UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

(MARK ONE)

 For the fiscal year ended December 31, 20152017

or

 For the transition period from                     to                     

Commission File number0-23621

MKS INSTRUMENTS, INC.

(Exact Name of Registrant as Specified in Its Charter)

(978)645-5500

(Registrant’s Telephone Number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x☒        No  ¨☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨☐        No  x☒

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  x☒        No  ¨☐

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 RegulationS-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  x☒        No  ¨☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.    x☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with or any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).     Yes  ¨☐        No  x☒

Aggregate market value of the voting andnon-voting common equity held by nonaffiliates of the registrant as of June 30, 20152017 based on the closing price of the registrant’s common stock on such date as reported by the NASDAQ Global Select Market: $2,024,748,115.$3,638,472,244.

Number of shares outstanding of the issuer’s common stock, no par value, as of February 19, 2016: 53,242,65021, 2018: 54,487,946

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for MKS’ Annual Meeting of Stockholders to be held on May 2, 20169, 2018 are incorporated by reference into Part III of this Form10-K.

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. When used herein, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “may,” “see,” “will,” “would” and similar expressions are intended to identify forward-looking statements although not all forward lookingforward-looking statements contain these identifying words. These forward-looking statements reflect management’s current opinions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated or implied. MKS assumes no obligation to update this information. Risks and uncertainties include, but are not limited to, those discussed in the section entitled “Risk Factors” of this annual report on Form10-K.

PART I

MKS Instruments, Inc. (the(“MKS” or the “Company” or “MKS”) was founded in 1961 as a Massachusetts corporation. We are a global provider of instruments, subsystems and process control solutions that measure, control,monitor, deliver, analyze, power monitor and analyzecontrol critical parameters of advanced manufacturing processes to improve process performance and productivity. Our products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics,sub-micron positioning, vibration control, and optics. We also provide services relating to the maintenance and repair of our products, software maintenance, installation services and training.

Recent Events

In April 2017, we completed the sale of our Data Analytics Solutions business for total proceeds of $72.5 million, net of cash sold and recorded apre-tax gain of $74.9 million. This business, which had net revenues in 2016 of $12.7 million and was included in the Vacuum & Analysis segment, was no longer a part of our long-term strategic objectives. The business did not qualify as a discontinued operation as this sale did not represent a strategic shift in our business, nor did the sale have a major effect on our operations, therefore, the results of operations for all periods are included in our income from operations. The assets and liabilities of this business have not been reclassified or segregated in the consolidated balance sheet or consolidated statements of cash flows as the amounts were immaterial.

On April 29, 2016, we completed our acquisition of Newport Corporation (“Newport”) pursuant to an Agreement and Plan of Merger dated as of February 22, 2016 (the “Newport Merger”). At the effective time of the Newport Merger, each share of Newport’s common stock issued and outstanding as of immediately prior to the effective time of the Newport Merger was converted into the right to receive $23.00 in cash, without interest and subject to deduction for any required withholding tax. We grouppaid to the former Newport stockholders aggregate consideration of approximately $905 million, excluding related transaction fees and expenses, and repaid approximately $93 million of Newport’s U.S. indebtedness outstanding as of immediately prior to the effective time of the Newport Merger. We funded the payment of the aggregate consideration with a combination of our available cash on hand of approximately $240 million and the proceeds from the senior secured term loan facility in the principal amount of $780 million described below.

Newport was a global supplier of advanced-technology products into three groupsand systems to customers in the scientific research and defense/security, microelectronics, life and health sciences and industrial manufacturing markets.

Effective April 29, 2016, in conjunction with our acquisition of similar productsNewport, we changed the structure of our reportable segments based upon our organizational structure and how our Chief Operating Decision Maker

(“CODM”) utilizes information provided to allocate resources and make decisions. Our two reportable segments are the similarityVacuum & Analysis segment and the Light & Motion segment. The Vacuum & Analysis segment represents the legacy MKS business and the Light & Motion segment represents the legacy Newport business.

The Vacuum & Analysis segment provides a broad range of product function. These three groups of products are: Instruments, Controlinstruments, components and Vacuum Products; Power and Reactive Gas Products; and Analytical Solutions Products. Our productssubsystems which are derived from our core competencies in pressure measurement and control, materialsflow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and information technology,delivery, RF & DC power, and reactive gas generation and vacuum technology. OurThe Light & Motion segment provides a broad range of instruments, components and subsystems which are derived from our core competencies in lasers, photonics,sub-micron positioning, vibration control, and optics.

We group our products are used in diverse markets, applications and processes. Our primary served markets are manufacturers of capital equipment for semiconductor devices, and for other thin film applications, including flat panel displays, solar cells light emitting diodes (“LEDs”), data storage media, and other advanced coatings. We also leverage our technology in other markets with advanced manufacturing applications, including medical equipment, pharmaceutical manufacturing, energy generation and environmental monitoring.

Effective January 1, 2015, we changed the structure of our reportable segmentsinto six product groups based upon how the information is provided to our Chief Operating Decision Maker. Our four reportable segments prior to the change in structure were: Advanced Manufacturing Capital Equipment, Analytical Solutions Group, Europe Region Sales & Service and Asia Region Sales & Service. Our current structure still reflects four reportable segments, however, the compositionsimilarity of the segments has changed.

Our current reportable segmentsproduct function, type of product and manufacturing processes. These six groups are: Analytical and Controls Solutions Products; Power, Plasma and Reactive Gas Solutions Products; Vacuum Solutions Products; Photonics Products; Optics Products; and Laser Products. The Analytical and Controls Solutions Products, the Power, Plasma and Reactive Gas Solutions Products and the Vacuum Solutions Products are Advanced Manufacturing Capital Equipment, Global Service, Asia Region Sales and Other. The primary change to the segment structure was to separate worldwide service from product sales and create a separate reportable segment known as Global Service. Product salesincluded in the Advanced Manufacturing Capital Equipment segment remained with that segment. Asia product sales became a separate reportable segment. The product sales from the operating segments that made up the Analytical Solutions Group and Europe Region Sales were combined into the OtherVacuum & Analysis segment and the Photonics Products, Optics Products and Laser Products are not reported separately, as they are individually immaterial and collectively remain belowincluded in the separate segment guidelines. We report corporate expenses and certain intercompany pricing transactions in a Corporate and Eliminations reconciling column.Light & Motion segment.

The Advanced Manufacturing Capital Equipment segment includes the development, manufacture and sales of instruments, control and vacuum products; and power and reactive gas products, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes. Sales in this segment include both external sales and intercompany product sales, which are recorded at transfer prices in accordance with applicable tax requirements. The Global Service segment includes the worldwide servicing of instruments,

control and vacuum products, power and reactive gas products and certain other product groups, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes. The Asia Region Sales segment mainly includes sale of products that are re-sold from the Advanced Manufacturing Capital Equipment and Other segments into Asia regions. The Other segment includes operating segments that are not required to be reported separately as reportable segments and includes sales of products that are re-sold from the Advanced Manufacturing Capital Equipment into Europe regions as well as sales from other operating segments.

For further information on our segments, please see Note 2119 to the Notes to the Consolidated Financials contained in this Annual Report on Form10-K.

Since our inception, we have focused on satisfying the needs of our customers by establishing long-term, collaborative relationships. We have a diverse base of customers that includes manufacturers of semiconductor capital equipment and semiconductor devices; thin film equipment, process industries, environmental monitoring, life science and other advanced manufacturing companies, as well as university, government and industrial research laboratories.

We file reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). You may read and copy any document we file at the SEC Headquarters at the Office of Investor Education and Assistance,SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You should call1-800-SEC-0330 for more information on the public reference room. Our SEC filings are also available to you on the SEC’s internet site at http://www.sec.gov.

Our internet addresswebsite is http://www.mksinst.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form10-K. We make available free of charge through our internet site our annual reportsAnnual Reports on Form10-K, quarterly reports Quarterly Reports on Form10-Q, current reports Current Reports on Form8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.

Recent Events

On February 23, 2016, we announced that we had entered into a definitive agreement to acquire Newport Corporation (“Newport”), a worldwide leader in photonics solutions. Pursuant to the merger agreement, and subject to the terms and conditions contained therein, at the closing of the acquisition, we will acquire all of the outstanding shares of Newport for a purchase price of approximately $980 million in cash. The parties’ obligations to consummate the acquisition are subject to customary closing conditions, including required approvals for the transaction from governmental authorities and approval from Newport’s shareholders. Our obligations under the merger agreement are not subject to any financing condition.

Markets and Applications

We areSince our inception, we have focused on improving process performancesatisfying the needs of our customers by establishing long-term collaborative relationships. We have a diverse base of customers and productivity by measuring, controlling, powering, monitoringour primary served markets are manufacturers of capital equipment for semiconductor manufacturing, industrial technologies, life and analyzing advanced manufacturing processes in semiconductor, thin filmhealth sciences, as well as research and certain other advanced market sectors.defense. Approximately 69%57%, 70%56% and 68%69% of our net revenues for the years 2015, 20142017, 2016 and 2013,2015, respectively, were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers. As a result of our acquisition of Newport, we estimate that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers could account for more than 50% of our total sales in future periods.

Approximately 31%43%, 30%44% and 32%31% of our net revenues in the years 2015, 20142017, 2016 and 2013,2015, respectively, were from other advanced manufacturing applications. These include, but are not limited to, thin film processing equipment applications such as flat panel displays; LEDs, solar cells, data storage mediaindustrial technologies, life and other thin film coatings;health sciences, as well as medical equipment, pharmaceutical manufacturing, energy generationresearch and environmental monitoring processes; other industrial manufacturing; and university, government and industrial research laboratories.defense.

DuringA significant portion of our net revenues are from sales to customers in international markets. For the years 2015, 20142017, 2016 and 2013,2015, international net revenues accounted for approximately 44%50%, 43%48% and 46%44% of our total net revenues, respectively. NetA significant portion of our international net revenues from ourwere in South Korea, Japan, Israel

and Korea subsidiaries were 21%,

20% and 20%Germany. We expect that international net revenues will continue to represent a significant percentage of our total net revenues for the years 2015, 2014 and 2013, respectively.revenues. Long-lived assets, excluding long-term tax-related accounts located in the U.S.,United States, were $56.6$125 million, $57.7$123 million and $60.7$57 million as of December 31, 2017, 2016 and 2015, 2014respectively, excluding goodwill and 2013, respectively.intangibles and long-termtax-related accounts. Long-lived assets, excluding long-term tax-related accounts located outside of the U.S.,United States, were $14.7$78 million, $17.0$78 million, and $19.0$15 million as of December 31, 2017, 2016 and 2015, 2014respectively, excluding goodwill and 2013, respectively.intangibles and long-termtax-related accounts.

Semiconductor Manufacturing Applications

The majorityA significant portion of our sales are derived from products sold to semiconductor capital equipment manufacturers and semiconductor device manufacturers. Our products are used in the major semiconductor processing steps such as depositing thin films of material onto silicon wafer substrates, etching, cleaning, lithography, metrology and etching and cleaning circuit patterns. In addition, we provide specialized instruments and software to monitor and analyze process performance.inspection.

We anticipate that the semiconductor manufacturing market will continue to account for a substantial portion of our sales. While the semiconductor device manufacturing market is global, major semiconductor capital equipment manufacturers are concentrated in China, Japan, South Korea, Taiwan, and the United States.

Other Advanced Manufacturing ApplicationsMarkets

OurIn addition to semiconductor manufacturing, our products are used in the manufactureindustrial technologies, life and health sciences, as well as research and defense markets.

Industrial Technologies

Industrial Technologies encompasses a wide range of diverse applications such as glass coating, laser marking, measurement and scribing, natural gas and oil production, environmental monitoring and electronic thin films. Electronic thin films are a primary component of numerous electronic products including flat panel displays, LEDs, data storage media,light emitting diodes, solar cells and other coating applications, including architectural glass, that requiredata storage media.

Industrial Technologies manufacturers are located in developed and developing countries across the same or similar thin film processes as semiconductor manufacturing.globe.

Flat Panel Display Manufacturing

Flat panel displays are used in electronic hand-held devices, laptop computers, desktop computer monitorsLife and television sets. We sell products to flat panel display equipment manufacturers and to end-users in the flat panel display market. Major manufacturers of flat panel displays are concentrated in China, Japan, Korea and Taiwan, and major manufacturers of flat panel display equipment are concentrated in China, Japan, Korea and the United States. The transition to larger panel sizes and higher display resolution is driving the need for improved process control to reduce defects.

Light Emitting Diodes

LEDs are made using vacuum processes similar to semiconductor chip manufacturing. Because of their high brightness and long life, as well as environmentally friendly benefits such as lower power consumption, LEDs have experienced rapid acceptance in back side lighting of flat screen television displays and in general lighting applications.

Solar CellsHealth Sciences

Our products for Life and Health Sciences are used in crystalline silicon and thin film processes to manufacture photovoltaic cells. Crystalline silicon technology requires wafer based deposition systems and is currently the dominant manufacturing technology in the solar panel industry.

Data Storage Media

Our products are used to manufacture storage media that store and read data magnetically; optical storage media that store and read data using laser technology; hard disks; data storage devices; and digital video discs.

The transition to higher density storage capacity requires manufacturing processes incorporating tighter process controls. Major manufacturersa diverse array of storage media are concentrated in Japan and the Asia Pacific region, and major manufacturers of storage media capital equipment are concentrated in Europe, Korea and the United States.

Other Advanced Coatings

Thin film coatings for diverse applications such as architectural glass and packaging are deposited using processes similar to those used in semiconductor manufacturing. Thin film processing manufacturers are concentrated in Europe, Korea and the United States.

Other Advanced Applications

Our products are used in other advanced applications including energy generation and environmental monitoring processes such as nuclear fuel processing, fuel cell research, greenhouse gas monitoring, and chemical agent detection;bioimaging, medical instrument sterilization;sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical applications.production. Our power delivery productsLife and Health Sciences customers are also incorporated into other end-market products such as medical imaging equipment. located globally.

Research and Defense

In addition, our products are sold to government, university and industrial laboratories for vacuum applications involving research and development in materials science, physical chemistry, photonics, optics and electronics materials. Our products are also sold for monitoring and defense applications including surveillance, imaging and infrastructure protection. Major equipment and process providers and research laboratories are concentrated in China, Europe, Japan, South Korea, Taiwan and the United States.

Product Groups

We group our products into three product groups, based upon the similarity of the product function, type of productVacuum & Analysis Segment

The Vacuum & Analysis segment includes Analytical and manufacturing processes. These three groups of products are: Instruments, Control Solutions Products; Vacuum Solutions Products; and Vacuum Products; Power, Plasma and Reactive Gas Products; and Analytical Solutions Products.

Instruments,Analytical and Control Solutions.    Our Analytical and VacuumControl Solutions Products

This group of products includes pressure and vacuum measurement solutions, materials delivery products, include gas analyzers, automation and control products, I/O modules, automation software, and vacuum products.precision machined components and electromechanical assemblies.

