
|
$ |
324,118 |
|
|
|
|
|
|
|
(1) |
|
The cash and cash equivalent amounts presented in the tables above do not include cash
amounts of $102,414,000 and $107,815,000 as of March 31, 2011 and December 31, 2010,
respectively. |
|
|
Interest income is accrued as earned. Dividend income is recognized as income on the date the
stock trades ex-dividend. The cost of marketable securities sold is determined by the
specific identification method and realized gains or losses are reflected in income and were
not material for the three months ended March 31, 2011 and 2010, respectively. |
4) |
|
Fair Value Measurements |
|
|
In accordance with the provisions of fair value accounting, a fair value measurement assumes
that the transaction to sell an asset or transfer a liability occurs in the principal market
for the asset or liability or, in the absence of a principal market, the most advantageous
market for the asset or liability and defines fair value based upon an exit price model. |
|
|
The fair value measurement guidance establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The guidance describes three levels of inputs that may be used to
measure fair value: |
7
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
|
|
|
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 or
liability occur in sufficient frequency and volume to provide pricing information on an
ongoing basis. Level 1 assets and liabilities include money market funds and debt and
equity securities. |
|
|
|
Level 2 |
|
Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. Level 2 assets and liabilities include debt
securities with quoted prices that are traded less frequently than exchange-traded
instruments and derivative contracts whose value is determined using a pricing model
with inputs that are observable in the market or can be derived principally from or
corroborated by observable market data. This category generally includes certain time
deposits, time drafts 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. |
|
|
The following tables provide a summary of assets and liabilities of the Company measured at
fair value on a recurring basis as of March 31, 2011 and December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices in
Active Markets |
|
|
|
|
|
Significant |
|
|
|
|
|
|
for Identical |
|
Significant Other |
|
Unobservable |
|
|
|
|
|
|
Assets |
|
Observable |
|
Inputs |
Description |
|
March 31, 2011 |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
19,771 |
|
|
$ |
19,771 |
|
|
$ |
|
|
|
$ |
|
|
Time deposits and drafts |
|
|
30,107 |
|
|
|
|
|
|
|
30,107 |
|
|
|
|
|
Equity mutual funds |
|
|
510 |
|
|
|
510 |
|
|
|
|
|
|
|
|
|
U.S. agency obligations |
|
|
327,619 |
|
|
|
327,619 |
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts |
|
|
343 |
|
|
|
|
|
|
|
343 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
378,350 |
|
|
$ |
347,900 |
|
|
$ |
30,450 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts |
|
$ |
2,746 |
|
|
$ |
|
|
|
$ |
2,746 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
156,793 |
|
|
$ |
127,758 |
|
|
$ |
29,035 |
|
|
$ |
|
|
Short-term investments |
|
|
219,913 |
|
|
|
218,841 |
|
|
|
1,072 |
|
|
|
|
|
Long-term marketable securities |
|
|
1,301 |
|
|
|
1,301 |
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
343 |
|
|
|
|
|
|
|
343 |
|
|
|
|
|
|
|
|
|
|
$ |
378,350 |
|
|
$ |
347,900 |
|
|
$ |
30,450 |
|
|
$ |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
2,746 |
|
|
$ |
|
|
|
$ |
2,746 |
|
|
$ |
|
|
|
|
|
8
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices in |
|
Significant |
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
Other |
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
Observable |
|
Inputs |
Description |
|
December 31, 2010 |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
7,032 |
|
|
$ |
7,032 |
|
|
$ |
|
|
|
$ |
|
|
Time deposits and drafts |
|
|
18,554 |
|
|
|
|
|
|
|
18,554 |
|
|
|
|
|
Equity mutual funds |
|
|
491 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
U.S. agency obligations |
|
|
298,041 |
|
|
|
298,041 |
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts |
|
|
369 |
|
|
|
|
|
|
|
369 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
324,487 |
|
|
$ |
305,564 |
|
|
$ |
18,923 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts |
|
$ |
3,463 |
|
|
$ |
|
|
|
$ |
3,463 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
54,661 |
|
|
$ |
51,823 |
|
|
$ |
2,838 |
|
|
$ |
|
|
Short-term investments |
|
|
269,457 |
|
|
|
253,741 |
|
|
|
15,716 |
|
|
|
|
|
Other current assets |
|
|
369 |
|
|
|
|
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
$ |
324,487 |
|
|
$ |
305,564 |
|
|
$ |
18,923 |
|
|
$ |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
3,463 |
|
|
$ |
|
|
|
$ |
3,463 |
|
|
$ |
|
|
|
|
|
|
|
As of March 31, 2011 and December 31, 2010, this asset class consisted mainly of 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 March 31, 2011, this asset class consisted primarily of time deposits denominated in
the Euro currency and time drafts guaranteed by a financial institution. As of December 31,
2010, this asset class consisted of time deposits denominated in the Euro currency. The asset
class is valued using other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities and are classified
within Level 2 of the fair value hierarchy. |
|
|
As of March 31, 2011 and December 31, 2010, this asset class 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.
