~~Registrant's~~Registrant’s telephone number, including area code (978) 645-5500

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~"large~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting company,"” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with 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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July ~~26, 2022,~~31, 2023, the registrant had ~~55,742,376~~66,862,788 shares of common stock outstanding.


ASSETS	June 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Current assets:
Cash and cash equivalents	$	1,065		$	966		$	757		$	909
Short-term investments		2			76			1			1
Trade accounts receivable, net of allowance for doubtful accounts of $4 at June 30, 2022 and December 31, 2021		481			443
Accounts receivable, net of allowance for doubtful accounts of $8 and $11 at June 30, 2023 and December 31, 2022, respectively								631			720
Inventories		689			577			1,036			977
Other current assets		112			85			303			187
Total current assets		2,349			2,147			2,728			2,794

Property, plant and equipment, net		377			326			777			800
Right-of-use assets		170			184
Right-of-use assets, net								237			234
Goodwill		1,220			1,228			2,575			4,308
Intangible assets, net		544			576			2,728			3,173
Other assets		89			79			185			186
Total assets	$	4,749		$	4,540		$	9,230		$	11,495

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	11		$	9		$	88		$	93
Accounts payable		181			168			314			426
Accrued compensation		84			132
Income taxes payable		31			25
Lease liabilities		18			18
Deferred revenue and customer advances		51			37
Other current liabilities		81			71			433			433
Total current liabilities		457			460			835			952

Long-term debt, net		804			808			4,819			4,834
Non-current deferred taxes		101			99			628			783
Non-current accrued compensation		46			49			143			138
Non-current lease liabilities		180			193			217			215
Other non-current liabilities		32			44			93			90
Total liabilities		1,620			1,653			6,735			7,012
Commitments and contingencies (Note 18)
Stockholders' equity:
Preferred Stock, $0.01 par value per share, 2 shares authorized; NaN issued and outstanding		—			—
Common Stock, no par value, 200 shares authorized; 55.7 and 55.5 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		—			—
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 2 shares authorized; no shares issued and outstanding								—			—
Common stock, no par value, 200 shares authorized; 66.9 and 66.6 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively								—			—
Additional paid-in capital		923			907			2,168			2,142
Retained earnings		2,240			1,991			431			2,272
Accumulated other comprehensive loss		(34	)		(11	)
Total stockholders' equity		3,129			2,887
Total liabilities and stockholders' equity	$	4,749		$	4,540
Accumulated other comprehensive (loss) income								(104	)		69
Total stockholders’ equity								2,495			4,483
Total liabilities and stockholders’ equity							$	9,230		$	11,495

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021		2022			2021			2023			2022			2023			2022
Net revenues:
Products	$	664		$	657	$	1,312		$	1,262		$	885		$	664		$	1,597		$	1,312
Services		101			93		195			182			118			101			200			195
Total net revenues		765			750		1,507			1,444			1,003			765			1,797			1,507
Cost of revenues:
Products		377			345		737			667			470			377			878			737
Services		50			50		98			100			63			50			113			98
Total cost of revenues (exclusive of amortization shown separately below)		427			395		835			767			533			427			991			835
Gross profit		338			355		672			677			470			338			806			672
Research and development		53			50		105			97			75			53			147			105
Selling, general and administrative		101			97		193			193			172			101			348			193
Acquisition and integration costs		2			6		10			12			5			2			11			10
Restructuring and other		3			3		5			8
Restructuring													11			3			12			5
Amortization of intangible assets		15			13		30			25			76			15			157			30
Goodwill and intangible asset impairments													1,827			—			1,827			—
Gain on sale of long-lived assets		—			—		(7	)		—			—			—			—			(7	)
Income from operations		164			186		336			342
(Loss) income from operations													(1,696	)		164			(1,696	)		336
Interest income		1			—		1			—			(4	)		(1	)		(7	)		(1	)
Interest expense		7			6		13			12			88			7			173			13
Other expense (income), net		2			8		(3	)		9			11			2			9			(3	)
Income before income taxes		156			172		327			321
Provision for income taxes		26			26		54			52
Net income	$	130		$	146	$	273		$	269
Other comprehensive income, net of tax:
(Loss) income before income taxes													(1,791	)		156			(1,871	)		327
(Benefit) provision for income taxes													(22	)		26			(59	)		54
Net (loss) income												$	(1,769	)	$	130		$	(1,812	)	$	273
Other comprehensive (loss) income, net of tax:
Changes in value of financial instruments designated as cash flow hedges	$	8		$	—	$	25		$	11		$	44		$	8		$	29		$	25
Foreign currency translation adjustments		(38	)		5		(48	)		(14	)		(218	)		(38	)		(173	)		(48	)
Total comprehensive income	$	100		$	151	$	250		$	266
Net income per share:
Change in net investment hedge													2			—			(13	)		—
Unrecognized loss on investments													(11	)		—			(11	)		—
Net unrecognized pension loss													(3	)		—			(5	)		—
Total comprehensive (loss) income												$	(1,955	)	$	100		$	(1,985	)	$	250
Net (loss) income per share:
Basic	$	2.33		$	2.64	$	4.90		$	4.86		$	(26.47	)	$	2.33		$	(27.14	)	$	4.90
Diluted	$	2.32		$	2.63	$	4.89		$	4.83		$	(26.47	)	$	2.32		$	(27.14	)	$	4.89
Weighted average common shares outstanding:
Basic		55.7			55.4		55.6			55.3			66.8			55.7			66.8			55.6
Diluted		55.8			55.7		55.8			55.6			66.8			55.8			66.8			55.8