Pressure andVacuum Solutions.    Our Vacuum Solutions Products consist of two primary product offerings: Vacuum Measurement Solutions.    Each of our pressure measurement Products and control product lines consists of products that are designed for a variety of pressure ranges and accuracies.

Baratron^®Pressure Measurement Products.    These products are typically used to measure the pressure of the gases being distributed upstream of the process chambers, process chamber pressures and pressures between process chambers, vacuum pumps and exhaust lines. We believe we offer the widest range of gas pressure measurement instruments in the semiconductor and advanced thin film materials processing industries.

Automatic Pressure and Vacuum Control Products.    These products enable precise control of process pressure by electronically actuating valves that control the flow of gases in and out of the process chamber to minimize the difference between desired and actual pressure in the chamber.

In most cases, Baratron^®pressure measurement instruments provide the pressure input to the automatic pressure control device. Together, these components create an integrated automatic pressure control subsystem. Our pressure control products can also accept inputs from other measurement instruments, enabling the automatic control of gas input or exhaust based on parameters other than pressure.

Vacuum Gauging Products.    We offer a wide range of vacuum instruments consisting of vacuum measurement sensors and associated power supply and readout units as well as transducers where the sensor and electronics are integrated within a single package. These gauges complement our Baratron^®capacitance manometers for medium and high vacuum ranges.

Granville-Phillips^® Gauges.    Our indirect gauges use thermal conductivity and ionization gauge technologies to measure pressure and vacuum levels, and our direct gauges use the pressure measurement technology of a Micro-electromechanical systems (MEMS)-based piezo sensor.

Materials Delivery Products.    Each of our materials delivery product lines combines MKS flow, pressure measurement and control technologies to provide customers with integrated subsystems and precise control capabilities that are optimized for a given application.Solutions Products.

Flow Measurement and Control Products.    Flow measurement products include gas flow measurement products based upon thermal conductivity and pressure technologies. The flow control products combine the flow measurement device with valve control elements based upon solenoid, piezo-electric and piston pump technologies. These products measure and automatically control the mass flow rate of gases into the process chamber.

Valve Products.    Our vacuum valves are used for vacuum isolation of vacuum lines, load locks, vacuum chambers and pumps for chamber isolation and vacuum containment. The MKS family of vacuum isolation valves include bellows and ball valves, manual, pneumatic and electro-pneumatic actuated valves in heated or unheated angle and inline configurations, safety shut off valves and soft start valves. Our pressure control valve line includes butterfly, vane and poppet throttle valves with integrated control subsystems.

•

Pressure and Vacuum Measurement Solutions Products.    Our Pressure and Vacuum Measurement Solutions Products consist of direct and indirect pressure measurement and integrated process solutions. Each of our pressure measurement and vacuum product lines consist of products that are designed for a variety of pressure ranges and accuracies.

Automation and Control Products.    We design and manufacture a suite of products that allow semiconductor and other manufacturing customers to better control their processes through computer-controlled automation. These products include automation platforms, programmable automation controllers, temperature controllers, software solutions for automation, I/O and distributed programmable I/O, gateways and connectivity products.

Automation and control products are used to connect sensors, actuators and subsystems to the chamber and system control computers. They support a variety of industry-standard connection methods as well as conventional discrete digital and analog signals. Chamber and system control computers process these signals in real time and allow customers to precisely manage the process conditions.

Connecting sensors, chambers and tools to the factory network is essential for improving quality and productivity. Our connectivity products allow information to flow from the process sensors and subsystems and from the process tool control computer to the factory network. By enabling this information flow, we believe that we help customers optimize their processes through advanced process control, and diagnose equipment problems from a remote location, which is referred to as “e-diagnostics.”

Vacuum Products.    This group of products consists of vacuum technology products, including vacuum containment components, effluent management subsystems and custom stainless steel chambers, vessels and pharmaceutical process equipment hardware and housings.

Stainless Steel Components, Process Solutions and Custom Stainless Steel Hardware.    Our vacuum process solutions consist of vacuum fittings, traps and heated lines that are used downstream from the process chamber to control process effluent gases by preventing condensable materials from depositing particles near or back into the process chamber.

Custom Vacuum Solutions.    Our design and manufacturing facilities build high purity chambers for material and thin film coating processes. We design and build custom panels, weldments, American Society of Manufacturing Engineers vessels and housings, as well as a line of Bioprocessing Equipment Standard certified components for biopharmaceutical processes.

Power, Plasma and Reactive Gas Solutions.    Our Power, Plasma and Reactive Gas Solutions Products

This group of products includes include power delivery, plasma and reactive gas generation products used in semiconductor and other thin film applications and in medical imaging equipment applications.

Light and Motion Segment

The Light and Motion segment includes Laser Products; Photonics Products; and Optics Products.

Lasers.    Our Laser Products include lasers and laser-based systems including ultrafast lasers and amplifiers, fiber lasers, diode-pumped solid-state lasers, high-energy pulsed lasers and tunable lasers. In addition to providing a wide range of standard and configured laser products and accessories to ourend-user customers, we also work closely with our original equipment manufacturer (“OEM”) customers to develop lasers and laser system designs optimized for their product and technology roadmaps.

Photonics.    Our Photonics Products include optical components, vibration, lens assemblies and isolation solutions as well as three-dimensionalnon-contact measurement sensors and equipment. We also design, develop and manufacture subsystems and subassemblies that integrate our broad portfolio of products and technologies into solutions that meet the specific application requirements of our OEM and selectend-user customers. Our Photonics Products also includes our instruments and motion products which includes high-precision motion stages and controls, hexapods, photonics instruments for measurement and analysis, and production equipment for test measurement customers.

Optics.    Our Optics Products include precision optics, thin-film filters and coatings, replicated mirrors and ruled and holographic diffraction gratings.

Customers

We sell our products to thousands of customers worldwide, in a wide range of end markets. Our largest customers include leading semiconductor capital equipment manufacturers such as Applied Materials, Inc. and Lam Research Corporation. Revenues from our top ten customers accounted for approximately 43%, 39% and 49% of net revenues for the years 2017, 2016 and 2015, respectively. Applied Materials, Inc. accounted for 13%, 14% and 18% and Lam Research Corporation accounted for 12%, 11% and 13% of our net revenues for the years 2017, 2016 and 2015, respectively.

Sales, Marketing, Service and Support

Our worldwide sales, marketing, service and support organization is critical to our strategy of maintaining close relationships with semiconductor capital equipment and device manufacturers and manufacturers of other advanced applications. We market and sell our products and services through our global direct sales organization, an international network of independent distributors and sales representatives, our websites and product catalogs. As of December 31, 2017, we had 443 sales employees worldwide, located in China, Germany, France, Israel, Italy, Japan, South Korea, the Netherlands, Singapore, Sweden, Taiwan, the United Kingdom and the United States. We maintain a marketing staff that identifies customer requirements, assists in product planning and specifications, and focuses on future trends in semiconductor and other markets.

As semiconductor device manufacturers have become increasingly sensitive to the significant costs of system downtime, they have required that suppliers offer comprehensive local repair, field service and customer support. Manufacturers require close support to enable them to repair, modify, upgrade and retrofit their equipment to improve yields and adapt new materials or processes. To meet these market requirements, we provide technical support from offices located in China, Germany, Japan, South Korea, Singapore, Taiwan, the United Kingdom and the United States. We provide repair and calibration services at internal service depots and authorized service providers located worldwide. We typically provide warranties for periods ranging from one to three years, depending upon the type of product, with the majority of our products ranging from one to two years. We typically provide warranty on our repair services for periods ranging from 90 days to up to one year, depending upon the type of repair.

Research and Development

Our products incorporate sophisticated technologies to measure, monitor, deliver, analyze, power and control complex semiconductor and other advanced manufacturing processes, thereby enhancing uptime, yield and throughput for our customers. Our products have continuously advanced as we strive to meet our customers’ evolving needs. We have developed, and continue to develop, new products to address industry trends, such as the shrinking of integrated circuit critical dimensions and technology inflections, and, in the flat panel display and solar markets, the transition to larger substrate sizes, which require more advanced process control technology. In addition, we have developed, and continue to develop, products that support the migration to new classes of materials, ultra-thin layers, and new structures such as copper for low resistance conductors,

high-k dielectric materials for capacitors and gates and low-k dielectric materials for low loss insulators and 3D structures that are used in small geometry manufacturing. We involve our marketing, engineering, manufacturing and sales personnel in the development of new products in order to reduce the time to market for new products. Our employees also work closely with our customers’ development personnel, helping us to identify and define future technical needs on which to focus research and development efforts. We support research at academic institutions targeted at advances in materials science and semiconductor process development.

As of December 31, 2015, we had 363 research and development employees, primarily located in the United States. Our research and development expenses were $68.3 million, $62.9 million and $63.6 million for the years 2015, 2014 and 2013, respectively. Our research and development efforts include numerous projects, none of which are individually material, and generally have a duration of 3 to 30 months depending upon whether the product is an enhancement of existing technology or a new product. Our current initiatives include projects to enhance the performance characteristics of older products, to develop new products and to integrate various technologies into subsystems.

Manufacturing

Our manufacturing facilities are located in the China, Germany, Israel, Italy, Korea, Mexico, the United Kingdom and the United States. Manufacturing activities include the assembly and testing of components and subassemblies, which are integrated into our products. We outsource some of our subassembly work. We purchase a wide range of electronic, mechanical and electrical components, some of which are designed to our specifications. We consider our lean manufacturing techniques and responsiveness to customers’ significantly fluctuating product demands to be a competitive advantage. As of December 31, 2015, we had 1,324 manufacturing related employees, located mostly in China and the United States.

Competition

The market for our products is highly competitive. Principal competitive factors include:

Although we believe that we compete favorably with respect to these factors, there can be no assurance that we will continue to do so.

We encounter substantial competition in most of our product lines, although no single competitor competes with us across all product lines. Certain of our competitors may have greater financial and other resources than we do. In some cases, competitors are smaller than we are, but are well established in specific product niches. Hitachi Ltd. and Horiba Ltd. offer materials delivery products that compete with our product line of mass flow controllers. Nor-Cal Products, Inc. and VAT, Inc. offer products that compete with our vacuum components. Inficon, Inc. offers products that compete with our vacuum measurement and gas analysis products and our vacuum gauging products. Our employees also work closely with our customers’ development personnel, helping us to identify and define future technical needs on which to focus research and development efforts. We support research at academic institutions targeted at advances in materials science and semiconductor process development.

As of December 31, 2017, we had 667 research and development employees, primarily located in the United States, France and Israel. Our research and development expenses were $132.6 million, $110.6 million and $68.3 million for the years 2017, 2016 and 2015, respectively. Our research and development efforts include numerous projects, none of which are individually material, and generally have a duration of 3 to 30 months depending upon whether the product is an enhancement of existing technology or a new product. Our current initiatives include projects to enhance the performance characteristics of older products, to develop new products and to integrate various technologies into subsystems.

Manufacturing

Our manufacturing facilities are located in Austria, China, France, Germany, Israel, Italy, South Korea, Mexico, Romania, the United Kingdom and the United States. Manufacturing activities include the assembly and testing of components and subassemblies, which are integrated into our products. We outsource some of our subassembly work. We purchase a wide range of electronic, optical, mechanical and electrical components, some of which are designed to our specifications. We consider our lean manufacturing techniques and responsiveness to customers’ significantly fluctuating product demands to be a competitive advantage. As of December 31, 2017, we had 3,156 manufacturing-related employees, located primarily in North America (United States) and Asia (primarily, China and Israel).

Backlog

At December 31, 2017, our backlog of unfilled orders for all products and services was $464 million, compared to $338 million at December 31, 2016. The increase in backlog of $126 million in 2017 compared to 2016 is primarily attributed to an increase in business levels throughout the company. As of December 31, 2017, approximately $451 million of our consolidated backlog was scheduled to be shipped on or before December 31, 2018. In general, we schedule production of our products based upon our customers’ delivery requirements. Our lead times are very short, as a large portion of our orders are received and shipped within 90 days. While backlog is calculated on the basis of firm orders, orders may be subject to cancellation or delay, in many cases, by the customer with limited or no penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers and changes in our manufacturing capacity.

Competition

The market for our products is highly competitive. Principal competitive factors include:

Although we believe that we compete favorably with respect to these factors, there can be no assurance that we will continue to do so.

We encounter substantial competition in most of our product lines, although no single competitor competes with us across all product lines. Certain of our competitors may have greater financial and other resources than we do. In some cases, competitors are smaller than we are, but are well established in specific product niches.

For example, Advanced Energy Industries, Inc. offers products that compete with our power delivery and reactive gas generator products. Hitachi Ltd. and Horiba Ltd. products compete with our product line of mass flow controllers. Inficon, Inc. offers products that compete with our vacuum measurement and gas analysis products and our vacuum gauging products.Nor-Cal Products, Inc. and VAT, Inc. offer products that compete with our vacuum components.

Ametek, Inc. offers products that compete with our optics and photonics products. Coherent, Inc. offers products that compete with our lasers and photonics instruments. Excelitas Technologies Corp. offers products that compete with our laser and optics products. IDEX Corporation offers products that compete with our lasers, optics, and photonics subsystems. IPG Photonics, Inc. offers products that compete with our laser products.

Jenoptik AG offers products that compete with our laser, optics, and photonics products. PI miCos GmbH offers products that compete with our photonics products. Thorlabs, Inc. offers products that compete with our optics, lasers and photonics products. Trumpf Group offers products that compete with our laser products.

Patents and Other Intellectual Property Rights

We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights. As of December 31, 2015,2017, we owned 376517 U.S. patents and 696

1,041 foreign patents that expire at various dates through 2035.2037. As of December 31, 2015,2017, we had 7797 pending U.S. patent applications. Foreign counterparts of certain U.S. applications have been filed or may be filed at the appropriate time.

We require each of our employees, including our executive officers, to enter into standard agreements pursuant to which the employee agrees to keep confidential all of our proprietary information and to assign to us all inventions while they are employed by us.

Employees

As of December 31, 2015,2017, we employed 2,1814,923 persons. We believe that our ongoing success depends upon our continued ability to attract and retain highly skilled employees for whom competition is intense. Noneemployees. Outside of the United States, there are certain countries where our employees isare represented by a labor unionworks counsel or trade unions, as is party to a collective bargaining agreement.common practice or required by law. We believe that our employee relations are good.

Other Acquisitions

On March 17, 2015, we acquired Precisive, LLC (“Precisive”) for $12.1 million, net of cash acquired of $0.4 million. Precisive is an innovative developer of optical analyzers based on Tunable Filter Spectroscopy, which provide real-time gas analysis in the natural gas and hydrocarbon processing industries, including refineries, hydrocarbon processing plants,gas-to-power machines, biogas processes and fuel gas transportation and metering, while delivering customers a lower total cost of ownership.