The equity mutual funds are associated with the Companys supplemental defined contribution
retirement obligations. |
|
|
As of March 31, 2011 and December 31, 2010, this asset class consisted of U.S. agency
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. |
|
|
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
|
9
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
|
|
currency exchange contracts are valued using broker quotations, or market transactions and
are classified within Level 2 of the fair value hierarchy. |
|
|
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 other comprehensive income (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 March 31, 2011 and December 31, 2010, the Company had outstanding forward foreign
exchange contracts with gross notional values of $75,896,000 and $87,666,000, respectively.
The following tables provide a summary of the primary net hedging positions and corresponding
fair values held as of March 31, 2011 and December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
Gross Notional |
|
|
Currency Hedged (Buy/Sell) |
|
Value |
|
Fair Value (1) |
|
U.S. Dollar/Japanese Yen |
|
$ |
36,487 |
|
|
$ |
(1,232 |
) |
U.S. Dollar/South Korean Won |
|
|
24,225 |
|
|
|
(956 |
) |
U.S. Dollar/Euro |
|
|
8,553 |
|
|
|
(175 |
) |
U.S. Dollar/U.K. Pound Sterling |
|
|
6,631 |
|
|
|
(40 |
) |
|
|
|
Total |
|
$ |
75,896 |
|
|
$ |
(2,403 |
) |
|
|
|
10
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
(1) Represents the net receivable (payable) amount included in the consolidated
balance sheets. |
The following table provides a summary of the fair value amounts of the Companys derivative
instruments:
|
|
Derivatives Designated as Hedging Instruments |
|
March 31, 2011 |
|
December 31, 2010 |
Derivative assets: |
|
|
|
|
|
|
|
|
Forward exchange contracts |
|
$ |
343 |
|
|
$ |
369 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
Forward exchange contracts |
|
|
(2,746 |
) |
|
|
(3,463 |
) |
|
|
|
Total net derivative liability designated as hedging instruments (1) |
|
$ |
(2,403 |
) |
|
$ |
(3,094 |
) |
|
|
|
|
|
|
(1) |
|
The derivative asset of $343,000 and derivative liability of $2,746,000 are
classified in other current assets and other current liabilities, respectively, in the
consolidated balance sheet as of March 31, 2011. 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 following table provides a summary of the gains (losses) on derivatives designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Derivatives Designated as Cash Flow Hedging Relationships |
|
March 31, |
|
|
2011 |
|
2010 |
Forward exchange contracts: |
|
|
|
|
Net (loss) gain recognized in OCI (1) |
|
$ |
(162 |
) |
|
$ |
481 |
|
Net loss reclassified from OCI into income (2) |
|
|
(526 |
) |
|
|
(138 |
) |
|
|
|
(1) |
|
Net change in the fair value of the effective portion classified in OCI. |
|
(2) |
|
Effective portion classified in selling, general and administrative. |
6) Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
|
|
Raw material |
|
$ |
82,740 |
|
|
$ |
82,012 |
|
Work-in-process |
|
|
22,766 |
|
|
|
21,891 |
|
Finished goods |
|
|
54,337 |
|
|
|
52,526 |
|
|
|
|
|
|
$ |
159,843 |
|
|
$ |
156,429 |
|
|
|
|
7) Goodwill and Intangible Assets
Goodwill
The Company tests goodwill for impairment on an annual basis, which has been determined to be
as of October 31 of each fiscal year. The Company also tests goodwill between annual tests if
an event occurs or circumstances change that indicate that the fair value of a reporting unit
may be below its carrying value.
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
11
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
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.
As of October 31, 2010, the Company performed its annual impairment assessment of goodwill
and determined that no impairment charges were required, as the fair value of each reporting
unit exceeded its book value.