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


	Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’			Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Earnings			Loss			Equity			Shares		Amount		Capital			Earnings			Income (Loss)			Equity
Balance at December 31, 2021		55.5	$	—	$	907		$	1,991		$	(11	)	$	2,887
Balance at December 31, 2022																		66.6	$	—	$	2,142		$	2,272		$	69		$	4,483
Net issuance under stock-based plans		0.1				(6	)								(6	)		0.1				(6	)								(6	)
Stock-based compensation						8									8							18									18
Cash dividend ($0.22 per common share)									(12	)					(12	)									(15	)					(15	)
Comprehensive income (net of tax):
Net income									143						143
Comprehensive (loss) income (net of tax):
Net loss																									(42	)					(42	)
Other comprehensive income												7			7													13			13
Balance at March 31, 2022		55.6		—		909			2,122			(4	)		3,027
Balance at March 31, 2023																		66.7		—		2,154			2,215			82			4,451
Net issuance under stock-based plans		0.1				1									1			0.2				1									1
Stock-based compensation						13									13							13									13
Cash dividend ($0.22 per common share)									(12	)					(12	)									(15	)					(15	)
Comprehensive income (net of tax):
Net income									130						130
Comprehensive loss (net of tax):
Net loss																									(1,769	)					(1,769	)
Other comprehensive loss												(30	)		(30	)												(186	)		(186	)
Balance at June 30, 2022		55.7	$	—	$	923		$	2,240		$	(34	)	$	3,129
Balance at June 30, 2023																		66.9	$	—	$	2,168		$	431		$	(104	)	$	2,495


	Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’			Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Earnings			Loss			Equity			Shares		Amount		Capital			Earnings			Loss			Equity
Balance at December 31, 2020		55.2	$	—	$	873		$	1,488		$	—		$	2,361
Net issuance under stock-based plans		0.1				(5	)								(5	)
Stock-based compensation						10									10
Cash dividend ($0.20 per common share)									(11	)					(11	)
Comprehensive income (net of tax):
Net income									122						122
Other comprehensive loss												(8	)		(8	)
Balance at March 31, 2021		55.3		—		878			1,599			(8	)		2,469
Balance at December 31, 2021																		55.5	$	—	$	907		$	1,991		$	(11	)	$	2,887
Net issuance under stock-based plans		0.1				(3	)								(3	)		0.1				(6	)								(6	)
Stock-based compensation						9									9							8									8
Cash dividend ($0.22 per common share)									(12	)					(12	)									(12	)					(12	)
Comprehensive income (net of tax):
Net income									146						146										143						143
Other comprehensive income												5			5													7			7
Balance at June 30, 2021		55.4	$	—	$	884		$	1,733		$	(3	)	$	2,614
Balance at March 31, 2022																		55.6		—		909			2,122			(4	)		3,027
Net issuance under stock-based plans																		0.1				1									1
Stock-based compensation																						13									13
Cash dividend ($0.22 per common share)																									(12	)					(12	)
Comprehensive income (loss) (net of tax):
Net income																									130						130
Other comprehensive loss																												(30	)		(30	)
Balance at June 30, 2022																		55.7	$	—	$	923		$	2,240		$	(34	)	$	3,129