On May 30, 2014, we acquired Granville-Phillips (“GP”), a division of Brooks Automation, Inc., for $87 million. GP is a leading global provider of vacuum measurement and control instruments to the semiconductor, thin film and general industrial markets.

On March 12, 2013, we acquired Alter S.r.l. (“Alter”) located in Reggio Emilia, Italy. Alter develops advanced microwave power generators, components and systems for industrial microwave heating, microwave plasma coating and semiconductor applications. The purchase price, net of cash acquired and after final debt and working capital post-closing adjustments, was $2.4 million.

The following factors could materially affect MKS’describes certain risks we face in our business. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. In assessing these risks, investors should be carefully consideredalso refer to the other information contained or incorporated by reference in evaluating our companythis report and our business, in addition to other information presented elsewhere in this report.filings with the Securities and Exchange Commission.

Our business depends substantially on capital spending in the semiconductor industry, which is characterized by periodic fluctuations that may cause a reduction in demand for our products.

Approximately 69%57%, 70%56% and 68%69% of our net revenues for the years 2015, 20142017, 2016 and 2013,2015, respectively, were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers, andmanufacturers. While our acquisition of Newport in April 2016 has reduced our concentration of customers in these markets, we expectanticipate that sales to such customers will continue to account for a substantial portion of our sales.net revenues. Our business depends upon the capital expenditures of semiconductor device manufacturers, which in turn depends upon the demand for semiconductors.

Historically,The semiconductor industry is characterized by rapid technological change, frequent product introductions, changing customer requirements and evolving industry standards. Because our customers face uncertainties with

regard to the growth and requirements of these markets, their products and components may not achieve, or continue to achieve, anticipated levels of market acceptance. If our customers are unable to deliver products that gain market acceptance, it is likely that these customers will not purchase our products or will purchase smaller quantities of our products. We often invest substantial resources in developing our products and subsystems in advance of significant sales of these products and subsystems to such customers. A failure on the part of our customers’ products to gain market acceptance, or a failure of the semiconductor market to sustain current sales levels or to grow would have a significant negative effect on our business, financial condition and results of operations.

The semiconductor industry has historically been highlycharacterized by cyclical variations in product supply and has experienced periodsdemand. The timing, severity and duration of overcapacity, resulting in significantly reduced demand for capital equipment, whichthese market cycles are difficult to predict, and we may result in lower gross margins duenot be able to reduced absorption of manufacturing overhead. In addition, many semiconductor manufacturers have operations and customers in Asia, a region that in past years has experienced serious economic problems including currency devaluations, debt defaults, lack of liquidity and recessions.

respond effectively to these cycles. The cyclicality of the semiconductor market is demonstrated by the changes in sales to semiconductor capital equipment and device manufacturers in past years. For example, our sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers increased compared to the prior year by 3%52%, 19%29% and 14%3% in 2017, 2016 and 2015, 2014respectively. The 52% increase in 2017, compared to 2016, was mainly attributable to an increase in volume from our semiconductor customers and 2013, respectively. We cannot be certainfrom the full year effect of net sales from Newport, which we acquired in April 2016. The 29% increase in 2016 was mainly attributable to net sales by Newport following our acquisition of Newport. On a pro forma basis, assuming the acquisition of Newport had occurred on January 1, 2016, our 2017 increase would have been 45%.

During semiconductor market downturns, periods of overcapacity have resulted in rapid and significantly reduced demand for our products, which may result in lower gross margins due to reduced absorption of manufacturing overhead, as our ability to rapidly and effectively reduce our cost structure in response to such downturns is limited by the fixed nature of many of our expenses in the near term. Further, our ability to reduce our long-term expenses is constrained by our need to continue our investment in next-generation product technology and to support and service our products. In addition, due to the relatively long manufacturing lead times for some of the timingproducts and subsystems we sell to this market, we may incur expenditures or magnitude of future semiconductor industrypurchase raw materials or components for products we are unable to sell. Accordingly, downturns or recoveries. A decline in the level of orders as a result of any downturn or slowdown in the semiconductor capital equipment industry could have a material adverse effect onmarket may materially harm our business, financial condition and resultsoperating results. Conversely, when upturns in this market occur, we may have difficulty rapidly and effectively increasing our manufacturing capacity to meet sudden increases in customer demand. If we fail to do so, we may lose business to our competitors and our relationships with our customers may be harmed. In addition, many semiconductor manufacturers have operations and customers in Asia, a region that in past years has experienced serious economic problems including currency devaluations, debt defaults, lack of operations.liquidity and recessions.

Our quarterly operating results have fluctuated, and are likely to continue to vary significantly, which may result in volatility in the market price of our common stock.

A substantial portion of our shipments occurs shortly after an order is received, and therefore we generally operate with a relatively low level of backlog. As a result, a decrease in demand for our products from one or more customers could occur with limited advance notice and could have a material adverse effect on our results of operations in any particular period. Further, with respect to certain of our business lines, we often recognize a significant portion of net revenues in the last month of each fiscal quarter, due in part to the tendency of some customers to wait until late in a quarter to commit to purchase certain of our products as a result of capital expenditure approvals and constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor seeking the business. Thus, variations in timing of sales can cause significant fluctuations in our quarterly sales, gross margin and profitability. Orders expected to ship in one period could shift to another period due to changes in the timing of our customers’ purchase decisions, rescheduled delivery dates requested by our customers, manufacturing capacity constraints or logistics delays. Our operating results for a particular quarter or year may be adversely affected if our customers, particularly our largest customers, cancel or reschedule orders, or if we cannot fill orders in time due to capacity constraints or unexpected delays in

manufacturing, testing, shipping or product acceptance. Also, we base our manufacturing plans on our forecasted product mix. If the actual product mix varies significantly from our forecast, we may not be able to fill some orders, which would result in delays in the shipment of our products and could shift sales to a subsequent period. A significant percentage of our expenses are fixed and based in part on expectations of future net revenues. The inability to adjust spending quickly enough to compensate for any shortfall would magnify the adverse impact of a shortfall in net revenues on our results of operations. Factors that could cause fluctuations in our net revenuesfinancial results include:

In addition,

As a result of the factors discussed above, it is likely that we may in the future experience quarterly or annual fluctuations, and that, in one or more future quarters, our operating results may fall below the expectations of public market analysts or investors. In any such event, the price of our common stock could fluctuate or decline significantly. Consequently, we believe thatquarter-to-quarter andyear-to-year comparisons of our results of operations, or any other similarperiod-to-period comparisons, may not be reliable indicators of our future performance.

The loss of net revenues from any one of our major customers would likely have a material adverse effect on us.

Our top ten customers accounted for approximately 49%43%, 50%39% and 46%49% of our net revenues for the years 2015, 20142017, 2016 and 2013,2015, respectively. One customer, Applied Materials, Inc., accounted for approximately 18%13%, 19%14% and 17%18% of our net revenues for the years 2015, 20142017, 2016 and 2013,2015, respectively, and another customer, Lam Research Corporation, accounted for 13%12%, 13%11% and 12%13% of our net revenues for the years 2017, 2016 and 2015, 2014 and 2013, respectively. TheIn any one reporting period, a single customer or several customers may contribute even a larger percentage of our consolidated revenues. Although our acquisition of Newport has reduced our customer concentration somewhat, the loss of a major customer or any reduction in orders by these customers, including reductions due to market or competitive conditions, would likely have a material adverse effect on our business, financial condition and results of operations. None of our significant customers has entered into an agreement with us requiring it to purchase any minimum quantity of our products. The demand forBecause our products from ourlargest customers are semiconductor capital equipment customers depends onmanufacturers, we are particularly susceptible to the cyclicality of our served markets, specificallythe semiconductor device manufacturer customers.market.

Attempts to lessen the adverse effect of any loss or reduction of net revenues through the rapid addition of new customers could be difficult because a relatively small number of companies dominate the semiconductor equipment market. Further, prospective customers typically require lengthy qualification periods prior to placing volume orders with a new supplier. Our future success will continue to depend upon:

As part of our business strategy, we have entered into and may enter into or seek to enter into business combinations and acquisitions that may be difficult to identify and complete, challenging and costly to integrate, may be disruptive to our business may diluteand our management, and/or dilutive to stockholder value or may divert management attention.value.

WeSince our inception, we have made acquisitions and, as a part of our business strategy, we may enter into additional business combinations and acquisitions. Acquisitions are typically accompanied by aOur most recent acquisition of Newport in April 2016 significantly increased our size, including with respect to revenue, product offerings, number of risks,employees and facilities. Our ability to successfully identify suitable acquisition targets, complete acquisitions on acceptable terms, and efficiently and effectively integrate our acquired businesses, including our most significant and most recent acquisition to date, Newport, into our organization is critical to our growth. We may not be able to identify target companies that meet our strategic objectives or successfully negotiate and complete acquisitions with companies we have identified on acceptable terms. Further, we may incur significant expense in pursuing acquisitions that cannot be completed due to regulatory or other restrictions. Additionally, our credit facilities only permit us to make acquisitions under certain circumstances, and also restrict our ability to incur additional indebtedness in certain circumstances. Further, the process of integrating acquired companies into our operations

requires significant resources and is time consuming, expensive and disruptive to our business. We may not realize the benefits we anticipate from these acquisitions because of the following significant challenges:

We may also be placed at a competitive disadvantage by selling products in markets and geographies that are new to us. In addition, if we are not successful in completing acquisitions that we may pursue in the future, we may be required tore-evaluate our growth strategy, and we may incur substantial expenses and devote significant management time and resources in seeking to complete proposed acquisitions that may not generate benefits for us.

In addition, with future acquisitions, we could use substantial portions of our available cash as all or a portion of the purchase price. We could also issue additional securities as consideration for these acquisitions, which could cause significant stockholder dilution, or obtain additional debt financing, which could reduce our future cash flow, without achieving the desired accretion to our business. Further, our prior acquisitions and any future acquisitions may not ultimately help us achieve our strategic goals and may pose other risks to us.

As a result of our previous acquisitions, we have several different decentralized operating and accounting systems. We will need to continue to modify our accounting policies, internal controls, procedures and compliance programs to provide consistency across all of our operations. In order to increase efficiency and operating effectiveness and improve corporate visibility into our decentralized operations, we are currently implementing atwo worldwide Enterprise Resource Planning (“ERP”) system.systems, one for our Vacuum & Analysis segment and one for our Light & Motion segment. We expect to continue to implement the ERP systemsystems in phases over the next few years. Any future implementations may risk potential disruption of our operations during the conversion periods and the implementations could require significantly more management time and higher implementation costs than currently estimated.

Risk related to the acquisition of Newport

On February 23, 2016, we announced that we had entered into a definitive agreement to acquire Newport, a worldwide leader in photonics solutions. Pursuant to the merger agreement, and subject to the terms and conditions contained therein, at the closing of the acquisition, we will acquire all of the outstanding shares of Newport for a purchase price of approximately $980 million in cash. The parties’ obligations to consummate the transaction are subject to customary closing conditions, including required approvals for the transaction from governmental authorities and approval from Newport’s shareholders. The failure to satisfy all of the required conditions could delay the completion of the acquisition for a significant period of time or prevent it from occurring. Any delay in completing the acquisition could cause us to not realize some or all of the benefits that we expect to achieve if the acquisition is successfully completed within our expected timeframe. If we are unable to complete the proposed acquisition, we may have incurred substantial expenses and diverted significant management time and resources from our ongoing business. There can be no assurance that the conditions to the closing of the transaction will be satisfied or waived or that the transaction will be completed.

We are operating and, until the completion of the acquisition, will continue to operate, independently of Newport. It is possible that the pendency of the acquisition could result in the loss of key employees, higher than expected costs, diversion of management attention, the disruption of our ongoing businesses or inconsistencies in

standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the acquisition.

Our obligations under the merger agreement are not subject to any financing condition. In connection with the proposed acquisition, we entered into a debt commitment letter with Barclays Bank PLC, Deutsche Bank Securities Inc. and Deutsche Bank AG New York Branch (the “Commitment Parties”) to obtain credit facilities in the aggregate principal amount of up to $800 million to finance, in part, the acquisition and a $50 million asset-based revolving credit facility for working capital purposes, as needed. The obligations of the Commitment Parties under the commitment letter are subject to certain conditions. We can provide no assurance that the Commitment Parties will ultimately provide the financing as contemplated by the commitment letter or that the terms of any indebtedness we incur will not be less favorable to us than we expect.

We will incur transaction fees, including legal, regulatory and other costs associated with closing the transaction, as well as expenses related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset transaction and integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

The success of the Newport acquisition, if completed, will depend, in part on our ability to realize the anticipated business opportunities and growth prospects from combining our business with that of Newport. We may never realize these business opportunities and growth prospects. We might experience increased competition that limits our ability to expand our business. Integrating operations will be complex and will require significant efforts and expenditures on the part of both us and Newport. Combining our businesses could make it more difficult to maintain relationships with customers, employees or suppliers. If we are unable to successfully or timely integrate the operations of Newport’s business into our business, we may be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the acquisition and our business could be adversely affected.

Risk relating to the increased indebtedness we will incur in connection with the acquisition of Newport.

The indebtedness we expect to incur in connection with the acquisition of Newport could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing interest expense. We will also incur various costs and expenses associated with our indebtedness. The amount of cash required to pay interest on our increased indebtedness levels following completion of the acquisition, and thus the demands on our cash resources, will be greater than the amount of cash flows required to service our indebtedness prior to the transaction. The increased levels of indebtedness following completion of the acquisition could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

Certain indebtedness to be incurred in connection with the acquisition may bear interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash flows. In addition, our credit ratings affect the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations. In connection with the debt financing, it is anticipated that we will seek ratings of its indebtedness from one or more nationally recognized statistical rating organizations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. Moreover, we may be required to raise substantial additional financing to fund working

capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

In addition, while we expect that the indebtedness will not affect our ability to pay quarterly dividends in the future, the terms of the definitive agreements that will govern the indebtedness could negatively impact our ability to do so in certain circumstances.

An inability to convince semiconductor device manufacturers to specify the use of our products to our customers that are semiconductor capital equipment manufacturers would weaken our competitive position.

The markets for our products, in particular the semiconductor capital equipment market, are highly competitive. Our competitive success often depends upon factors outside of our control. For example, in some

cases, particularly with respect to mass flow controllers, semiconductor device manufacturers may direct semiconductor capital equipment manufacturers to use a specified supplier’s product in their equipment. Accordingly, for such products, our success will depend in part on our ability to have semiconductor device manufacturers specify that our products be used at their semiconductor fabrication facilities. In addition, we may encounter difficulties in changing established relationships of competitors that already have a large installed base of products within such semiconductor fabrication facilities.

If our products are not designed into successive generations of our customers’ products, we will lose significant net revenues during the lifespan of those products.