The changes in the carrying amount of goodwill and accumulated impairment losses during the
three months ended March 31, 2011 and the twelve months ended December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
Gross |
|
Accumulated |
|
|
|
|
|
Gross |
|
Accumulated |
|
|
|
|
Carrying |
|
Impairment |
|
|
|
|
|
Carrying |
|
Impairment |
|
|
|
|
Amount |
|
Loss |
|
Net |
|
Amount |
|
Loss |
|
Net |
|
|
|
|
|
Beginning balance at January 1 |
|
$ |
279,434 |
|
|
$ |
(139,414 |
) |
|
$ |
140,020 |
|
|
$ |
337,765 |
|
|
$ |
(193,254 |
) |
|
$ |
144,511 |
|
Acquired goodwill (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,292 |
|
|
|
|
|
|
|
2,292 |
|
Sale of discontinued
operations (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,623 |
) |
|
|
53,840 |
|
|
|
(6,783 |
) |
|
|
|
|
|
Ending balance at March 31,
2011 and December 31, 2010 |
|
$ |
279,434 |
|
|
$ |
(139,414 |
) |
|
$ |
140,020 |
|
|
$ |
279,434 |
|
|
$ |
(139,414 |
) |
|
$ |
140,020 |
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
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. |
Intangible Assets
Components of the Companys acquired intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Gross |
|
Amortization |
|
Net |
|
|
|
As of March 31, 2011: |
|
|
|
|
|
|
Completed technology |
|
$ |
76,829 |
|
|
$ |
(76,382 |
) |
|
$ |
447 |
|
Customer relationships |
|
|
8,940 |
|
|
|
(8,156 |
) |
|
|
784 |
|
Patents, trademarks, trade names and other |
|
|
24,638 |
|
|
|
(24,376 |
) |
|
|
262 |
|
|
|
|
|
|
$ |
110,407 |
|
|
$ |
(108,914 |
) |
|
$ |
1,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Gross |
|
Amortization |
|
Net |
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
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 |
|
|
|
|
12
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
Aggregate amortization expense related to acquired intangibles for the three months ended
March 31, 2011 and 2010 were $250,000 and $469,000, respectively. Estimated amortization
expense for each of the three remaining fiscal years is as follows:
|
|
|
|
|
Year |
|
Amount |
2011 (remaining) |
|
$ |
738 |
|
2012 |
|
|
389 |
|
2013 |
|
|
366 |
|
8) Debt
The Companys Japanese subsidiary has lines of credit and short-term borrowing arrangements
with two financial institutions which provide for aggregate borrowings as of March 31, 2011
of up to an equivalent of $30,164,000 U.S. dollars, which generally expire and are renewed at
three month intervals. At March 31, 2011 total borrowings outstanding under these
arrangements were $1,511,000 at an interest rate of 1.475%. There were no borrowings
outstanding at December 31, 2010.
9) Product Warranties
The Company provides for the estimated costs to fulfill customer warranty obligations upon
the recognition of the related revenue. While the Company engages in extensive product
quality programs and processes, including actively monitoring and evaluating the quality of
its component suppliers, the Companys warranty obligation is affected by shipment volume,
product failure rates, utilization levels, material usage, and supplier warranties on parts
delivered to the Company. Should actual product failure rates, utilization levels, material
usage, or supplier warranties on parts differ from the Companys estimates, revisions to the
estimated warranty liability would be required. The product warranty liability is included in
other current liabilities in the consolidated balance sheets.
Product warranty activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Balance at January 1 |
|
$ |
9,865 |
|
|
$ |
6,560 |
|
Provision for product warranties |
|
|
1,986 |
|
|
|
1,628 |
|
Direct charges to warranty liability |
|
|
(1,898 |
) |
|
|
(967 |
) |
|
|
|
Balance at March 31 |
|
$ |
9,953 |
|
|
$ |
7,221 |
|
|
|
|
10) Income Taxes
The Companys effective tax rate for the three months ended March 31, 2011 and 2010 was 33.0%
and 31.8%, respectively. The effective tax rates for the three months ended March 31, 2011
and 2010 and the related income tax provisions were lower than the U.S. statutory tax rate
primarily due to geographic mix of income and profits earned by the Companys international
subsidiaries being taxed at rates lower than the U.S. statutory rate.
At March 31, 2011, the total amount of gross unrecognized tax benefits, which excludes
interest and penalties, was approximately $15,996,000. 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, 2010 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
$12,789,000, 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
March 31, 2011 and December 31, 2010, the Company had accrued interest on unrecognized tax
benefits of approximately $1,138,000 and $986,000, respectively.
The Company and its subsidiaries are subject to examination by federal, state and foreign tax
authorities. The statute of limitations for the Companys tax filings varies by tax
jurisdiction between fiscal years 2001 through present.
13
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
While the Company believes it has adequately provided for all tax positions, amounts asserted
by taxing authorities could materially differ from the Companys 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, the Company could record
additional provisions or benefits due to U.S. federal, state, and foreign tax-related matters
in the future as it revises estimates or settles or otherwise resolves the underlying
matters.