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


	Six Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2023			2022
Cash flows from operating activities:
Net income	$	273		$	269
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(1,812	)	$	273
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		56			49			208			56
Goodwill and intangible asset impairments								1,827			—
Unrealized loss on derivatives not designated as hedging instruments		7			7			20			7
Amortization of debt issuance costs and original issue discount								15			—
Gain on sale of long-lived assets		(7	)		—			—			(7	)
Stock-based compensation		21			19			31			21
Provision for excess and obsolete inventory		7			9			30			7
Deferred income taxes		(2	)		10			(120	)		(2	)
Other		2			—			1			2
Changes in operating assets and liabilities:
Trade accounts receivable		(53	)		(43	)
Changes in operating assets and liabilities
Accounts receivable								80			(53	)
Inventories		(133	)		(38	)		(94	)		(133	)
Other current and non-current assets		5			7			(11	)		5
Accounts payable		15			38			(108	)		15
Current and non-current accrued compensation		(49	)		(18	)
Accrued compensation								(35	)		(49	)
Income taxes payable		(11	)		(42	)		(56	)		(11	)
Other current and non-current liabilities		15			25			2			15
Net cash provided by operating activities		146			292
Net cash (used in) provided by operating activities								(22	)		146
Cash flows from investing activities:
Purchases of investments		(1	)		(397	)		—			(1	)
Maturities of investments		76			205			—			76
Sales of investments		—			135
Proceeds from sale of long-lived assets		7			—			1			7
Purchases of property, plant and equipment		(83	)		(43	)		(35	)		(83	)
Net cash used in investing activities		(1	)		(100	)		(34	)		(1	)
Cash flows from financing activities:
Proceeds from borrowings		6			1			1			6
Payments of borrowings		(8	)		(11	)		(45	)		(8	)
Dividend payments		(24	)		(23	)		(29	)		(24	)
Net payments related to employee stock awards		(5	)		(8	)		(5	)		(5	)
Net cash used in financing activities		(31	)		(41	)		(78	)		(31	)
Effect of exchange rate changes on cash and cash equivalents		(15	)		(4	)		(18	)		(15	)
Increase in cash and cash equivalents		99			147
(Decrease) increase in cash and cash equivalents								(152	)		99
Cash and cash equivalents at beginning of period		966			608			909			966
Cash and cash equivalents at end of period	$	1,065		$	755		$	757		$	1,065

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

1)(1)

Basis of Presentation

The terms ~~"MKS"~~“MKS” and the ~~"Company"~~“Company” refer to MKS Instruments, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The interim financial data as of June 30, ~~2022,~~2023, and for the three and six months ended June 30, ~~2022,~~2023, are unaudited; however, in the opinion of MKS, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet presented as of December 31, ~~2021~~2022 has been derived from the consolidated audited financial statements as of that date. The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by United States generally accepted accounting principles ("(“U.S. ~~GAAP"~~GAAP”). The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the MKS Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the U.S. Securities and Exchange Commission on ~~February 28, 2022.~~March 14, 2023.

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventory valuation, warranty costs, stock-based compensation, intangible assets, goodwill, other long-lived assets and ~~other acquisition expenses and~~ income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As a result of rounding, there may be immaterial differences in amounts presented and certain calculations may not sum to the total number expressed in each category or tie to a corresponding schedule.

In the first ~~quarter~~and second quarters of 2022, MKS ~~updated~~was comprised of the ~~names of its~~following three divisions in order to simplify its naming convention. These three divisions, formerly known as the Vacuum & Analysis Division, the Light & Motion Division and the Equipment & Solutions Division, are now referred to asdivisions: the Vacuum Solutions Division ~~("VSD"~~(“VSD”), the Photonics Solutions Division ~~("PSD"~~(“PSD”) and the Equipment Solutions Division ~~("ESD"~~(“ESD”)~~, respectively. MKS'~~. During the third quarter of 2022, MKS consolidated ESD into PSD and prior periods were recast to reflect this change. On August 17, 2022, MKS acquired Atotech Limited (“Atotech” and such transaction, the “Atotech Acquisition”) and the Atotech business became MKS’ new Materials Solutions Division (“MSD”). MKS’ reportable segments ~~continue to be~~as of June 30, 2023 consist of its three ~~divisions.~~divisions, VSD, PSD and MSD.