New products designed by capital equipment manufacturers typically have a lifespan of five to tenfifteen years. Our success depends on our products being designed into new generations of equipment. We must develop products that are technologically advanced so that they are positioned to be chosen for use in each successive generation of capital equipment. If customers do not choose our products, our net revenues may be reduced during the lifespan of our customers’ products. In addition, we must make a significant capital investment to develop products for our customers well before our products are introduced and before we can be sure that we will recover our capital investment through sales to the customers in significant volume. We are thus also at risk during the development phase that our products may fail to meet our customers’ technical or cost requirements and may be replaced by a competitive product or alternative technology solution. If that happens, we may be unable to recover our development costs.

The semiconductor industry isMany of the markets and industries that we serve are subject to rapid demand shifts whichtechnological change, and if we fail to introduce new and innovative products or improve our existing products, or if the adoption or applications we serve is not successful, our business, financial condition and results of operations will be harmed.

Many of our markets are difficultcharacterized by rapid technological advances, evolving industry standards, shifting customer needs, new product introductions and enhancements, and the periodic introduction of disruptive technology that displaces current technology due to predict.a combination of price, performance and reliability. As a result, our inability to expand our manufacturing capacity or reduce our fixed costs in response to these rapid shifts may cause a reductionmany of the products in our market share.

Our abilitymarkets can become outdated quickly and without warning. We depend, to increase sales of certain products depends in parta significant extent, upon our ability to expandenhance our manufacturing capacityexisting products, to anticipate and address the demands of the marketplace for such products in a timely manner.new and improved and disruptive technologies, either through internal development or by acquisitions, and to be price competitive. If we are unable to expandor our manufacturing capacity on a timely basiscompetitors introduce new or to manage such expansion effectively,enhanced products, it may cause our customers could implementto defer or cancel orders for our competitors’ products and, as a result,existing products. If we or our market share couldcompetitors introduce disruptive technology that displaces current technology, existing product platforms or lines of business from which we generate significant revenue may be reduced. Becauserendered obsolete. Further, if our customers or the semiconductor industry is subjectindustries we serve shift to rapid demand shifts, which are difficult to foresee, we may not be able to increase capacity quickly enough to respond to a rapid increase in demand. Additionally, capacity expansion could increase our fixed operating expenses and if sales levelstechnologies that do not increase to offset the additional expense levels associated with any such expansion,utilize our platform of products, our business, financial condition and results of operations could be materiallyharmed.

Because many of our products are sophisticated and complex, they can be difficult to design and manufacture, and we may experience delays in introducing new products or enhancements to our existing products. If we do not introduce our new products or enhancements into the marketplace in a timely fashion, our customers may choose to purchase our competitors’ products. Certain of our markets, in particular the semiconductor capital equipment market, experience cyclicality in capital spending, so if we fail to introduce new products in a timely manner we may miss market upturns, or may fail to have our products or subsystems designed into our customers’ products. We may not be successful in acquiring, developing, manufacturing or marketing new products and technologies on a timely or cost-effective basis. If we fail to adequately introduce new, competitive products and technologies on a timely basis, our business, financial condition and results of operations will be harmed.

Further, we are constantly investing in products for emerging applications, and we expect to generate increasingly significant revenue levels from sales of products for these applications. These applications are evolving, and the extent to which they achieve widespread adoption or significant growth is uncertain. Many

factors may affect the viability of widespread adoption or growth of these applications, including their cost-effectiveness, performance and reliability compared to alternatives. If these applications or our products for these applications are not widely adopted or fail to grow as we project, we will not generate the revenue growth we anticipate from sales of our products for these emerging applications, and our results of operations could be harmed.

Because the sales cycle for some of our products is long and difficult to predict, and certain of our orders are subject to rescheduling or cancellation, we may experience fluctuations in our operating results.

Many of our products are complex and customers for these products require substantial time to qualify our products and make purchase decisions. In addition, some of our sales to defense and security customers are under major defense programs that involve lengthy competitive bidding and qualification processes. These customers often perform, or require us to perform, extensive configuration, testing and evaluation of our products before committing to purchasing them, which can require a significant upfront investment by us. The sales cycle for these products from initial contact through shipment varies significantly, is difficult to predict and can last more than a year. If we fail to anticipate the likelihood, costs, or timing associated with sales of these products, our business and results of operations would be harmed.

Our orders are generally subject to rescheduling without penalty or cancellation without penalty other than reimbursement for certain labor and material costs. We from time to time experience order rescheduling and cancellations, which can result in fluctuation of our operating results from period to period.

Certain of our markets, sales regions and customers may be adversely affected.affected by a lack of government funding and the availability of credit.

Our worldwide sales to customers in the scientific research, defense and life and health sciences markets rely to a large extent on government funding for research and defense-related programs. Any decline in government funding as a result of reduced budgets in connection with fiscal austerity measures or other causes would likely result in reduced sales of our products that are purchased either directly or indirectly with government funding, which would have an adverse impact on our results of operations.

Ongoing concerns regarding the global availability of credit also may make it more difficult for our customers to raise capital, whether debt or equity, to finance their projects and purchases of capital equipment. Delays in our customers’ ability to obtain such financing, or the unavailability of such financing, could adversely affect sales of our products and systems, including, but not limited to, high-value lasers and systems, and therefore harm our business and operating results.

We offer products for multiple markets and must face the challenges of supporting the distinct needs of each of the markets we serve.

We offer products for a number of very diverse markets. Because we operate in multiple markets, we must work constantly to understand the needs, standards and technical requirements of many different applications within these markets, and must devote significant resources to developing different products for these markets. Product development is costly and time consuming. We must anticipate trends in our customers’ industries and develop products before our customers’ products are commercialized. If we do not accurately predict our customers’ needs and future activities, we may invest substantial resources in developing products that do not achieve broad market acceptance. Our decision to continue to offer products to a given market or to penetrate new markets is based in part on our judgment of the size, growth rate and other factors that contribute to the attractiveness of a particular market. If our product offerings in any particular market are not competitive or our analyses of a market are incorrect, our business, financial condition and results of operations would be harmed.

Further, serving diverse markets requires an understanding of different sales cycles, and the development and maintenance of a complex global sales team and sales channels to support the markets’ differing needs. It

also requires dynamic operations that can support both complex, customized product builds as well as quick turn-around for commercialoff-the-shelf sales. If we fail to provide the sales and operational support for our diverse markets, our business, financial condition and results of operations would be harmed.

Manufacturing interruptions or delays could affect our ability to meet customer demand and lead to higher costs, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.

Our business depends on its timely supply of equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of

parts, components and subassemblies (collectively, “parts”) from suppliers, including contract manufacturers. Cyclical industry conditions and the volatility of demand for manufacturing equipment increase capital, technical, operational and other risks for us and for companies throughout our supply chain. We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs or customer order cancellations as a result of:

In addition, if we need to rapidly increase our business and manufacturing capacity to meet increases in demand or expedited shipment schedules, this may exacerbate any interruptions in our manufacturing operations and supply chain and the associated effect on our working capital. Moreover, if actual demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we purchase inventory in anticipation of customer demand that does not materialize, or if our customers reduce or delay orders, we may incur excess inventory charges. Any or all of these factors could materially and adversely affect our business, financial condition and results of operations.

A material amount of our assets represents goodwill and intangible assets, and our net income would be reduced if our goodwill or intangible assets become impaired.

As of December 31, 2015,2017, our goodwill and intangible assets, net, represented approximately $243.7$957 million, or 19.1%40% of our total assets. Goodwill is generated in our acquisitions when the cost of an acquisition exceeds the fair value of the net tangible and identifiable intangible assets we acquire. Goodwill is subject to an impairment analysis at least annually based on the fair value of the reporting unit. Intangible assets relate primarily to the developed technologies, customer relationships and patents and trademarks acquired by us as part of our acquisitions of other companies and are subject to an impairment analysis whenever events or changes in circumstances exist that indicate that the carrying value of the intangible asset might not be recoverable. We will continue to monitor and evaluate the carrying value of goodwill and intangible assets. If market and economic conditions or business performance deteriorate, the likelihood that we would record an impairment charge would increase, which impairment charge could materially and adversely affect our results of operations.

The terms of our term loan credit facility and asset-based revolving credit facility impose significant financial obligations and risks upon us, limit our ability to take certain actions, and could discourage a change in control.

In April 2016, we obtained a term loan credit facility and a revolving credit facility in connection with financing our acquisition of Newport, and we subsequently amended the term loan facility in June 2016, December 2016 and July 2017. The term loan credit facility, as amended, provides us with senior secured

financing in the principal amount of $398 million as of December 31, 2017 with a term of seven years. The revolving credit facility provides us with senior secured financing of up to $50 million, subject to a borrowing base limitation.

Our indebtedness under these credit facilities has increased our interest expense and could have the effect, among other things, of reducing the funds available to flexibly respond to changing business and economic conditions. Our indebtedness could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages relative to other companies with lower debt levels. If we do not achieve the expected benefits from the acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

A significant portion of the amounts outstanding under the credit facilities bear interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash flows. In addition, our credit ratings affect the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings of our indebtedness reflect each nationally recognized statistical rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations. There can be no assurance that we will achieve a particular rating or maintain a particular rating in the future. Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

Our term loan credit facility, as amended, uses LIBOR as a reference rate for our term loans, such that the interest due pursuant to such loans may be calculated using LIBOR (subject to a stated minimum value). On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. LIBOR borrowings may become unavailable before that date. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The future of LIBOR at this time is uncertain. If the method for calculation of LIBOR changes, if LIBOR is no longer available or if lenders have increased costs due to changes in LIBOR, we may have to modify our term loan credit facility, or the loans using LIBOR as a reference rate will convert to the base rate (calculated by reference to the higher of the federal funds effective rate plus 50 basis points or the prime rate, subject to a stated minimum value) which could result in higher interest rates.

The term loan credit facility and the revolving credit facility contain a number of negative covenants that, among other things and subject to certain exceptions, restrict our ability and/or our subsidiaries’ ability to:

These covenants restrict our ability to engage in or benefit from these actions, thereby limiting our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete, such as limiting our ability to engage in mergers and acquisitions. This could place us at a competitive disadvantage. If the matters described in our other risk factors result in a material adverse effect on our business, financial condition or results of operations, we may be unable to comply with the terms of our credit facilities or experience an event of default.

The term loan credit agreement and the revolving credit agreement contain customary events of default, including:

Our ability to repay any amounts owed under these credit facilities will depend upon our future cash balances. The amount of cash available for repayment of these amounts will depend on our usage of our existing cash balances and our operating performance and ability to generate cash flow from operations in future periods, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. We cannot provide any assurances that we will generate sufficient cash flow from operations to service our debt obligations. Any failure to repay these obligations as they become due would result in an event of default under the credit facilities.

Further, because a change in control of us constitutes an event of default under these credit facilities, this would likely be a significant deterrent to a potential acquirer, as any potential acquisition would trigger an event of default, unless the lenders agreed to waive such event of default. We cannot guarantee that any such waiver would be obtained.

If an event of default occurs, the lenders may end their obligation to make loans to us under the credit facilities, and may declare any outstanding indebtedness under the credit facilities immediately due and payable. In such case, we would need to obtain additional financing or significantly deplete our available cash, or both, in order to repay this indebtedness. Any additional financing may not be available on reasonable terms or at all, and significant depletion of our available cash could harm our ability to fund our operations or execute our broader corporate objectives. If we were unable to repay outstanding indebtedness following an event of default, then in addition to other available rights and remedies, the lenders could initiate foreclosure proceedings on substantially all of our assets. Any such foreclosure proceedings or other rights and remedies successfully implemented by the lenders in an event of default would have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive industry.industries.

The marketmarkets for our products is highly competitive.are intensely competitive, and we believe that competition from both new and existing competitors will increase in the future. Principal competitive factors include:

Although we believe that we compete favorably with respect to these factors, we may not be able to continue to do so. We encounter substantial competition in most of our product lines. Certain of our competitors may enjoy greater name recognition and have greater financial, technical, marketing and other resources than we have.have, and some may have lower material costs than ours due to their control over sources of components and raw materials. In some cases, competitors are smaller than we are, but well established in specific product niches. We may encounter difficulties in changing established relationships of competitors with a large installed base of products at such customers’ fabrication facilities. In addition, our

competitors can be expected to continue to improve the design and performance of their products. Competitors may develop products that offer price, performance or technological features superior to those of our products. If our competitors develop superior products, we may lose existing customers and market share. Also,Further, technological advances in our served markets may cause one or more of our portfolio of products to be displaced over time. We also face competition in some of our markets from our existing and potential customers who have developed or may develop products that are competitive to ours, or who engage subcontract manufacturers or system integrators to manufacture products or systems on their behalf.

We haveface significant foreign operations, and outsource certain operations offshore, both of which pose significant risks.risks from doing business internationally.

Our business is subject to risks inherent in conducting business globally. International revenues account for a significant portion of total net sales, with a substantial portion of such sales originating in Asia (especially South Korea, Japan, Israel, China and Taiwan) and Europe (especially France and Germany). We expect that international revenues will continue to account for a significant percentage of total net sales for the foreseeable future, and that in particular, the proportion of our sales to Asian customers will continue to increase. Additionally, we have substantial international manufacturing, sales and administrative operations, with significant international sales, service, engineeringfacilities and manufacturing operationsemployee populations in Europe Israel and Asia, and a substantial portion of our manufacturing in China, Israel and Mexico. Our international operations expose us to various risks, which include:

If we experience any of the risks associated with international business, our business, financial condition and results of operations could be significantly harmed.

In particular, we have significant facilities and operations and a considerable number of employees in Israel. A number of our products are manufactured in facilities located in Israel. The Middle East remains a volatile region, and the future of peace efforts between Israel and neighboring countries remains extremely uncertain. Any armed conflicts or significant political instability in the region is likely to negatively affect business conditions and could significantly disrupt our operations in Israel, which would negatively impact our business. Further, many of our employees in Israel are subject to being called for active duty under emergency circumstances. If a military conflict or war arises, these individuals could be required to serve in the military for extended periods of time, and our operations in Israel could be disrupted by the absence of one or more key employees or a significant number of other employees for a significant period of time. Any such disruption could adversely affect our business.

Key personnel may be difficult to attract and retain.

Our ability to maintain and grow our business is directly related to the service of our employees in each area of our business. Our future performance will be directly tied to our ability to hire, train, motivate and retain qualified personnel, including highly skilled technical, financial, managerial and sales and marketing personnel. Competition for personnel in the technology marketplace is intense, particularly in certain geographies where we are located, and we cannot be certain that we will be successful in attracting and retaining such personnel. In addition, many of our product manufacturing processes require deep technical expertise, and these positions can be particularly challenging to fill. We have from time to time in the past experienced attrition in certain key positions, and we expect to continue to experience this attrition in the future. If we are unable to hire sufficient numbers of employees with the experience and skills we need or to retain and motivate our existing employees, our business and results of operations would be harmed.

Our failure to successfully manage our offshore manufacturing locations or the transition of certain of our manufacturing operations to other locations and/or to contract manufacturers could harm our business, financial condition and results of operations.