11) Discontinued Operations
During the second quarter of 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 from discontinued operations for the three months ended March 31, 2011 and 2010
are below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
5,903 |
|
|
|
|
Income from discontinued operations before income taxes |
|
|
|
|
|
|
433 |
|
Income tax provision |
|
|
|
|
|
|
206 |
|
|
|
|
Income from discontinued operations |
|
$ |
|
|
|
$ |
227 |
|
|
|
|
12) Net Income Per Share
|
The following table sets forth the computation of basic and diluted net income per share:
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
Numerator: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
38,043 |
|
|
$ |
28,998 |
|
Income from discontinued operations, net of tax |
|
|
|
|
|
|
227 |
|
|
|
|
Net income |
|
$ |
38,043 |
|
|
$ |
29,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Shares used in net income per common share basic |
|
|
51,407,000 |
|
|
|
49,601,000 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options, restricted stock and employee stock purchase plan |
|
|
979,000 |
|
|
|
999,000 |
|
|
|
|
Shares used in net income per common share diluted |
|
|
52,386,000 |
|
|
|
50,600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.74 |
|
|
$ |
0.58 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
Net income |
|
$ |
0.74 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.73 |
|
|
$ |
0.57 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
|
|
|
Net income |
|
$ |
0.73 |
|
|
$ |
0.58 |
|
|
|
|
14
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
Basic earnings per share (EPS) is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during the period.
The computation of diluted EPS is similar to the computation of basic EPS except that the
denominator is increased to include the number of additional common shares that would have
been outstanding (using the treasury stock method) if securities containing potentially dilutive common shares
(stock options and restricted stock units) had been converted to such common shares, and if
such assumed conversion is dilutive.
As of March 31, 2011, stock options and restricted stock units relating to an aggregate of
approximately 1,504,968 shares were outstanding. For the three months ended March 31, 2011,
180,292 shares were excluded from the dilutive computation because the exercise price of the
options exceeded the average price per share during the period.
As of March 31, 2010, stock options and restricted stock units relating to an aggregate of
approximately 3,737,781 shares were outstanding. For the three months ended March 31, 2010,
1,388,643 shares were excluded from the dilutive computation because the exercise price of
the options exceeded the average price per share during the period.
13) Comprehensive Income
Components of comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Net income |
|
$ |
38,043 |
|
|
$ |
29,225 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Changes in value of financial instruments
designated as cash flow hedges (net of tax) |
|
|
394 |
|
|
|
216 |
|
Foreign currency translation adjustments |
|
|
3,124 |
|
|
|
(1,968 |
) |
Unrealized gain (loss) on investments (net of tax) |
|
|
48 |
|
|
|
(35 |
) |
|
|
|
Other comprehensive income (loss) |
|
|
3,566 |
|
|
|
(1,787 |
) |
|
|
|
Total comprehensive income |
|
$ |
41,609 |
|
|
$ |
27,438 |
|
|
|
|
14) Geographic, Product and Significant Customer Information
The Company operates in one segment for the development, manufacturing, sales and servicing
of products that measure, control, power and monitor critical parameters of advanced
manufacturing processes. The Companys chief decision-maker reviews consolidated operating
results to make decisions about allocating resources and assessing performance for the entire
Company.
Information about the Companys operations in different geographic regions is presented in
the tables below. Net revenues to unaffiliated customers are based on the location in which
the sale originated. Transfers between geographic areas are at negotiated transfer prices
and have been eliminated from consolidated net revenues.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Geographic net revenues: |
|
|
|
|
|
|
|
|
United States |
|
$ |
110,603 |
|
|
$ |
112,802 |
|
Japan |
|
|
24,639 |
|
|
|
30,596 |
|
Europe |
|
|
29,704 |
|
|
|
20,296 |
|
Asia (excluding Japan) |
|
|
66,905 |
|
|
|
28,472 |
|
|
|
|
|
|
$ |
231,851 |
|
|
$ |
192,166 |
|
|
|
|
15
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tables in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
|
|
Long-lived assets (1): |
|
|
|
|
|
|
|
|
United States |
|
$ |
53,155 |
|
|
$ |
54,840 |
|
Japan |
|
|
4,048 |
|
|
|
4,273 |
|
Europe |
|
|
5,139 |
|
|
|
4,970 |
|
Asia (excluding Japan) |
|
|
8,512 |
|
|
|
8,597 |
|
|
|
|
|
|
$ |
70,854 |
|
|
$ |
72,680 |
|
|
|
|
|
(1) Long-lived assets include property, plant and equipment, net and certain other
assets. |
The Company groups its products into three product groups. Net product and service revenues
for these product groups are as follows:
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Instruments and Control Systems |
|
$ |
112,136 |
|
|
$ |
89,096 |
|
Power and Reactive Gas Products |
|
|
96,482 |
|
|
|
85,771 |
|
Vacuum Products |
|
|
23,233 |
|
|
|
17,299 |
|
|
|
|
|
|
$ |
231,851 |
|
|
$ |
192,166 |
|
|
|
|
15) 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 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 reviewed its contractual obligations and commercial commitments as of March
31, 2011 and determined that there were no significant changes from the ones set forth in the
notes to the consolidated financial statements included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2010.