2) (2)

Revenue from Contracts with Customers

Contract assets as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were ~~immaterial.~~$49 and $46, respectively. A roll-forward of the ~~Company's~~Company’s deferred revenue and customer advances is as follows:


	Six Months Ended
	June 30, 2023			June 30, 2022
Beginning balance, January 1(1)	$	96		$	40
Additions to deferred revenue and customer advances		84			91
Amount of deferred revenue and customer advances recognized in income		(93	)		(78	)
Ending balance, June 30(2)	$	87		$	53

Six Months Ended

June 30, 2022

June 30, 2021

Beginning balance, January 1(1)

$
40

$
37

Additions to deferred revenue and customer advances

91

76

Amount of deferred revenue and customer advances recognized in income

(78
)

(72
)
Ending balance, June 30(2)

$
53

$
41

(1)

Beginning balance as of January 1, 2023 included $94 of current deferred revenue and customer advances, and $2 of non-current deferred revenue. Beginning balance as of January 1, 2022 included $37 of current deferred revenue and customer advances, and $3 of non-current deferred revenue. ~~Beginning~~

(2)

Ending balance as of ~~January 1, 2021~~June 30, 2023 included $3185 of current deferred revenue and customer advances, and $62 of non-current deferred revenue.

~~(2)~~

Ending balance as of June 30, 2022 included $51 of current deferred revenue and customer advances, and $2 of non-current deferred revenue. ~~Ending balance as of June 30, 2021 included $~~36 ~~of current deferred revenue and customer advances and $~~5 ~~of non-current deferred revenue.~~

Revenue from certain custom products, including MSD plating equipment, and revenue from certain service contracts are recorded over time. Remaining product and services revenues are recorded at a point in time.

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Disaggregation of Revenue

The following tables summarize revenue from contracts with customers:


	Three Months Ended June 30, 2023
	VSD		PSD		MSD		Total
Net revenues:
Products	$	365	$	236	$	284	$	885
Services		61		43		14		118
Total net revenues	$	426	$	279	$	298	$	1,003

Three Months Ended June 30, 2022

VSD

PSD

ESD

Total

Net revenues:

Products

$
445

$
207

$
12

$
664

Services

62

21

18

101

Total net revenues

$
507

$
228

$
30

$
765

Three Months Ended June 30, 2021

VSD

PSD

ESD

Total

Net revenues:

Products

$
399

$
176

$
82

$
657

Services

59

17

17

93

Total net revenues

$
458

$
193

$
99

$
750

Six Months Ended June 30, 2022

VSD

PSD

ESD

Total

Net revenues:

Products

$
861

$
417

$
34

$
1,312

Services

120

39

36

195

Total net revenues

$
981

$
456

$
70

$
1,507

Six Months Ended June 30, 2021

VSD

PSD

ESD

Total

Net revenues:

Products

$
778

$
341

$
143

$
1,262

Services

116

34

32

182

Total net revenues

$
894

$
375

$
175

$
1,444

~~Product revenue, excluding revenue from certain custom products, is recorded at a point in time, while the majority of service revenue and revenue from certain custom products are recorded over time.~~

3) ~~Investments~~


	Three Months Ended June 30, 2022
	VSD		PSD		MSD		Total
Net revenues:
Products	$	445	$	219	$	—	$	664
Services		62		39		—		101
Total net revenues	$	507	$	258	$	—	$	765

~~The following tables show the gross unrealized gains and (losses) aggregated by investment category for available-for-sale investments:~~

As of June 30, 2022:

Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Estimated
Fair Value

Short-term investments:

Time deposits and certificates of deposit

$
1

$
—

$
—

$
1

Banker's acceptance drafts

1

—

—

1

$
2

$
—

$
—

$
2


	Six Months Ended June 30, 2023
	VSD		PSD		MSD		Total
Net revenues:
Products	$	617	$	405	$	575	$	1,597
Services		103		70		27		200
Total net revenues	$	720	$	475	$	602	$	1,797

As of June 30, 2022:

Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Estimated
Fair Value

Long-term investments:

Group insurance contracts

$
5

$
1

$
—

$
6

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

As of December 31, 2021:

Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Estimated
Fair Value

Short-term investments:

Available-for-sale investments:

Time deposits and certificates of deposit

$
22

$
—

$
—

$
22

Commercial paper

42

—

—

42

U.S. treasury obligations

11

—

—

11

U.S. agency obligations

1

—

—

1

$
76

$
—

$
—

$
76

As of December 31, 2021:

Cost

Gross
Unrealized
Gains

Gross
Unrealized
(Losses)

Estimated
Fair Value

Long-term investments:

Group insurance contracts

$
5

$
1

$
—

$
6


	Six Months Ended June 30, 2022
	VSD		PSD		MSD		Total
Net revenues:
Products	$	861	$	451	$	—	$	1,312
Services		120		75		—		195
Total net revenues	$	981	$	526	$	—	$	1,507

Management has the ability to liquidate certain of the Company's investments in order to meet the Company's liquidity needs in the next 12 months. Accordingly, certain investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying balance sheets.