As part of our continuous cost-reduction efforts, we have outsourced a portion of our manufacturing and service to a subcontractor in Mexico.Mexico, and we continue to relocate the manufacture of certain of our existing product lines and subassemblies to, and initiate the manufacture of certain new products in, our facilities in China, Israel and Romania and selected contract manufacturers in Asia. In the future, we may expand the level of manufacturing, administrative and certain other operations that we perform offshore in order to take advantage of cost efficiencies available to us in those countries. However, we may not achieve the significant cost savings or

other benefits that we would anticipate from moving manufacturing and other operations to a lower cost region. These foreignAdditionally, if we are unable to successfully manage the relocation, initiation or oversight of the manufacture of these products, our business, financial condition and results of operations exposecould be harmed.

In particular, transferring product lines to other manufacturing locations and/or to our contract manufacturers’ facilities often requires us to operationaltransplant complex manufacturing equipment and political risksprocesses across a large geographical distance and to train a completely new workforce concerning the use of this equipment and these processes. In addition, certain of our customers may require the requalification of products supplied to them in connection with the relocation of manufacturing operations. If we are unable to manage this transfer and training smoothly and comprehensively, or if we are unable to complete the requalification of products in a timely manner, we could suffer manufacturing and supply chain delays, excessive product defects, harm to our results of operations and our reputation with our customers, and loss of customers. Further, the utilization of overseas contract manufacturers may require additional customs tariffs or may require export licenses, which may be difficult or costly to obtain. We also may not realize the cost savings that we currently anticipate from locating operations in Mexico, China, Israel and Romania. For example, we are experiencing rising material, labor and shipping costs in China and the potential for new tariffs on our products manufactured in Mexico.

Additionally, qualifying contract manufacturers and commencing volume production are expensive and time-consuming activities, and there is no guarantee we will continue to do so successfully. Further, our reliance on contract manufacturers reduces our control over the assembly process, quality assurance, production costs and material and component supply for our products. If we fail to manage our relationship with our contract manufacturers, or if any of the contract manufacturers experience financial difficulty, or delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. Further, if we or our contract manufacturers are unable to negotiate with suppliers for reduced component costs, our operating results could be harmed.

In addition, our contract manufacturers may terminate our agreements with them upon prior notice to us or immediately for reasons such as if we become insolvent, or if we fail to perform a material obligation under the agreements. If we are required to change contract manufacturers or assume internal manufacturing operations for any reason, including the termination of one of our contracts, we will likely suffer manufacturing and shipping delays, lost revenue, increased costs and damage to our customer relationships, any of which could harm our business, including:financial condition and results of operations.

Our products could contain defects, which would increase our costs and seriously harm our business, operating results, financial condition and customer relationships.

Many of our products are inherently complex in design and, in some cases, require extensive customization and/or ongoing regular maintenance. Further, the manufacture of these products often involves a highly complex and precise process and the utilization of specially qualified components that conform to stringent specifications. Several of our products require highly skilled labor. As a result of the technical complexity of these products, design defects, skilled labor turnover, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective or nonconforming materials by us or our suppliers could adversely affect our manufacturing yields and product reliability. This could in turn harm our business, operating results, financial condition and customer relationships.

We provide warranties for our products, and we accrue allowances for estimated warranty costs at the time we recognize revenue for the sale of the products. The determination of such allowances requires us to make estimates of product return rates and expected costs to repair or replace the products under warranty. We establish warranty reserves based on historical warranty costs for our products. If actual return rates or repair and replacement costs differ significantly from our estimates, our results of operations could be negatively impacted.

Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions. In addition, some of our products are combined with products from other suppliers, which may contain defects. Furthermore, some of our customers use our products in ways other than their intended purpose. As a result, should problems occur, it may be difficult to identify the source of the problem. If we are unable to identify and fix defects or other problems, we could experience, among other things:

The occurrence of any one or more of the foregoing factors could seriously harm our business, financial condition and results of operations.

We are exposed to various risks related to legal proceedings, including product liability claims and intellectual property infringement claims, which if successful, could have a material adverse effect on our business, financial condition and results of operations.

From time to time, we may be involved in foreign regulations;legal proceedings or claims regarding product performance, product liability, patent infringement, intellectual property rights, antitrust, environmental regulations, securities, contracts, unfair competition, misappropriation of trade secrets, employment, workplace safety, and other matters.

expropriationinfringement claims have in the past and may in the future result in litigation. Any such litigation could be protracted and costly, and we could become subject to damages for infringement, or to an injunction preventing us from selling one or more of private enterprises.

violations relating to the sale of certain of our products. We were not a target of the government’s investigation and we cooperated fully with the government’s investigation. In addition, although we conducted our own internal investigation and although we took corrective human resources actions and have, since 2012, implemented additional export compliance procedures, we cannot be certain these efforts will be sufficient to avoid similar situations in the future. Violations of trade compliance laws could result in the imposition of fines, suspension of our ability to export certain of our products, and damage to our reputation. The

imposition of fines or the termination or significant limitation on our ability to export certain of our products could have a material adverse effect on our business, results of operations and financial condition.

Unfavorable currency exchange rate fluctuations may lead to lower operating margins or may cause us to raise or reduce prices, which could result in reduced sales.

Currency exchange rate fluctuations could have an adverse effect on our net revenues and results of operations and we could experience losses with respect to our hedging activities. Unfavorable currency fluctuations could require us to increase or decrease prices to foreign customers, which could result in lower net revenues by us tofrom such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be adversely affected.affected by declining net revenues or profit margins for our products in international markets when the sales are translated into U.S. dollars. Such exchange rate fluctuations could also increase the costs and expenses of ournon-U.S. operations when translated into U.S. dollars or require us to modify our current business practices. In addition, most sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold and the currency they receive in payment for such sales could be less valuable at the time of receipt as a result of exchange rate fluctuations. We enter into forward foreign exchange contracts to reduce a portion of our currency exposure arising from intercompany sales of inventory as well as intercompany accounts receivable and intercompany loans. However, we cannot be certain that our efforts will be adequate to protect us against significant currency fluctuations or that such efforts will not expose us to additional exchange rate risks.

Changes in tax rates or tax regulation could affect results of operations.

As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly effective tax rates could be affected by numerous factors, including changes in the applicable tax laws; composition ofpre-tax income in countries with differing tax rates; and/or valuation of our deferred tax assets and liabilities.

The enactment of the Tax Cuts and Jobs Act (the “Act”) in December 2017 significantly affected U.S. tax law by changing how the U.S. imposes tax on multinational corporations. The U.S. Department of Treasury has broad authority under the Act to issue regulations and interpretive guidance. We have applied available guidance to estimate our tax obligations, but new guidance issued by the U.S. Treasury Department may cause us to make adjustments to our tax estimates in future periods. The Securities and Exchange Commission has issued Staff Accounting Bulletin No. 118 (“SAB118”) acknowledging that companies will potentially encounter situations for which the analysis of certain income tax effects of the Act will be incomplete by the time financial statements are required to be issued for reporting periods that include the enactment date. In these situations, SAB 118 provides that reasonable estimates may be made for certain effects of the Act. We have recorded provisional amounts using reasonable estimates based on the guidance in SAB 118 and we anticipate adjustments to such estimates as additional analysis is completed and new regulations and guidance are issued.

In addition, we are subject to regular examination by the United States Internal Revenue Service and state, local and foreign tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our financial condition and results of operations.

Key personnel may be difficultWe are exposed to attractrisks related to cybersecurity threats and retain.

Our success depends to a large extent upon the efforts and abilities of a number of key employees and officers, particularly those with expertise in the semiconductor manufacturing and similar industrial manufacturing industries. The loss of key employees or officers could have a material adverse effect on our business, financial condition and results of operations. We believe that our future success will depend in part on our ability to attract and retain highly skilled technical, financial, managerial and sales and marketing personnel. We cannot be certain that we will be successful in attracting and retaining such personnel.

A breach of our operational or security systems could negatively affect our business and results of operations.incidents.

We rely on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information including confidential data, and to carry out and support a variety of business activities, including manufacturing, research and development, supply chain management, sales and accounting. AThis information includes confidential information belonging to us, our customers and our business partners as well as personally-identifiable information of individuals. We have experienced, and expect to continue to be subject to, cybersecurity threats and incidents ranging from employee error or misuse to individual attempts to gain unauthorized access to information systems to sophisticated and targeted measures known as advanced persistent threats, none of which have materially affected our financial condition or results of operations to date. While we devote significant resources to network security, data encryption and other measures to protect our systems and information from unauthorized access or misuse, a failure in or a breach of our operational or security systems or infrastructure, or those of our suppliers and other service providers,business partners, including as a result of cyber-attacks, could disrupt our business,business; result in the disclosure, misuse or misuseloss of proprietary or confidential information and critical data; damage our reputation,reputation; cause lossesdata privacy issues; decrease the value of our investment in research, development and engineering; cause losses; result in litigation with third parties; and increase our cybersecurity protection and remediation costs.

Changes in laws and regulations governing data privacy and data protection could have a material adverse impact on our business.

We are subject to data privacy laws and regulations that apply to the collection, transmission, storage and use of personally identifiable information, as well as numerous other federal and state privacy and breach notification laws. We are also subject to many international data protection laws and regulations, including the current European Union (the “EU”) Data Protection Directive which requires EU member states to impose restrictions on the collection and use of personal data that, in some respects, are more stringent than current privacy standards in the United States. In May 2018, the General Data Protection Regulation will supersede the EU Data Protection Directive, imposing more robust EU data protection requirements and providing for greater penalties for noncompliance. The EU regulations also establish a prohibition on the transfer of personal information from the EU to other countries whose laws do not protect personal data to an adequate level of privacy or security. While we have utilized certain permitted approaches for transferring personal information from the European Union to the United States, these approaches may be reviewed and invalidated by the EU courts or regulatory bodies and we may be required to ascertain an alternative legal basis for such transfers. In addition, certain countries have and will continue to modify or adopt more stringent data protection standards.

While we continue to assess and address the implications of existing and new domestic and foreign regulations relating to data privacy, the evolving regulatory landscape presents a number of legal and operational challenges, and our efforts to comply may be unsuccessful. We may also face audits or investigations by one or more government agencies relating to our compliance with these regulations that could result in the imposition of penalties or fines, significant expenses in facilitating and responding to the investigations, and overall reputational harm or negative publicity. The costs of compliance with, and other burdens imposed by, such laws, regulations and policies that are applicable to us could have a material adverse effect on our business, financial condition and results of operations.

Our proprietary technology is important to the continued success of our business. Our failure to protect this proprietary technology may significantly impair our competitive position.

AsOur success and ability to compete depend in large part upon protecting our proprietary technology. We rely on a combination of December 31, 2015, we owned 376 U.S. patentspatent, trademark and 696 foreign patents, which expire at various dates through 2035. As of December 31, 2015, we had 77 pending U.S. patent applications. Although we seektrade secret protection and nondisclosure agreements to protect our intellectual property rights through patents, copyrights, trade secrets and other measures,proprietary rights. The steps we cannot be certain that:

Protectionprevent the misappropriation of our intellectual property, particularly in countries outside the United States, where the laws may not protect our proprietary rights as fully as in the United States. Patent and trademark laws and trade secret protection may result in costly litigation.not

be adequate to deter third party infringement or misappropriation of our patents, trademarks and similar proprietary rights. In addition, patents issued to us may be necessarychallenged, invalidated or circumvented. Our rights granted under those patents may not provide competitive advantages to us, and the claims under our patent applications may not be allowed. The loss or expiration of any of our key patents could lead to a significant loss of sales of certain of our products and could materially affect our future results of operations. We have in the past and may in the future be subject to or may initiate interference proceedings in the United States Patent and Trademark Office, which can demand significant financial and management resources. The process of seeking patent protection can be time consuming and expensive and patents may not be issued from currently pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us. We may initiate claims or litigation against third parties for infringement of our proprietary rights in order to enforce our patents, copyrights or other intellectual property rights, to protect our trade secrets, to determine the scope and validity and scope of our proprietary rights or the proprietary rights of others or to defend againstour competitors, which claims of infringement. We are, from time to time, involved in lawsuits enforcing or defending our intellectual property rights. Such litigation could result in substantial costs andcostly litigation, the diversion of resourcesour technical and could have a material adverse effect on our business, financial condition, resultsmanagement personnel and the assertion of operations, or cash flows.

We may need to expend significant time and expense to protect our intellectual property regardless ofcounterclaims by the validity or successful outcome of such intellectual property claims. If we lose any litigation, we may be required to seek licenses from others, pay royalties, change, stop manufacturing or stop selling somedefendants, including counterclaims asserting invalidity of our products.patents. We will take such actions where we believe that they are of sufficient strategic or economic importance to us to justify the cost.

The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have no control.

The stock market has from time to time experienced, and is likely to continue to experience, extreme price and volume fluctuations. Prices of securities of technology companies have been especially volatile and have often fluctuated for reasons that are unrelated to the operating performance of the companies. Historically, the market price of shares of our common stock has fluctuated greatly and could continue to fluctuate due to a variety of factors. In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If we were the object of such securities class action litigation, it could result in substantial costs and a diversion of our management’s attention and resources.

We may not pay dividends on our common stock.

Holders of our common stock are only entitled to receive such dividends when and if they are declared by our board of directors. Further, our credit facilities restrict our ability to pay dividends on our capital stock under certain circumstances. Although we have declared cash dividends on our common stock since 2011, and occasionally increased the dividends from prior quarters, we are not required to do so and we may reduce or eliminate our cash dividend in the future. This could adversely affect the market price of our common stock.

Our dependence on sole and limited source suppliers, and international suppliers, could affect our ability to manufacture products and systems.

We rely on sole and limited source suppliers and international suppliers for a few of our components and subassemblies that are critical to the manufacturing of our products due to unique component designs as well as specialized quality and performance requirements needed to manufacture our products. This reliance involves several risks, including the following:

We believe we could obtain and qualify alternative sources for most sole and limited source and international supplier parts; however, the transition time may be long if we were required to obtain alternative sources. Seeking alternative sources for these parts could require us to redesign our systems, resulting in increased costs and likely shipping delays. In such an event, any inability to redesign our systems could result in

further costs and shipping delays. These increased costs would decrease our profit margins if we could not pass the costs to our customers. Further, shipping delays could damage our relationships with current and potential customers and have a material adverse effect on our business and results of operations.

In addition, we obtain some of the critical capital equipment we use to manufacture certain of our products from sole or limited sources due to the unique nature of the equipment. In some cases, such equipment can only be serviced by the manufacturer or a very limited number of service providers due to the complex and specialized nature of the equipment. If service and/or spare parts for such equipment become unavailable, such equipment could be rendered inoperable, which could cause delays in the production of our products, and could require us to procure alternate equipment, if available, which would likely involve long lead times and significant additional cost, and could harm our results of operations.