16
MKS INSTRUMENTS, INC.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q 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 believes,
anticipates, plans, expects, estimates, would, will, intends and similar expressions
are intended to identify forward-looking statements. These forward-looking statements reflect
managements current opinions and are subject to certain risks and uncertainties that could cause
results to differ materially from those stated or implied. While we may elect to update forward
looking statements at some point in the future, we specifically disclaim any obligation to do so
even if our estimates or expectations change. Risks and uncertainties include, but are not limited
to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2010 in the
section entitled Risk Factors as referenced in Part II, Item 1A Risk Factors of this Quarterly
Report on Form 10-Q.
Overview
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.
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. For the three months ended March 31, 2011 and the full year ended December 31, 2010,
we estimate that 59% and 64% 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 the three months ended March 31, 2010. 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 have seen a continued improvement in the global economy since late 2009, which has
contributed to an increase in our business, financial condition and results of operations for the
three months ended March 31, 2011 compared to the same period for the prior year. As a result of
the improved global economy, our net revenues to semiconductor capital equipment manufacturers and
semiconductor device manufacturers increased 13% for the three months ended March 31, 2011 compared
to the same period for the prior year. Although our business levels have increased since 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 34% for the three months ended March 31,
2011 compared to the same period for the prior year. The increase was mainly due to product
revenues from a thin film solar customer in China. These advanced and growing markets include LED,
medical, biopharm, environmental, thin films, solar and other markets and we anticipate that these
markets will continue to grow and will represent a larger portion of our revenue.
17
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.
For the three months ended March 31, 2011 and the year ended December 31, 2010, international net
sales accounted for approximately 52% and 43% of our net sales, respectively. A significant
portion of our international net sales were in Japan and China. We expect that international net
sales will continue to represent a significant percentage of our total net sales.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America requires management
to make judgments, assumptions and estimates that affect the amounts reported. There have been no
material changes in our critical accounting policies since December 31, 2010. For further
information, please see the discussion of critical accounting policies in our Annual Report on Form
10-K for the year ended December 31, 2010 in the section captioned Managements Discussion and
Analysis of Financial Condition and Results of Operations Critical Accounting Policies and
Estimates.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of total net
revenues of certain line items included in MKS consolidated statements of operations data.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
Product |
|
|
89.5 |
% |
|
|
89.0 |
% |
Services |
|
|
10.5 |
|
|
|
11.0 |
|
|
|
|
Total net revenues |
|
|
100.0 |
|
|
|
100.0 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
Cost of product revenues |
|
|
48.0 |
|
|
|
49.0 |
|
Cost of service revenues |
|
|
6.1 |
|
|
|
6.5 |
|
|
|
|
Total cost of revenues |
|
|
54.1 |
|
|
|
55.5 |
|
|
|
|
Gross profit |
|
|
45.9 |
|
|
|
44.5 |
|
Research and development |
|
|
7.3 |
|
|
|
8.2 |
|
Selling, general and administrative |
|
|
14.1 |
|
|
|
14.5 |
|
Amortization of intangible assets |
|
|
0.1 |
|
|
|
0.2 |
|
Gain on sale of assets |
|
|
|
|
|
|
(0.4 |
) |
|
|
|
Income from operations |
|
|
24.4 |
|
|
|
22.0 |
|
Interest income, net |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
Income from continuing operations before income taxes |
|
|
24.5 |
|
|
|
22.2 |
|
Provision for income taxes |
|
|
8.1 |
|
|
|
7.1 |
|
|
|
|
Income from continuing operations |
|
|
16.4 |
|
|
|
15.1 |
|
Income from discontinued operations, net of taxes |
|
|
|
|
|
|
0.1 |
|
|
|
|
Net income |
|
|
16.4 |
% |
|
|
15.2 |
% |
|
|
|
Net Revenues (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Change |
|
|
|
Net Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
207.5 |
|
|
$ |
171.1 |
|
|
|
21.3 |
% |
Service |
|
|
24.4 |
|
|
|
21.1 |
|
|
|
15.7 |
|
|
|
|
Total net revenues |
|
$ |
231.9 |
|
|
$ |
192.2 |
|
|
|
20.7 |
% |
|
|
|
Product revenues increased $36.4 million during the three months ended March 31, 2011,
compared to the same period for the prior year. We have seen a continued recovery in the global
economy since late 2009 which has contributed to an increase in demand for our products in many of
the markets we serve. Our increase in overall product revenues is primarily due to the increase in
our net revenues sold to other advanced markets, which exclude semiconductor capital equipment and
semiconductor device product applications. The product revenues to these customers increased by
$22.0 million or 33.5% compared to the same period for the prior year. The product revenues related
to our semiconductor capital equipment manufacturer and semiconductor device manufacturer customers
increased by $14.3 million or 13.6% during the three months ended March 31, 2011, compared to the
same period for the prior year. The increase in demand in our other markets included the LED,
biopharm, environmental, thin films, solar and other markets.