Interest income is accrued as earned. Dividend income is recognized as income on the date the security trades "ex-dividend." The cost of marketable securities sold is determined by the specific identification method. Realized gains or losses are reflected in income and were not material for the six months ended June 30, 2022 and 2021.(3)

4) Fair Value Measurements

In accordance with the provisions of fair value accounting, a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.

The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments or securities or derivative contracts that are valued using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such assets and liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The ~~Company's~~Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Assets and liabilities of the Company are measured at fair value on a recurring basis as of June 30, 2023 and are summarized as follows:


			Fair Value Measurements at Reporting Date Using
Description	June 30, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	116	$	116	$	—	$	—
Available-for-sale securities:
Time deposits and certificates of deposit		1		—		1		—
Group insurance contracts		6		—		6		—
Derivatives
Foreign exchange forward contracts		7		—		7		—
Interest rate hedges - non-current		106		—		106		—
Pension and deferred compensation plan assets		19		—		19		—
Total assets	$	255	$	116	$	139	$	—
Liabilities:
Derivatives
Foreign exchange forward contracts	$	2	$	—	$	2	$	—
Total liabilities	$	2	$	—	$	2	$	—
Reported as follows:
Assets:
Cash and cash equivalents	$	116	$	116	$	—	$	—
Short-term investments		1		—		1		—
Other current assets		7		—		7		—
Total current assets	$	124	$	116	$	8	$	—
Other assets	$	131	$	—	$	131	$	—
Liabilities:
Other current liabilities	$	2	$	—	$	2	$	—

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

~~Assets and liabilities of the Company are measured at fair value on a recurring basis as of June 30, 2022 and are summarized as follows:~~

Fair Value Measurements at Reporting Date Using

Description

June 30, 2022

Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash equivalents:

Money market funds

$
306

$
306

$
—

$
—

Available-for-sale investments:

Time deposits and certificates of deposit

1

—

1

—

Banker's acceptance drafts

1

—

1

—

Group insurance contracts

6

—

6

—

Derivatives

Foreign exchange forward contracts

13

—

13

—

Interest rate hedge - non-current

29

—

29

Pension and deferred compensation plan assets

21

—

21

—

Total assets

$
377

$
306

$
71

$
—

Liabilities:

Derivatives – foreign exchange forward contracts

$
1

$
—

$
1

$
—

Total liabilities

$
1

$
—

$
1

$
—

Reported as follows:

Assets:

Cash equivalents

$
306

$
306

$
—

$
—

Short-term investments

2

—

2

—

Other current assets

13

—

13

—

Total current assets

$
321

$
306

$
15

$
—

Other assets

$
56

$
—

$
56

$
—

Liabilities:

Other current liabilities

$
1

$
—

$
1

$
—

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

Assets and liabilities of the Company are measured at fair value on a recurring basis as of December 31, ~~2021~~2022 and are summarized as follows:


			Fair Value Measurements at Reporting Date Using
Description	December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	60	$	60	$	—	$	—
Available-for-sale securities:
Time deposits and certificates of deposit		1		—		1		—
Group insurance contracts		6		—		6		—
Derivatives
Foreign exchange forward contracts		7		—		7		—
Interest rate hedges-non-current		104		—		104		—
Pension and deferred compensation plan assets		17		—		17		—
Total assets	$	195	$	60	$	135	$	—
Liabilities:
Derivatives
Foreign exchange forward contracts	$	8	$	—	$	8	$	—
Total liabilities	$	8	$	—	$	8	$	—
Reported as follows:
Assets:
Cash and cash equivalents	$	60	$	60	$	—	$	—
Short-term investments		1		—		1		—
Other current assets		8		—		8		—
Total current assets	$	69	$	60	$	9	$	—
Other assets	$	126	$	—	$	126	$	—
Liabilities:
Other current liabilities	$	8	$	—	$	8	$	—

The estimated carrying value and fair value of the Company’s debt as of June 30, 2023 and December 31, 2022 are as follows:

Fair Value Measurements at Reporting Date Using

Description

December 31, 2021

Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash equivalents:

Money market funds

$
55

$
55

$
—

$
—

U.S. treasury obligations

175

—

175

—

Available-for-sale investments:

Time deposits and certificates of deposit

22

—

22

—

Commercial paper

42

42

U.S. treasury obligations

11

—

11

—

U.S. agency obligations

1

1

Group insurance contracts

6

—

6

—

Derivatives

Foreign exchange forward contracts

3

—

3

—

Foreign currency options

3

—

3

—

Interest rate hedge - non-current

9

—

9

—

Pension and deferred compensation plan assets

20

—

20

—

Total assets

$
347

$
55

$
292

$
—

Liabilities:

Derivatives

Foreign exchange forward contracts

$
1

$
—

$
1

$
—

Interest rate hedge - non-current

5

—

5

—

Total liabilities

$
6

$
—

$
6

$
—

Reported as follows:

Assets:

Cash equivalents

$
230

$
55

$
175

$
—

Short-term investments

76

—

76

—

Other current assets

6

—

6

Total current assets

$
312

$
55

$
257

$
—

Other assets

$
35

$
—

$
35

$
—

Liabilities:

Other current liabilities

$
1

$
—

$
1

$
—

Other liabilities

$
5

$
—

$
5

$
—


	June 30, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Outstanding debt	$	5,086	$	5,073	$	5,122	$	5,071

~~Money~~was determined using available market ~~funds are cash equivalents.~~information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy.

The pension and deferred compensation plan assets represent investments in mutual funds, exchange traded funds, government securities and other time deposits. These investments are set aside for ~~the~~ retirement ~~benefit of the employees~~benefits of certain of the ~~Company's~~Company’s subsidiaries.

As a result of the ~~Company's~~Company’s global operating activities and variable interest rate borrowings, the Company is exposed to market risks from changes in foreign currency exchange rates and ~~variable~~ interest rates, which may adversely affect its operating results and financial position.

When deemed appropriate, the Company minimizes its risks from foreign currency exchange rate and interest rate fluctuations through the use of derivative financial instruments. The principal market in which the Company executes its foreign currency ~~contracts and options~~ and interest rate ~~swaps~~contracts is the institutional market in an over-the-counter

environment with a relatively high level of price transparency. The market participants are typically large commercial banks. The ~~foreign exchange forward~~ contracts ~~and options and interest rate swaps~~ are valued using broker quotations or market transactions.

5) (4)

Derivatives

The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. The Company operates internationally and, in the normal course of business, is exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business. The Company uses derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps to manage interest rate exposure.

By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions, for which no collateral is required. The Company has policies to monitor the credit risk of these counterparties. While there can be no assurance, the Company does not anticipate material non-performance by any of these counterparties.

Foreign Exchange Forward Contracts

The Company hedges a portion of its forecasted foreign currency-denominated intercompany sales of inventory, over a maximum period of eighteen months, using foreign exchange forward contracts accounted for as cash-flow hedges. To the extent these derivatives are effective in ~~off-setting~~offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the ~~derivatives'~~derivatives’ fair value are not included in current earnings but are included in other comprehensive income ~~("OCI"~~(“OCI”) in ~~stockholders'~~stockholders’ equity. These changes in fair value will subsequently be reclassified into earnings, as applicable, when the forecasted transaction occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. The cash flows resulting from foreign exchange forward contracts are classified in the condensed consolidated statements of cash flows as part of cash flows from operating activities. The Company does not enter into derivative instruments for trading or speculative purposes.

~~As of June 30, 2022 and December 31, 2021, the Company had outstanding foreign exchange forward contracts with gross notional values of $246~~ ~~and $241, respectively.~~ ~~The following tables provide a summary of the primary net hedging positions and corresponding fair values held as of June 30, 2022 and December 31, 2021:~~

June 30, 2022

Currency Hedged (Buy/Sell)

Gross Notional
Value

Fair Value(1)

U.S. dollar/Japanese yen

$
66

$
5

U.S. dollar/South Korean won

111

5

U.S. dollar/euro

17

1

U.S. dollar/U.K. pound sterling

7

—

U.S. dollar/Taiwan dollar

45

2

Total

$
246

$
13

December 31, 2021

Currency Hedged (Buy/Sell)

Gross Notional
Value

Fair Value(1)

U.S. dollar/Japanese yen

$
60

$
2

U.S. dollar/South Korean won

108

1

U.S. dollar/euro

15

—

U.S. dollar/U.K. pound sterling

11

—

U.S. dollar/Taiwan dollar

47

—

Total

$
241

$
3

~~(1)~~

~~Represents receivable amount included in other current assets in the condensed consolidated balance sheet.~~

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

The foreign exchange forward contracts are subject to a master netting agreement with one financial institution. However, the Company has elected to record these contracts on a gross basis in the consolidated balance sheet.