We are subject to governmentalenvironmental regulations. If we fail to comply with these regulations, our business could be harmed.

WeOur operations are subject to various federal, state, local and foreign regulations, including environmental regulations andinternational regulations relating to the protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and waste and the cleanup of contaminated sites. In the United States, we are subject to the federal regulation and control of the Environmental Protection Agency (“EPA”), and we are subject to comparable authorities in other countries. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our business, results of operations or financial condition.

Although we believe that our safety procedures for using, handling, storing and disposing of such materials comply with the standards required by state and federal laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. We have been, and may in the future be, subject to claims by employees or third parties alleging such contamination or injury, and could be liable for damages, which liability could exceed the amount of our liability insurance coverage (if any) and the resources of our business.

Certain portions of the soil at the former facility of our Spectra-Physics business, located in Mountain View, California, and certain portions of the aquifer surrounding the facility, through which contaminated groundwater flowed, are part of anEPA-designated Superfund site and are subject to a cleanup and abatement order from the California Regional Water Quality Control Board. Spectra-Physics, which we acquired as part of the Newport acquisition in April 2016 and which had been acquired by Newport in 2004, along with other entities with facilities located near the Mountain View, California facility, were identified as responsible parties with respect to this Superfund site, due to releases of hazardous substances during the 1960s, 1970s and 1980s. Spectra-Physics and the other responsible parties entered into cost-sharing agreements covering the costs of remediating theoff-site groundwater impact. The site is mature, and investigations, monitoring and remediation efforts by the responsible parties have been ongoing for approximately 30 years.

We have certain ongoing costs related to investigation, monitoring and remediation of the site that have not been material to us as a whole in the recent past. However, while we benefitted from the indemnification of certain costs by a third party in the past, that indemnification is now in a transition period, and we will become subject to a greater portion of future costs of remediation going forward. Our ultimate costs of remediation and other potential liabilities are difficult to predict. In the event that the EPA and the California Regional Water Quality Control Board determine that the site cleanup requires additional measures to ensure that it meets current standards for environmental contamination, or if they enhance any of the applicable required standards, we will likely become subject to additional remediation obligations in the future. In addition to our investigation, monitoring and remediation obligations, we may be liable for property damage or personal injury claims relating

to this site. While we are not aware of any material claims at this time, such claims could be made against us in the future. If significant costs or other liability relating to this site arise in the future, our business, financial condition and results of operations could be adversely affected.

The environmental regulations that we are subject to include a variety of federal, state, local and international environmental regulations that restrict the use and disposal of materials used in the manufacture of our products or require design composition and operationchanges or recycling of our products. We must ensure thatIf we fail to comply with any present or future regulations, we could be subject to future liabilities, the affectedsuspension of manufacturing or a prohibition on the sale of products meet a varietywe manufacture. In addition, such regulations could restrict our ability to equip our facilities or could require us to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations, including expenses associated with the recall of standards, manyanynon-compliant product and the management of which vary across the countries in which our systems are used. historical waste.

For example, the European Union has published directives specifically relating to power supplies. In addition,enacted the European Union has issued directives relating toRestriction on the regulationUse of recyclingCertain Hazardous Substances in Electrical and Electronic Equipment Directive, which regulates the use of certain hazardous substances in certain products, and the Waste Electrical and Electronic Equipment Directive, which requires the collection, reuse and recycling of waste from certain products. Compliance with such laws requires significant resources. These regulations may require us to redesign our products or source alternative components to ensure compliance with applicable requirements, for example by mandating the use of different types of materials in certain components. Any such redesign or alternative sourcing may increase the cost of our products, adversely impact the performance of our products, add greater testing lead-times for product introductions, or in some cases limit the markets for certain products. Further, such environmental laws are applicable tofrequently amended, which increases the cost and complexity of compliance. For example, such amendments have in the past, and may in the future, result in certain of our products andfalling in the scope of the directive, even if they were initially exempt. In addition, certain of our customers, particularly OEM customers whose end products may be subject to which some customersthese directives, may voluntarily electrequire that the products we supply to adhere. China has adopted, andthem comply with these directives, even if not mandated by law. Because certain other Asian countries have indicated an intentiondirectives, for example, those issued from the European Union are implemented in individual member states, compliance is particularly challenging. Our failure to adopt, similar regulations. We must comply with any applicable regulationof such regulatory requirements or contractual obligations could result in order to ship affected products into countries that adopt these types of regulations. We believe we are in compliance with current applicable regulations, directivesour being directly or indirectly liable for costs, fines or penalties and standardsthird-party claims, and that we have obtained all necessary permits, approvals and authorizationscould jeopardize our ability to conduct our business. However, compliance with future regulations, directives and standards, or customer demands beyond such requirements, could require us to modify or redesignbusiness in certain systems, make capital expenditures or incur substantial costs. If we do not comply with current or future regulations, directives and standards:countries.

Regulations and customer demands related to conflict minerals and hazardous materials may adversely affect us.

The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use in our products of “conflict minerals” mined from the Democratic Republic of Congo and adjoining countries, whether or not the components of our products are manufactured by us or third parties. In addition, several of our customers have requested that we disclose to them our use of numerous hazardous materials in our products. Our supply chain is very complex and the implementation of these requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of our products. In addition, there are additional costs associated with complying with the disclosure requirements and customer requests, such as costs related to our due diligence to determine the source of any “conflict minerals” or the identity of any hazardous materials used in our products. We face the additional challenge that many of our suppliers, both domestic and foreign, are not obligated by the new “conflict minerals” law to investigate their own supply chain. Despite our due diligence efforts, we may be unable to verify the origin of all “conflict minerals” used in our products and/or the use of one or more hazardous materials in our products. As a result, we may be unable to certify that our products are “conflict-free” and/or free of certain hazardous materials. If we are unable to meet our customer requirements, customers may discontinue purchasing from us, which could adversely impact our business, financial condition or operating results.

Some provisions of our restated articles of organization, as amended, our amended and restatedby-laws and Massachusetts law could discourage potential acquisition proposals and could delay or prevent a change in control.

Anti-takeover provisions could diminish the opportunities for stockholders to participate in tender offers, including tender offers at a price above the then current market price of our common stock. Such provisions may also inhibit increases in the market price of our common stock that could result from takeover attempts. For example, while we have no present plans to issue any preferred stock, our board of directors, without further stockholder approval, may issue preferred stock that could have the effect of delaying, deterring or preventing a change in control of us. The issuance of preferred stock could adversely affect the voting power of the holders of our common stock, including the loss of voting control to others. In addition, our amended and restatedby-laws provide for a classified board of directors consisting of three classes. Our classified board could also have the effect of delaying, deterring or preventing a change in control of our Company.

Changes in financial accounting standards may adversely affect our reported results of operations.

A change in accounting standards or practices could have a significant effect on our reported results (such as the new revenue recognition rules which are scheduled to go into effect in 2018) and may even affect our reporting of transactions completed before the change was effective. New accounting pronouncements and varying interpretations of existing accounting pronouncements have occurred and may occur in the future. Such changes may adversely affect our reported financial results or may impact our related business practice.

Item 1B.Unresolved Staff Comments

None.

The following table provides information concerning MKS’ principal and certain other owned and leased facilities as of December 31, 2015:2017:

Location		Sq. Ft.				Activity		Reportable Segment		Lease Expires
Reggio Emilia, Italy			10,000			Manufacturing, Customer Support, Service and Research & Development		Advanced Manufacturing Capital Equipment & Global Service		August 31, 2019
Rochester, New York			156,000			Manufacturing, Sales, Customer Support, Service and Research & Development		Advanced Manufacturing Capital Equipment & Global Service		(3)
San Jose, California			20,400			Sales, Customer Support and Service		Advanced Manufacturing Capital Equipment, Global Service & Other		January 31, 2018
Shanghai, China			18,700			Sales, Customer Support and Service		Asia Region Sales & Global Service		February 28, 2017
Shenzhen, China			242,000			Manufacturing		Advanced Manufacturing Capital Equipment		August 31, 2017
Shropshire, United Kingdom			25,000			Manufacturing		Other		June 23, 2022
Singapore			10,100			Sales, Customer Support and Service		Asia Region Sales & Global Service		November 30, 2016
Taiwan			27,900			Sales, Customer Support and Service		Asia Region Sales & Global Service		February 28, 2018
Tokyo, Japan			4,300			Sales and Customer Support		Asia Region Sales & Global Service		August 31, 2017
Umea, Sweden			7,500			Sales, Customer Support and Research & Development		Global Service & Other		(7)
Wilmington, Massachusetts			118,000			Manufacturing, Sales, Customer Support, Service and Research & Development		Advanced Manufacturing Capital Equipment & Global Service		(3)

Country

City

Sq. Ft.

Activity

Reportable Segment

Lease Expires

CHINA

Shenzhen

302,000

Manufacturing

Vacuum & Analysis

August 31, 2025

Wuxi

64,500

Manufacturing

Light & Motion

October 31, 2021

FRANCE

(1)

101,000

Manufacturing, Research and Development

Light & Motion

Owned

ISRAEL

Jerusalem

118,000

Manufacturing, Sales, Research and Development

Light & Motion

MEXICO

Nogales

124,200

Manufacturing, Service

Vacuum & Analysis

September 1, 2023

UNITED STATES

Andover, MA

158,000

Corporate Headquarters, Manufacturing, Research and Development

(3)

Boulder, CO

86,000

Manufacturing, Customer Support, Service, Research and Development

Vacuum & Analysis

Franklin, MA

55,600

Manufacturing, Customer Support, Research and Development

Light & Motion

January 31, 2026

Irvine, CA

254,900

Manufacturing, Research and Development

Light & Motion

Longmont, CO

60,900

Manufacturing, Customer Support, Service, Research and Development

Vacuum & Analysis

February 29, 2020

Methuen, MA

85,000

Manufacturing, Customer Support, Service, Research and Development

Vacuum & Analysis

Owned

Rochester, NY

52,000

Manufacturing, Customer Support, Research and Development

Light & Motion

Rochester, NY

156,000

Manufacturing, Sales, Customer Support, Service, Research and Development

Vacuum & Analysis

Owned

Santa Clara, CA

139,500

Manufacturing, Customer Support, Research and Development

Light & Motion

March 31, 2021

Wilmington, MA

118,000

Manufacturing, Customer Support, Service, Research and Development

Vacuum & Analysis

Owned

In addition to the material manufacturing and other operations conducted at the foregoingabove listed leased or owned facilities, MKS also provides manufacturing, worldwide sales, customer support and services from various other leased and owned facilities throughout the world not listed in the table above. See “Business—Sales, Marketing, Service and Support.”

Item 3.

Item 3.

Legal Proceedings

On March 9, 2016, a putative class action lawsuit captionedDixon Chung v. Newport Corp., et al.,Case No. A-16-733154-C, was filed in the District Court, Clark County, Nevada on behalf of a putative class of

stockholders of Newport for claims related to the Merger Agreement between the Company, Newport, and Merger Sub. On March 25, 2016, a second putative class action complaint captionedHubert C. Pincon v. Newport Corp., et al., Case No.A-16-734039-B, was filed in the District Court, Clark County, Nevada, on behalf of a putative class of Newport’s stockholders for claims related to the Merger Agreement. The lawsuits named as defendants the Company, Newport, Merger Sub, and certain then current and former members of Newport’s board of directors. Both complaints alleged that the directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, by agreeing to unfair deal protection devices, and by omitting material information from the proxy statement. The complaints also alleged that the Company, Newport, and Merger Sub aided and abetted the directors’ alleged breaches of their fiduciary duties. The complaints sought injunctive relief, including to enjoin or rescind the Merger Agreement, and an award of attorneys’ and other fees and costs, among other relief. On April 14, 2016, the Court granted plaintiffs’ motion to consolidate the Pincon and Chung actions.

On October 19, 2016, plaintiffs filed an amended complaint captionedIn re Newport Corporation Shareholder Litigation, Case No.A-16-733154-B, in the District Court, Clark County, Nevada, on behalf of a putative class of Newport’s stockholders for claims related to the Merger Agreement. The complaint named as defendants the Company, Newport, and the then-current members of Newport’s former board of directors. It alleged that the named directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, by agreeing to unfair deal protection devices, and by omitting material information from the proxy statement. The complaint also alleged that the Company and Newport aided and abetted the named directors’ alleged breaches of their fiduciary duties. The complaint sought monetary damages, includingpre- and post-judgment interest. On December 9, 2016, defendants filed motions to dismiss the amended complaint, which plaintiffs opposed. On June 22, 2017, the Court dismissed the amended complaint against all defendants but granted plaintiffs leave to amend.

On July 27, 2017, plaintiffs filed a second amended complaint, which names as defendants certain former directors of Newport. On August 8, 2017, the Court dismissed the Company and Newport from the action pursuant to stipulations among the parties. The second amended complaint alleges that the directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, and by omitting material information from the proxy statement. The second amended complaint seeks monetary damages, includingpre- and post-judgment interest. On September 1, 2017 the Newport directors filed a motion to dismiss the second amended complaint, which plaintiffs opposed. The Court held a hearing on the motion to dismiss on December 7, 2017. On January 5, 2018, the Court entered an order denying the motion to dismiss. The Newport directors answered the second amended complaint, denying the material allegations of the complaint and asserting defenses, on February 20, 2018.

We are subject to various legal proceedings and claims, which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

Not applicable.

PART II

Price Range of Common Stock

Our common stock is traded on the NASDAQ Global Select Market under the symbol MKSI. On February 19, 2016,21, 2018, the closing price of our common stock, as reported on the NASDAQ Global Select Market, was $33.53$112.20 per share. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported by the NASDAQ Global Select Market.

On February 19, 2016,21, 2018, we had approximately 10590 stockholders of record.

Dividend Policy and Cash Dividends

Holders of our common stock are entitled to receive dividends when and if they are declared by our board of directors. During 2015,2017, our board of directors declared a cash dividend of $0.165$0.175 per share during the first, second and third quarters of 2017 and $0.18 per share during the fourth quarter of 2015 and2017, which totaled $38.2 million or $0.71 per share. During 2016, our board of directors declared a cash dividend of $0.17 per share during each quarter of the second, third and fourth quarters of 2015,2016, which totaled $36.0$36.4 million or $0.675 per share. During 2014, our board of directors declared one quarterly dividend of $0.16 per share and three quarterly dividends of $0.165 per share, which totaled $34.9 million or $0.655$0.68 per share.

Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our board of directors. The board of directors intends to declare and pay cash dividends on our common stock based on theour financial conditions and results of operations of the Company, although it has no obligation to do so. Our credit facilities contain covenants that restrict our ability to grant cash dividends in certain circumstances.

On February 8, 2016,12, 2018, our board of directors declared a quarterly cash dividend of $0.17$0.18 per share to be paid on March 11, 20169, 2018 to shareholders of record as of February 29, 2016.26, 2018.