18
Service revenues consisted mainly of fees for services relating to the maintenance and repair
of our products, software maintenance, installation services and training. Service revenues
increased $3.3 million or 15.7% during the three months ended March 31, 2011, compared to the same
period for the prior year, as a result of the continued improvement in the global economy and an
increase in product sales.
Total international net revenues, including product and service, were $121.2 million for the
three months ended March 31, 2011, or 52.3% of net revenues compared to $79.4 million for the three
months ended March 31, 2010, or 41.3% of net revenues. The increases are due to a general increase
in worldwide demand from many of the markets we serve as a result of continued improvement in the
global economy. A significant portion of this increase was due to product revenues from a thin film
solar customer in China.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Points Change |
|
|
|
Gross profit as percentage of net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
46.4 |
% |
|
|
45.0 |
% |
|
|
1.4 |
% |
Service |
|
|
41.5 |
|
|
|
40.6 |
|
|
|
0.9 |
|
|
|
|
Total gross profit percentage |
|
|
45.9 |
% |
|
|
44.5 |
% |
|
|
1.4 |
% |
|
|
|
Gross profit on product revenues increased by 1.4 percentage points for the three months ended
March 31, 2011, compared to the same period for the prior year. The increase is due to an increase
of 2.8 percentage points due to favorable product mix, an increase in product revenue volumes which
accounted for 0.9 percentage points since a portion of our overhead costs are fixed and an increase
of 0.4 percentage points from favorable foreign exchange fluctuations. These increases were
partially offset by 2.1 percentage points due to higher overhead spending and 0.7 percentage points
related to higher excess and obsolete inventory related net charges. The higher overhead spending
is due to higher salary and fringe related costs for additional personnel due to the higher
business levels and an increase in incentive compensation.
Cost of service revenues consists primarily of costs of providing services for repair and
training which includes salaries and related expenses and other fixed costs. Service gross profit
increased by 0.9 percentage points for the three months ended March 31, 2011, compared to the same
period for the prior year. The increase is mainly a result of higher service revenues since a
portion of our overhead costs are fixed.
Research and Development (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Change |
|
|
|
Research and development expenses |
|
$ |
16.9 |
|
|
$ |
15.7 |
|
|
|
7.8 |
% |
Research and development expense increased $1.2 million during the three months ended March
31, 2011, compared to the same period for the prior year. The increase includes a $1.3 million
increase in compensation expense and a $0.4 million increase in patent and other legal related
costs offset by a $0.5 million decrease in spending on project materials. The increase in
compensation expense is due to higher salary costs for additional personnel and an increase in
stock-based compensation costs. In addition, compensation costs increased as fringe related costs
were higher as a result of increased taxes related to an incentive compensation payment and the
restoration in the second quarter of 2010 of the employer match portion of the 401(k)
profit-sharing plan and employee stock purchase plans.
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, 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
19
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 revenues may be reduced during the lifespan of those
products.
Selling, General and Administrative (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Change |
|
|
|
Selling, general and administrative expenses |
|
$ |
32.7 |
|
|
$ |
27.8 |
|
|
|
17.6 |
% |
Selling, general and administrative expenses increased $4.9 million for the three months ended
March 31, 2011, compared to the same period for the prior year. The increase includes a $2.4
million increase in compensation expense, a $2.0 million increase in consulting and professional
fees, a $0.3 million increase in travel related expenses and a $0.2 million increase in the
provision for uncollectable accounts offset by a $0.3 million decrease in depreciation expense. The
increase in compensation expense is due to higher salary costs for additional personnel and an
increase in stock-based compensation costs. In addition, fringe related costs increased as a result
of increased taxes related to an incentive compensation payment and the restoration in the second
quarter of 2010 of the employer match portion of the 401(k) profit-sharing plan and employee stock
purchase plans.
Amortization of Intangible Assets (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Change |
|
|
|
Amortization of intangible assets |
|
$0.3 |
|
$ |
0.5 |
|
|
|
(46.7 |
)% |
Amortization expense for the three months ended March 31, 2011 decreased $0.2 million,
compared to the same period for the prior year, as certain intangible assets became fully amortized
during 2010.
Gain on Sale of Assets (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Change |
|
|
|
Gain on sale of assets
|
|
$
|
|
$ |
0.7 |
|
|
|
(100.0 |
)% |
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 these sales.