~~Interest Rate Swap Agreements~~

The Company entered into interest rate swap agreements that exchange the variable LIBOR interest rate paid on the outstanding balance of its Term Loan Facility, as defined and further described in Note 9, to a fixed rate. ~~The table below summarizes interest rate hedges outstanding at June 30, 2022 and December 31, 2021:~~

June 30,
2022

June 30,
2022

December 31,
2021

Trade Date

Effective Date

Maturity

Fixed
Rate

Notional
Amount at
Effective
Date

Notional
Amount

Fair
Value
Asset
(Liability)

Fair
Value
Asset
(Liability)

April 3, 2019

April 5, 2019

March 31, 2023

2.309
%

$
200

$
200

$
1

$
(5
)
October 29, 2020

October 26, 2021

February 28, 2025

0.485
%

$
200

$
200

13

4

October 29, 2020

March 31, 2022

February 28, 2025

0.623
%

$
100

$
100

15

5

Total

$
29

$
4

~~Currency Option Agreements~~

~~In connection with financing the pending acquisition of Atotech Limited ("Atotech"), the Company expects to issue euro denominated term loan debt. In 2021,~~ ~~the Company purchased foreign currency option contracts to fix the conversion of €300~~ ~~into U.S. dollars. The options settled on January 31, 2022 and the Company recorded a gain of $~~5~~, net of premiums, which is included in other expense (income), net.~~

June 30,
2022

June 30,
2022

December 31,
2021

Trade Date

Effective Date

Maturity

Fixed
Rate

Notional Amount
in EUR

Notional Amount
in U.S. dollars

Fair
Value
Asset
(Liability)

Fair
Value
Asset
(Liability)

October 26, 2021

October 26, 2021

January 31, 2022

1.162
%

€
300

$
—

$
—

$
3

The currency options were recorded at fair value on the balance sheet and changes in the fair value were recognized immediately in earnings. The fair value asset was classified in other current assets in the condensed consolidated balance sheet.

~~The following table provides a summary of the gains (losses) on derivatives designated as cash flow hedging instruments:~~

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Foreign exchange forward contracts:

Net gains recognized in accumulated OCI

$
8

$
—

$
26

$
11

Net gains (losses) reclassified from accumulated OCI into income

$
3

$
—

$
4

$
(2
)

~~The net amount of existing gains as of June 30, 2022 expected to be reclassified from OCI into earnings within the next~~ 12 ~~months is immaterial.~~

~~The Company~~also enters into foreign exchange forward contracts to hedge against changes in the balance sheet for certain subsidiaries to mitigate the risk associated with certain foreign currency transactions in the ordinary course of business. These derivatives are not designated as cash flow hedging instruments and gains or losses from these derivatives are recorded immediately in other expense (income), net.

The following tables summarize the primary net hedging positions and fair values of foreign exchange forward contracts outstanding as of June 30, 2023 and December 31, 2022:


	June 30, 2023
Currency Hedged (Buy/Sell)	Net Notional Value		Fair Value Asset
U.S. dollar/Japanese yen	$	28	$	4
U.S. dollar/South Korean won		27		—
U.S. dollar/Taiwan dollar		31		1
U.S. dollar/Singapore dollar		1		—
U.S. dollar/Chinese renminbi		11		—
Euro/U.S. dollar		52		—
Euro/Chinese renminbi		36		—
Euro/Turkish lira		1		—
U.K. pound sterling/U.S. dollar		24		—
Total	$	211	$	5


	December 31, 2022
Currency Hedged (Buy/Sell)	Net Notional Value		Fair Value (Liability) Asset
U.S. dollar/Japanese yen	$	57	$	—
U.S. dollar/South Korean won		75		(4	)
U.S. dollar/Taiwan dollar		33		1
U.S. dollar/U.K. pound sterling		7		—
U.S. dollar/Singapore dollar		1		—
U.S. dollar/Chinese renminbi		9		—
Euro/U.S. dollar		485		1
Euro/Chinese renminbi		31		1
U.K. pound sterling/euro		4		—
Total	$	702	$	(1	)

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

The following table summarizes the net (losses) gains on derivatives designated as cash flow hedging instruments:


	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
Foreign exchange forward contracts:
Net gains (losses) recognized in accumulated OCI	$	2		$	8	$	(13	)	$	26
Net (losses) gains reclassified from accumulated OCI into income	$	(1	)	$	3	$	(2	)	$	4

The net amount of existing losses as of June 30, 2023 expected to be reclassified from OCI into earnings within the next 12 months is immaterial.