Purchase of Equity Shares

On July 25, 2011, our board of directors approved and on July 27, 2011, we publicly announced, a share repurchase program for the repurchase of up to an aggregate of $200 million of our outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means (the “Program”). The timing and quantity of any shares repurchased will dependdepends upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities. These repurchases may be commenced, suspended or discontinued at any time without prior notice. We have repurchased approximately 1,770,000 shares of our common stock for approximately $52.0 million pursuant to the Program since its adoption.

During the twelve months ended December 31, 2015,2017, we repurchased approximately 369,000did not repurchase any shares of our common stock for $13.3 million at an average price of $36.01 per share.stock.

Comparative Stock Performance

The following graph compares the cumulative total shareholder return (assuming reinvestment of dividends) from investing $100 on December 31, 2010,2012, and plotted at the last trading day of each of the fiscal years ended December 31, 2011, 2012, 2013, 2014, 2015, 2016 and 2015,2017, in each of MKS’ common stock; an industrya peer group index which represents a combination of semiconductor equipment/material manufacturers (the “Morningstarall companies comprising the Morningstar Semiconductor Equipment & Materials Industry Group”)Group Index and Morningstar Scientific & Technical Instruments Industry Group Index, published by Zacks Investment Research, Inc., compiled by Morningstar, Inc.;with these indices weightedone-half (1/2) andone-half (1/2), respectively; and the NASDAQ Market Index of companies.Index. The stock price performance on the graph below is not necessarily indicative of future price performance. Our common stock is listed on the NASDAQ Global Select Market under the ticker symbol MKSI.

Performance Graph

Selected Consolidated Financial Data

Overview

We are a global provider of instruments, subsystems and process control solutions that measure, control,monitor, deliver, analyze, power monitor and analyzecontrol critical parameters of advanced manufacturing processes to improve process performance and productivity. Our products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics,sub-micron positioning, vibration control, and optics. We also provide services relating to the maintenance and repair of our products, software maintenance, installation services and training.

Our primary served markets are manufacturers of capital equipment for semiconductor manufacturing, industrial technologies, life and health sciences, as well as research and defense.

Acquisition of Newport Corporation

On April 29, 2016, we completed our acquisition of Newport Corporation (“Newport”) pursuant to an Agreement and Plan of Merger dated as of February 22, 2016 (the “Newport Merger”). At the effective time of the Newport Merger, each share of Newport’s common stock issued and outstanding as of immediately prior to the effective time of the Newport Merger was converted into the right to receive $23.00 in cash, without interest and subject to deduction for any required withholding tax. We paid to the former Newport stockholders aggregate consideration of $905 million, excluding related transaction fees and expenses, and repaid $93 million of Newport’s U.S. indebtedness outstanding as of immediately prior to the effective time of the Newport Merger. We funded the payment of the aggregate consideration with a combination of our available cash on hand of $240 million and the proceeds from the senior secured term loan facility in the principal amount of $780 million described below.

Newport was a global supplier of advanced-technology products and systems to customers in the scientific research and defense/security, microelectronics, life and health sciences and industrial manufacturing markets.

Effective April 29, 2016, in conjunction with our acquisition of Newport, we changed the structure of our reportable segments based upon our organizational structure and how our Chief Operating Decision Maker utilizes information provided to allocate resources and make decisions. Our two reportable segments are the Vacuum & Analysis segment and the Light & Motion segment. The Vacuum & Analysis segment represents the legacy MKS business and the Light & Motion segment represents the legacy Newport business.

The Vacuum & Analysis segment provides a broad range of instruments, components and subsystems which are derived from our core competencies in pressure measurement and control, materialsflow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and information technology,delivery, RF & DC power, and reactive gas generation and vacuum technology. Our productsThe Light & Motion segment provides a broad range of instruments, components and subsystems which are usedderived from our core competencies in lasers, photonics,sub-micron positioning, vibration control, and optics.

We have a diverse markets, applicationsbase of customers and processes. Ourour primary served markets are manufacturers of capital equipment for semiconductor devices,manufacturing, industrial technologies, life and for other thin film applications including flat panel displays, solar cells light emitting diodes (“LEDs”)health sciences, as well as research and defense. Approximately 57%, data storage media,56% and other advanced coatings. We also leverage our technology in other markets with advanced manufacturing applications including medical equipment, pharmaceutical manufacturing, energy generation and environmental monitoring.

We have a diverse base of customers that includes manufacturers of semiconductor capital equipment and semiconductor devices; thin film capital equipment used in the manufacture of flat panel displays; LEDs, solar cells, data storage media and other coating applications; and general industrial, medical, energy generation, environmental monitoring and manufacturing companies, and university, government and industrial research laboratories. During the years 2015, 2014 and 2013, approximately 69%, 70% and 68% of our net revenues for the years 2017, 2016 and 2015, respectively, were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers. We expectAs a result of our acquisition of Newport, we estimate that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers will continue tocould account for a substantial portionmore than 50% of our sales.total sales in future periods.

Effective January 1, 2015, we changed the structureApproximately 43%, 44% and 31% of our reportable segments based upon how the information is provided to our Chief Operating Decision Maker. Our four reportable segments prior to the change in structure were: Advanced Manufacturing Capital Equipment, Analytical Solutions Group, Europe Region Sales & Service and Asia Region Sales & Service. Our current structure still reflects four reportable segments, however the composition of the segments has changed.

Our current reportable segments are Advanced Manufacturing Capital Equipment, Global Service, Asia Region Sales and Other. The primary change to the segment structure was to separate worldwide service from product sales and create a separate reportable segment known as Global Service. Product salesnet revenues in the Advanced Manufacturing Capital Equipment segment remained with that segment. Asia product sales became a separate reportable segment. The product salesyears 2017, 2016 and 2015, respectively, were from the operating segments that made up the Analytical Solutions Group and Europe Region Sales were combined into the Other segment andother advanced manufacturing applications. These include, but are not reported separately as they are individually immateriallimited to, industrial technologies, life and collectively remain below the separate segment guidelines. We report corporate expenseshealth sciences, and certain intercompany pricing transactions in a Corporateresearch and Eliminations reconciling column.defense.

Net revenues tofrom semiconductor capital equipment manufacture and semiconductor device manufacture customers increased by 3%$373 million or 52% in 20152017 compared to 2014, after increasing2016 and increased by 19%$186 million or 33% in 20142016 compared to 2013. We had sequential revenue increases2015. The increase in each quarter since the third quarter2017 compared to 2016 is comprised of 2014 and into the second quarteran increase in net semiconductor revenues of 2015. Semiconductor revenues increased from $126$315 million in the third quarter of 2014 to $154Vacuum & Analysis segment and $58 million in the second quarter of 2015. In the third and fourth quarters ofLight & Motion segment. These increases were primarily due to volume increases from our semiconductor customers. The increase in 2016 compared to 2015 there was a pause in spending and we saw a decrease inattributed to net semiconductor revenues to $143from the Newport Merger of $103 million and $114 million, respectively.net semiconductor revenues from the Vacuum & Analysis segment, which increased $83 million. 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 future demand or any future weakness in the semiconductor capital equipment industry.

Our net revenues from customers in other advanced markets, which exclude semiconductor capital equipment and semiconductor device product applications,manufacture customers, increased 6%by $248 million or 43% in 20152017 compared to 20142016 and increased 12%by $296 million or 118% in 20142016 compared to 2013. We saw eight consecutive quarters of growth2015. The increase in 2017 compared to 2016 is primarily attributed to a $228 million increase in net revenues from customers in our other advanced markets startingLight & Motion segment due to the fact that 2016 only included eight months of revenue in the quarter ended December 31, 2013 throughLight & Motion segment. In addition, net revenues from customers in our Vacuum & Analysis segment increased primarily due to revenues from the third quarterindustrial technologies market of 2015. In the fourth quarter of 2015, revenue for our other advanced markets decreased by 12%$20.1 million. The increase in 2016 compared to the third quarter of 2015. Revenues2015 was primarily attributed to revenues from customers in other advanced markets are made upfrom the Newport Merger of many different markets including general industrial, solar, film, medical, analysis metrology and other markets. The$320 million. This increase was offset by a decrease in net revenues from customers in other advanced markets in 2015 comparedfrom the legacy MKS business (Vacuum & Analysis segment) of $24 million, mainly related to the prior year is primarily attributed to increases in the solar, data storage and analysis metrology markets, partially offset by decreases in the general industrial, medical and LEDsolar markets. Approximately 31% of our net revenues for 2015 were to other advanced markets and we anticipate that these markets will grow and could represent a larger portion of our revenue.

A significant portion of our net revenues isare from sales to customers in international markets. DuringFor the years 2015, 2014ended December 31, 2017, 2016 and 2013,2015, international net revenues accounted for approximately 44%50%, 43%48% and 46%44% of our total net revenues, respectively. A significant portion of our international net revenues were sales in South Korea, Japan, Israel and Japan.Germany. We expect that international net revenues will continue to represent a significant percentage of our total net revenues. Long-lived assets, located in the United States, were $125 million, $123 million and $57 million as of December 31, 2017, 2016 and 2015, respectively, excluding goodwill and intangibles and long-termtax-related accounts. Long-lived assets, located outside of the United States, were $78 million, $78 million, and $15 million as of December 31, 2017, 2016 and 2015, respectively, excluding goodwill and intangibles and long-termtax-related accounts.

On March 17, 2015, we acquired Precisive, LLC (“Precisive”) for $12.1 million, net of $0.4 million of cash acquired of $0.4 million.acquired. Precisive is an innovative developer of optical analyzers based on Tunable Filter Spectroscopy, which provide real-time gas analysis in the natural gas and hydrocarbon processing industries, including refineries, hydrocarbon processing plants,gas-to-power machines, biogas processes and fuel gas transportation and metering, while delivering customers a lower total cost of ownership.

On May 30, 2014, we acquired Granville-Phillips (“GP”), a division of Brooks Automation, Inc., for $87 million. GP is a leading global provider of vacuum measurement and control instruments to the semiconductor, thin film and general industrial markets. The acquisition reflects our strategy to grow our semiconductor business, while diversifying into other high growth markets.

On March 12, 2013, we acquired Alter S.r.l. (“Alter”), located in Reggio Emilia, Italy. Alter develops advanced microwave power generators, components and systems for industrial microwave heating, microwave plasma coating and semiconductor applications. The purchase price, net of cash acquired and after final debt and working capital post-closing adjustments, was $2.4 million.

Recent Events

On February 23, 2016, we announced that we had entered into a definitive agreement to acquire Newport, a worldwide leader in photonics solutions. Pursuant to the merger agreement, and subject to the terms and conditions contained therein, at the closing of the acquisition, we will acquire all of the outstanding shares of Newport for a purchase price of approximately $980 million in cash. We intend to fund the transaction with a

combination of available cash on hand and up to $800 million in committed debt financing. In addition, we entered into a commitment letter to obtain a $50 million asset-based revolving credit facility for working capital purposes, as needed. The parties’ obligations to consummate the acquisition are subject to customary closing conditions, including required approvals for the transaction from governmental authorities and approval from Newport’s shareholders. Our obligations under the merger agreement are not subject to any financing condition.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discussesdiscuss our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On anon-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, pension plan valuations, inventory, warranty costs, stock-based compensation expense, intangible assets, goodwill and other long-lived assets,in-process research and development and income taxes. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the most significant judgments, assumptions and estimates we use in preparing our consolidated financial statements:

Revenue Recognition and Allowance for Doubtful Accounts.    Revenue from product sales is recorded upon transfer of title and risk of loss to the customer provided that there is evidence of an arrangement, the sales price is fixed or determinable, and collection of the related receivable is reasonably assured. In most transactions, we have no obligations to our customers after the date products are shipped other than pursuant to warranty obligations. We do not frequently enter into arrangements with multiple deliverables; however, for those revenue arrangements with multiple deliverables, we allocate revenue to each element based upon its relative selling price using vendor-specific objective evidence (“VSOE”), or third-party evidence (“TPE”) or based upon the relative selling price using estimated prices if VSOE or TPE does not exist. We thenUnder Accounting Standards Codification (“ASC”)605-25,Revenue Recognition – Multiple Elements,we recognize revenue onand related costs for arrangements with multiple deliverables as each deliverable in accordance with our policies for product and service revenue recognition. We defer the fair value of any undelivered elements until the undelivered element is delivered. Fair value isdelivered or completed based upon the lesser of its relative selling price, determined based upon the price that would be charged whenon a standalone basis, or the elementamount contractually due upon delivery of each element. If a portion of the total contract price is not payable until installation is complete, we do not recognize such portion as revenue until completion of installation. Some services, such as installation, are not often sold separately.by us or our competitors on a stand-alone basis. Therefore, we calculate the estimated selling price based on specific facts and circumstances for each service. For example, the relative selling price for installation is determined by estimating the installation hours for a particular product, using historical experience, multiplied by the standards service billing rate. Under ASC605-20,Revenue Recognition – Services,revenue for separately priced extended warranties and product maintenance contracts are excluded from the scope of ASC605-25 and the selling price (without regard to the allocation methodology under ASC605-25) is recognized over the related contract periods. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales.

We monitor and track the amount of product returns, provide for sales return allowances and reduce revenue at the time of shipment for the estimated amount of such future returns, based on historical experience. While product returns have historically been within our expectations and the provisions established, there is no assurance that we will continue to experience the same return rates that we have in the past. Any significant increase in product return rates could have a material adverse impact on our operating results for the period or periods in which such returns materialize.

While we maintain a credit approval process, significant judgments are made by management in connection with assessing our customers’ ability to pay at the time of shipment. Despite this assessment, from time to time, our customers are unable to meet their payment obligations. We continuously monitor our customers’ credit worthiness, and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, there is no assurance that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results.

Inventory.    We value our inventory at the lower of cost (first-in, (first-in,first-out method) or market. We regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less than cost, based primarily on our estimated forecast of product demand. Once our inventory value is written-down and a new cost basis has been established, the inventory value is not increased due to demand increases. Demand for our products can fluctuate significantly. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases as a result of supply shortages or a decrease in the cost of inventory purchases as a result of volume discounts, while a significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand. In addition, our industry is subject to technological change, new product development and product technological

obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results. For 2017, 2016 and 2015, 2014 and 2013, our total charges for excess and obsolete inventory totaled $20.2 million, $16.0 million and $13.6 million, $12.1 million and $21.7 million, respectively. Included in our total charges for excess and obsolete inventory in 2013 is $6.4 million of special charges for obsolete inventory related to a unique product in a solar application as a result of slowing market conditions, which provided uncertainty as to the net realizable value of this inventory.

Warranty Costs.We provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. We provide warranty coverage for our products for periods ranging from 12 to 36 months, with the majority of our products for periods ranging from 12 to 24 months. Short-term accrued warranty obligations, which expire within one year, are included in other current liabilities and long-term accrued warranty obligations are included in other liabilities in the consolidated balance sheet. We estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs and any known specific product issues. The assumptions we use to estimate warranty accruals arere-evaluated periodically in light of actual experience and, when appropriate, the accruals are adjusted. Our determination of the appropriate level of warranty accrual is based upon estimates. Should product failure rates differ from our estimates, actual costs could vary significantly from our expectations. Defective products will be either repaired or replaced, generally at our option, upon meeting certain criteria.