Interest Income, Net (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
% Change |
|
|
|
Interest income, net |
|
$ |
0.3 |
|
|
$ |
0.3 |
|
|
|
(16.6 |
)% |
Interest income, net decreased modestly in the three months ended March 31, 2011 compared to
the same period for the prior year, mainly related to lower interest rates compared to the same
period for the prior year.
Provision for Income Taxes (dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Provision for income taxes |
|
$ |
18.7 |
|
|
$ |
13.5 |
|
Our effective tax rate
for the three months ended March 31, 2011 and 2010 was 33.0% and
31.8%,
respectively. The first quarter 2011 and 2010 effective tax rates and the related income tax
provisions were 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 rate.
At March 31, 2011, our total amount of gross unrecognized tax benefits, which excludes
interest and penalties, was approximately $16.0 million. At December 31, 2010, our total amount of
gross unrecognized tax benefits, which excludes interest and penalties, was approximately $15.3
million. The net increase from December 31, 2010 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,
20
penalties for any uncertain tax positions. Interest and penalties are
classified as a component of income tax expense. At March 31, 2011 and December 31, 2010, we had
accrued interest on unrecognized tax benefits of approximately $1.1 million and $1.0 million,
respectively.
We and our subsidiaries are subject to examination by federal, state and foreign tax
authorities. The statute of limitations for our tax filings varies by tax jurisdiction between
fiscal years 2001 through present.
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 or benefits 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
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2011 |
|
2010 |
|
|
|
Income from discontinued operations, net of taxes
|
|
$
|
|
$ |
0.2 |
|
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 gain on the combined sales.
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 2010. The assets and liabilities of these discontinued product lines
have not been reclassified or segregated in the consolidated statements of cash flows due to their
immaterial amounts.
Liquidity and Capital Resources
Cash,
cash equivalents, long-term and short-term investments totaled $480.4 million at March 31, 2011
compared to $431.9 million at December 31, 2010. This increase was mainly attributable to our net
cash provided by operating activities as a result of our net income, net proceeds related to
employee stock awards, partially offset by a dividend payment to our common shareholders and
capital expenditures.
Net cash provided by operating activities of $26.8 million for the three months ended March
31, 2011, resulted mainly from net income of $38.0 million and non-cash charges of $9.3 million,
partially offset by an $18.3 million change in working capital and a $5.0 million increase in
excess tax benefits from stock-based compensation. The increase in working capital consisted
primarily of a $16.8 million increase in trade accounts receivable and a $6.0 million increase in
inventory as a result of our increased business levels, partially offset by a $12.2 million
increase in income taxes payable as a result of our higher operating income.
Net cash provided by operating activities of $16.7 million for the three months ended March
31, 2010, resulted mainly from net income of $29.2 million and non-cash charges of $7.9 million,
partially offset by a $20.0 million change in working capital. The decrease in working capital
consisted primarily of a $40.9 million increase in trade accounts receivable and an increase of
$10.9 million of inventory as a result of our increased business levels. The increase in net
operating assets was partially offset by an increase of $10.7 million in accounts payable related to
inventory purchases to support our increased business levels, an increase of $7.0 million in
accrued compensation and an increase of $10.6 million in income taxes payable.
Net cash provided by investing activities of $46.4 million for the three months ended March
31, 2011, resulted primarily from the net sales of $48.8 million of short-term and long-term
available-for-sale investments partially offset by $2.3 million in purchases of production related
equipment. Net cash provided by investing activities of $7.4 million for the three months ended
March 31, 2010, resulted from the net sales of $8.3 million of short-term available-for-sale
investments and proceeds of $2.1 million from the sale of two vacated facilities, partially offset
by $3.3 million in purchases of production-related equipment.
Net cash provided by financing activities was $21.5 million for the three months ended March
31, 2011 and consisted primarily of $27.8 million cash received from the exercise of previously
issued stock options and $5.0 million from excess tax benefits from stock-based compensation. These
increases were partially offset by $5.1 million in taxes paid upon the vesting of restricted stock
units and a $7.8 million dividend payment to common stockholders. Net cash used in financing
activities was $5.8 million for the three months ended March 31, 2010 and consisted primarily of
$3.3 million in net payments on short-term borrowings and $2.6 million related to stock-based
compensation.
21
Our Japanese subsidiary has lines of credit and short-term borrowing arrangements with two
financial institutions which provide for aggregate borrowings as of March 31, 2011 of up to an
equivalent of $30.2 million U.S. dollars, which generally expire and are renewed at three month
intervals. At March 31, 2011 total borrowings outstanding under these arrangements were $1.5
million at an interest rate of 1.475%. There were no borrowings outstanding at December 31, 2010.