Pension Plans.Several of ournon-U.S. subsidiaries have defined benefit pension plans covering substantially all full-time employees of those subsidiaries. Some of the plans are unfunded, as permitted under the plans and applicable laws. For financial reporting purposes, the calculation of net periodic pension costs is based upon a number of actuarial assumptions, including a discount rate for plan obligations, an assumed rate of return on pension plan assets and an assumed rate of compensation increase for employees covered by the plan. All of these assumptions are based upon our judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of our pension plans.

Stock-Based Compensation Expense.    We record compensation expense for all share-based paymentcompensation awards to employees and directors based upon the estimated fair market value of the underlying instrument. Accordingly, share-based compensation cost is measured at the grant date, based upon the fair value of the award.

We typically issue restricted stock units (“RSUs”) as stock-based compensation. We also provide employees the opportunity to purchase shares through an Employee Stock Purchase Plan (“ESPP”). For RSUs, the fair value is the stock price on the date of grant. ForWe estimate the fair value of stock appreciation rights and shares issued under our ESPP we have estimated the fair value on the date of grant using the Black Scholes pricing model, which is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, expected life, risk free interest rate and expected dividends. Management determined that blended volatility, a combination of historical and implied volatility, is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone. We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

Certain RSUs involve stock to be issued upon the achievement of performance conditions (performance shares)(“performance shares”) under our stock incentive plans. Such performance shares become available subject to time-based vesting conditions if, and to the extent that, financial or operational performance criteria for the applicable period are achieved. Accordingly, the number of performance shares earned will vary based on the level of achievement of financial or operational performance objectives for the applicable period. Until such time that our performance can ultimately be determined, each quarter we estimate the number of performance shares to be earned based on an evaluation of the probability of achieving the performance objectives. Such estimates are revised, if necessary, in subsequent periods when the underlying factors change our evaluation of the probability of achieving the performance objectives. Accordingly, share-based compensation expense associated with performance shares may differ significantly from the amount recorded in the current period.

As part of the Newport Merger, we assumed the outstanding stock appreciation rights of Newport (“SARs”). For SARs, the converted number of shares, fair value, vesting schedule and expiration dates are all based on the original grant date information. The stock-based compensation reflects the remaining fair value for all unvested SARs as of the acquisition date, recognized over the remaining time to vest.

The assumptions used in calculating the fair value of share-based paymentcompensation awards represents management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Intangible Assets, Goodwill and Other Long-Lived Assets.    As a result of our acquisitions, we have identified intangible assets and generated significant goodwill. Definite-lived intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful life. Goodwill and indefinite-lived intangible assets are subject to annual impairment testing as well as testing upon the occurrence of any event that indicates a potential impairment. Intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and goodwill may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows. To measure impairment for goodwill, we compare the fair value of our reporting units by measuring discounted cash flows to the book value of the reporting units. Goodwill would be impaired if the resulting implied fair value was less than the recorded book value of the goodwill.

The estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.

We have elected to perform our annual goodwill impairment test as of October 31 of each year, or more often if events or circumstances indicate that there may be impairment. Goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of acquisition. We allocate goodwill to reporting units at the time of acquisition or when there is a change in the reporting structure and base that allocation on which reporting units will benefit from the acquired assets and liabilities. In 2015, we reallocated our goodwill based upon a change in our reporting structure. There was no goodwill impairment as a result of this change in reporting units. Reporting units are defined as operating segments or one level below an operating segment, referred to as a component. The estimated fair value of our reporting units was based on discounted cash flow models derived from internal earnings and internal and external market forecasts. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity. The WACC used to test goodwill is derived from a group of comparable companies. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. We make every effort to forecast these future cash flows as accurately as possible with the information available at the time the forecast is developed.

We have the option ofIn performing our annual goodwill impairment test, we are permitted to first assessingassess qualitative factors to determine whether it is necessary to performmore likely than not that the current two-step impairment test or we can perform the two-step impairment test without performing the qualitative assessment. For the reporting units that did not experience any significant adverse changes in their business or reporting structures or any other adverse changes, and the reporting unit’s fair value substantially exceededof our reporting unit is less than its carrying value from when the previous Step 1 analysis was performed, we performed theamount, including goodwill. The qualitative “Step 0” assessment.assessment, is commonly referred to as “step zero.” In performing the qualitative Step 0step zero assessment, we consideredconsider certain events and circumstances specific to the reporting unit and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of

the reporting unit is less than its carrying amount. ForWe are also permitted to bypass the remaining

reporting unitsqualitative assessment and proceed directly to the quantitative test. If we choose to undertake the qualitative assessment and we conclude that didit is more likely than not meet these criteria we performedthat the two-step goodwill impairment test. Under the two-step goodwill impairment test, we compared the fair value of each reporting unit to its respective carrying amount, including goodwill. If the carrying value of the reporting unit exceedsis less than its carrying amount, we would then proceed to the fair value,quantitative impairment test. In the second step of the goodwill impairment test must be completed to measure the amount of impairment loss, if any. The second step compares the implied fair value of goodwill with the carrying value of goodwill. The implied fair value is determined by allocatingquantitative assessment, we compare the fair value of the reporting unit to all of the assets and liabilities of that unit, the excess ofits carrying amount, which includes goodwill. If the fair value over amounts assigned to its assets and liabilities isexceeds the implied faircarrying value, of goodwill.no impairment loss exists. If the implied fair value of goodwill is less than the carrying value ofamount, a goodwill an impairment loss is recognized equal to the difference.measured and recorded.

As of October 31, 2015,2017, we performed our annual impairment assessment of goodwill using the qualitative step zero assessment and determined that it is more likely than not that the fair values of the reporting units exceed their carrying amount. We will continue to monitor and evaluate the carrying value of goodwill. If market and economic conditions or business performance deteriorate, this could increase the likelihood of us recording an impairment charge. However, management believeswe believe it is not reasonably likely that an impairment will occur at any of its reporting units over the next twelve months.

In-Process Research and Development.    We value tangible and intangible assets acquired through our business acquisitions, includingin-process research and development (“IPR&D”), at fair value. We determine IPR&D through established valuation techniques for various projects for the development of new products and technologies and capitalize IPR&D as an intangible asset. If the projects are completed, the intangible asset will be amortized to earnings over the expected life of the completed product. If the R&D projects are abandoned, we willwrite-off the related intangible asset.

The value of IPR&D is determined using the income approach, which discounts expected future cash flows from projects under development to their net present value. Each project is analyzed and estimates and judgments are made to determine the technological innovations included in the utilization of core technology, the complexity, cost, time to complete development, any alternative future use or current technological feasibility and the stage of completion.

Income Taxes.Taxes.    We evaluate the realizability of our net deferred tax assets and assess the need for a valuation allowance on a quarterly basis. The future benefit to be derived from our deferred tax assets is dependent upon our ability to generate sufficient future taxable income in each jurisdiction of the right type to realize the assets. We record a valuation allowance to reduce our net deferred tax assets to the amount that may beis more likely than not to be realized. To the extent we established a valuation allowance an expense is recorded within the provision for income taxes line in the consolidated statements of operations and comprehensive income. In future periods, if we were to determine that it was more likely than not that that we would not be able to realize the recorded amount of our remaining net deferred tax assets, an adjustment to the valuation allowance would be recorded as an increase to income tax expense in the period such determination was made.

Accounting for income taxes requires atwo-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Were-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”), which included significant changes to U.S. tax law. Some of the more significant changes impacting the Company are the reduction of the U.S. federal corporate income tax rate from 35.0% to 21.0% as of January 1, 2018, the implementation of a territorial tax system and the imposition of a transition tax on deemed repatriated cumulative earnings of foreign subsidiaries (“transition tax”).

Income tax effects resulting from changes in tax are generally accounted for in the period in which the law is enacted and the effects are recorded as a component of provision for income taxes from continuing operations. On December 22, 2017, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance for reporting entities’ ability to timely complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we have computed and reported reasonable estimates related to the transition tax and the revaluation of deferred tax assets and liabilities and included these provisional amounts in our consolidated financial statements for the year ended December 31, 2017. The estimates of the impacts of the Act on our company are based on our current assumptions and understandings of the provisions of the Act. The ultimate impacts of the Act on our company may differ from these provisional amounts due to additional analysis, changes in interpretations and assumptions by our company and additional regulatory guidance that may be issued. We are required to finalize our estimate of the effects of the Act within a measurement period ending when we have obtained, prepared and analyzed the information needed to complete the accounting requirements under ASC Topic 740.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of total net revenues of certain line items included in our consolidated statements of operations and comprehensive income data:

Year Ended December 31, 20152017, Compared to 20142016 and 20132015

Net Revenues

Product revenues increased $23.3$589.4 million during 20152017, compared to 2014.2016. Product revenues relatedfor the Vacuum & Analysis segment increased by $322.8 million during 2017 compared to 2016, due to an increase in product revenues from our semiconductor capital equipment manufacturercustomers of $298.0 million, primarily due to volume increases, and semiconductor device manufactureran increase in revenues from customers in our other advanced markets of $24.8 million. Product revenues for our Light & Motion segment increased by $9.4$266.6 million in 2015during 2017, compared to 2014, mainly as a result2016, primarily due to the Newport Merger and consisted of volume increases. Ouran increase in product revenues for allfrom customers in our other advanced markets which excludeof $215.5 million and an increase in product revenues from our semiconductor capital equipment and semiconductor device product applications,customers of $51.1 million.

Product revenues increased by $13.9$436.9 million in 2015during 2016, compared to 2014. The2015. This increase in our non-semiconductor markets was primarily attributed to volume increasesthe Newport Merger, as sales by Newport accounted for product revenues of $13.2$387.1 million during 2016. Product revenues increased for our Vacuum & Analysis segment by $49.8 million during 2016, compared to 2015, primarily due to an increase in product revenues from our solar market and $12.3semiconductor customers of $71.3 million, in our data storage market. These increases were partiallyprimarily due to volume, offset by a decrease in product revenues from our other advanced markets of $11.8 million in our general industrial markets.

Product revenues increased $105.5 million during 2014 compared to 2013. Product revenues related to our semiconductor capital equipment manufacturer and semiconductor device manufacturer customers increased by $83.5 million in 2014 compared to 2013, mainly the result of volume increases. Product revenues for all other

markets, which exclude semiconductor capital equipment and semiconductor device product applications, increased by $22.0$21.5 million. The increase in our non-semiconductor markets was primarily attributed to volume increases of $15.4 million in our general industrial markets.

Service revenues consisted mainly of fees for services related to the repair of our products, software license and maintenance, installation services and training. Service revenues increased $9.3$31.3 million during 20152017, compared to 2014.2016, primarily due to an increase in service revenues from the Light & Motion segment of $19.0 million, due to the fact that 2016 only included eight months of revenue from Newport. The remaining increase of $12.3 million was primarily due to an increase in service revenues from our semiconductor capital equipment and semiconductor customers from our Vacuum & Analysis segment.

Service revenues increased $44.9 million during 2016, compared to 2015. This increase was primarily attributed to increases inthe Newport Merger, as revenues associated with Newport services accounted for $35.8 million of service revenues for 2016. Service revenues increased for our Vacuum & Analysis segment by $9.1 million during 2016, compared to 2015, primarily due to service revenues from the semiconductor markets which increased $8.1of $11.5 million, offset by a decrease in service revenues from other advanced markets of $2.4 million. Service revenues, which increased $6.0 million during 2014 compared to 2013 was primarily attributed to increases in the semiconductor markets.

Total international net revenues, including product and service, were $960.7 million or 50.1% of total net revenues for 2017, $619.7 million or 47.8% of total net revenues for 2016 and $355.2 million for 2015 or 43.7% of net revenues, compared to $332.4 million for 2014, or 42.6% of net revenues, and $305.5 million, or 45.6% oftotal net revenues for 2013.2015. The majorityincreases in 2016 and 2017 were primarily the result of our foreign revenues are from sales to customersthe Newport Merger. A significant portion of the increases in 2017 international net revenue were in South Korea, Japan, Israel and Japan.Germany.

The following table sets forth our net revenues by reportable segment:

Net Revenues

Net revenues for the Advanced Manufacturing Capital Equipmentour Vacuum & Analysis segment increased by 6.9%$335.2 million in 20152017, compared to 2014 and 21.9%2016, due to an increase in 2014 compared to 2013. Net revenues for the Asia Region Sales segment increased by 11.0% in 2015 compared to 2014 and 14.6% in 2014 compared to 2013. These increases for the Advance Manufacturing Capital Equipment and Asia Region Sales segments are primarily attributed to net revenues from our semiconductor capital equipment manufacture customers of $315.0 million and semiconductor device manufacture customers, which increased by 3.2% in 2015 compared to 2014 and increased by 17.2% in 2014 compared to 2013. Thean increase in 2015 in the Asia Region Sales segment was also the result of increased sales to the solar market.

Net revenues for the Global Service segment increased by 8.8% in 2015 compared to 2014 and 5.9% in 2014 compared to 2013. These increases in the Global Service segment are primarily attributed to net revenues from semiconductor capital equipment manufacture and semiconductor device manufacture customers.

Net revenues in our Other segment decreased by 3.9% in 2015 compared to 2014 and increased by 12.9% in 2014 compared to 2013. This segment, which has operations mainly in Europe, is not impacted as much by the semiconductor capital equipment market. The decrease of 3.9% in 2015 compared to 2014 is primarily attributed to the negative impact of foreign exchange rates, partially offset by a 6.4% increasecustomers in our other advanced markets which exclude semiconductor capital equipment manufacture and semiconductor device manufacture customers. The increase of 12.9%$20.2 million, primarily due to increases in 2014net revenues from customers in our industrial technologies markets. Net revenues for our Vacuum & Analysis segment increased $58.8 million in 2016, compared to 2013 is2015, primarily attributeddue to an increase in net revenues from our customers in the semiconductor market of 8.0%$82.8 million, offset by a decrease in 2014revenues of $24.0 million from our other advanced markets, primarily related to decreases in the solar, thin film and data storage markets.

Net revenues from our Light & Motion segment increased $285.5 million in 2017, compared to 20132016, primarily due to the Newport Merger and consisted of an increase in net revenues from customers in our other advanced markets which excludeof $228.1 million, primarily due to increases in net revenues from customers in our industrial technologies and research and defense markets and an increase in revenues from customers in our semiconductor capital equipment manufacturemarket of $57.4 million. Net revenues from our Light & Motion segment in 2016 were $423.0 million and semiconductor device manufacture customers.only represented eight months of revenue in 2016, as the Newport Merger occurred in April 2016.

The following is gross profit as a percentage of net revenues by product and service:

Gross Profit