On May 2, 2011, our Board of Directors authorized a quarterly cash dividend of $0.15 per
share, payable on June 17, 2011 to shareholders of record as of June 1, 2011.
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. Our cash payment
for the dividend on March 18, 2011 was $7.8 million. Future dividend declarations, 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 current cash position and available borrowings will be sufficient to
satisfy our estimated working capital and planned capital expenditure requirements through at least
the next 12 months and the foreseeable future.
Off-Balance Sheet Arrangements
We do not have any financial partnerships with unconsolidated entities, such as entities often
referred to as structured finance, special purpose entities or variable interest entities, which
are often established for the purpose of facilitating off-balance sheet arrangements or for other
contractually narrow or limited purposes. Accordingly, we have no off-balance sheet arrangements
that have or are reasonably expected to have a current or future effect on our financial condition,
results of operations, liquidity, capital expenditures or capital resources that are material to
investors.
Recently Issued Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (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. We adopted the new guidance in the first
quarter of 2011 and the adoption did not have a material impact on our financial position, results
of operations, or cash flows.
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 includes 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. We adopted the new guidance in the first quarter of 2011 and
the adoption did not have a material impact on our financial position, results of operations, or
cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information concerning market risk is contained in the section entitled Quantitative and
Qualitative Disclosures About Market Risk contained in our Annual Report on Form 10-K for the year
ended December 31, 2010 filed with the Securities and Exchange Commission on February 25, 2011. As
of March 31, 2011, there were no material changes in our exposure to market risk from December 31,
2010.
22
ITEM 4. 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 March 31,
2011. 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, 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 March 31, 2011, 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.
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 the quarter ended March 31, 2011 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. 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 1A. RISK FACTORS.
Information regarding risk factors affecting the Companys business are discussed in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010 in the section entitled
Risk Factors. There have been no material changes from the risks disclosed therein.
23
ITEM 6. EXHIBITS.
|
|
|
|
Exhibit No. |
|
Exhibit Description |
3.1(1) |
|
|
Restated Articles of Organization |
|
|
|
|
3.2(2) |
|
|
Articles of Amendment, as filed with the Secretary of State of Massachusetts on May 18, 2001 |
|
|
|
|
3.3(3) |
|
|
Articles of Amendment, as filed with the Secretary of State of Massachusetts on May 16, 2002 |
|
|
|
|
3.4(4) |
|
|
Amended and Restated By-Laws |
|
|
|
|
31.1 |
|
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended |
|
|
|
|
31.2 |
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended |
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
101 |
|
|
The following materials from MKS Instruments, Inc.s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2011, formatted in XBRL (Extensible Business Reporting Language): |
|
|
|
(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii)
the Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Consolidated
Financial Statements, tagged as blocks of text. |
|
|
|
(1) |
|
Incorporated by reference to the Registration Statement on Form S-4 (File No.
333-49738) filed with the Securities and Exchange Commission on November 13, 2000. |
|
(2) |
|
Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001. |
|
(3) |
|
Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002. |
|
(4) |
|
Incorporated by reference to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on January 28, 1999, as amended. |
SIGNATURE
Pursuant to the requirements 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.
|
|
May 6, 2011 |
By: |
/s/ Seth H. Bagshaw
|
|
|
|
Seth H. Bagshaw |
|
|
|
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer) |
|
|
24
exv31w1
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Leo Berlinghieri, certify that:
1. |
|
I have reviewed this Quarterly Report on Form 10-Q of MKS Instruments, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process, summarize
and report financial information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
|
|
|
|
|
|
|
|
Date: May 6, 2011 |
/s/ Leo Berlinghieri
|
|
|
Leo Berlinghieri |
|
|
Chief Executive Officer and President
(Principal Executive Officer) |
|
exv31w2
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Seth H. Bagshaw, certify that:
1. |
|
I have reviewed this Quarterly Report on Form 10-Q of MKS Instruments, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrants ability to record, process, summarize
and report financial information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
|
|
|
|
|
|
|
|
Date: May 6, 2011 |
/s/ Seth H. Bagshaw
|
|
|
Seth H. Bagshaw |
|
|
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer) |
|
exv32w1
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of MKS Instruments, Inc. (the Company)
for the period ended March 31, 2011, 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, Chief Financial Officer and
Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on his knowledge:
|
(1) |
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
(2) |
|
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
Dated: May 6, 2011 |
/s/ Leo Berlinghieri
|
|
|
Leo Berlinghieri |
|
|
Chief Executive Officer and President |
|
|
|
|
|
Dated: May 6, 2011 |
/s/ Seth H. Bagshaw
|
|
|
Seth H. Bagshaw |
|
|
Vice President, Chief Financial Officer and Treasurer |
|
|