Net Investment Hedge

During the six months ended June 30, 2023, the Company designated a euro net investment hedge to offset the foreign exchange exposure of the Euro Tranche B, as defined and described further in Note 8. As a result, any mark-to-market foreign exchange impact of the Euro Tranche B is recorded in OCI.

Interest Rate Agreements

The Company has various interest rate swap agreements that exchange a forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) paid on the outstanding balance of its New Term Loan Facility, as defined and further described in Note 8, to a fixed rate. The Company acquired USD London Interbank Offered Rate (“LIBOR”) interest rate cap agreements as a result of the Atotech Acquisition and had utilized these agreements to offset Term SOFR on its New Term Loan Facility. Effective June 30, 2023, the Company’s USD LIBOR based interest rate caps were converted to Term SOFR. The Company also had two USD LIBOR based swaps that were converted to Term SOFR, effective June 30, 2023. The conversions from USD LIBOR to Term SOFR did not have a material impact on the Company’s results of operations.

The following table summarizes the terms and fair values of interest rate swaps and interest rate caps outstanding at June 30, 2023 and December 31, 2022:


									June 30, 2023		December 31, 2022
Effective Date	Maturity	Fixed Rate			Notional Amount at Effective Date		Notional Amount at June 30, 2023		Fair Value Asset		Fair Value Asset
Interest Rate Swaps
April 5, 2019	March 31, 2023		2.309	%	$	300	$	—	$	—	$	1
June 30, 2023	February 28, 2025		0.391	%		200		200		15		16
June 30, 2023	February 28, 2025		0.543	%		300		300		21		22
September 30, 2022	September 30, 2026		3.156	%		350		350		12		8
January 2, 2024	January 31, 2028		2.841	%		250		—		8		5
September 30, 2022	September 30, 2027		3.198	%		350		350		11		8
January 2, 2024	January 31, 2029		2.986	%		250		—		7		4
September 30, 2022	September 30, 2026		3.358	%		600		600		14		10
						2,600		1,800		88		74
Interest Rate Caps
June 30, 2023	January 31, 2024		0.805	%		350		350		9		15
June 30, 2023	January 31, 2024		0.805	%		350		350		9		15
						700		700		18		30
		Total			$	3,300	$	2,500	$	106	$	104

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

The interest rate swaps are recorded at fair value on the balance sheet and changes in the fair value are recognized in OCI. To the extent these arrangements are no longer effective hedges, the hedging relationship will be discontinued and changes in the fair value of the hedging instruments from the last assessment period that were effective up to the current period will be recorded immediately in earnings. Amounts previously recorded in OCI will remain in OCI and will be reclassified to earnings when the interest payments impact consolidated earnings. If the Company determines that the interest payments are unlikely to occur, amounts previously recorded in OCI will be reclassified to earnings immediately. Changes in the fair value of interest rate caps are recorded immediately in earnings, as the Company has not designated these instruments as hedges and therefore these instruments do not qualify for hedge accounting.

The following table summarizes the gains on derivatives not designated as hedging instruments, consisting of balance sheet hedges and interest rate caps:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net gains recognized in income	$	6	$	1	$	16	$	7

Currency Option Agreements

In connection with financing the Atotech Acquisition, the Company issued euro denominated term loan debt. In anticipation of entering into these euro denominated loans, the Company purchased foreign currency option contracts in 2021 to fix the conversion of 300 euros into U.S. dollars. The options settled on January 31, 2022 and the Company recorded a gain of $5, net of premiums in 2022, which is included in other expense (income), net.

(5)

Inventories

Inventories consist of the following:


	June 30, 2023		December 31, 2022
Raw materials	$	755	$	689
Work-in-process		109		115
Finished goods		172		173
Total	$	1,036	$	977

(6)

Acquisition

On August 17, 2022 (the “Effective Date”), the Company completed the Atotech Acquisition, through the acquisition of the entire issued share capital of Atotech by Atotech Manufacturing, Inc. (“Bidco”), a Delaware corporation and indirect wholly owned subsidiary of the Company. The Atotech Acquisition was implemented by means of a scheme of arrangement under the laws of Jersey (the “Scheme”) pursuant to the definitive agreement entered into by the Company and Atotech on July 1, 2021, as amended by the Letter Agreement dated October 29, 2021 by and among the Company, Atotech and Bidco, and as further amended by the Amendment to the Implementation Agreement dated April 1, 2022 by and among the Company, Atotech and Bidco (together, the “Implementation Agreement”).

Atotech, which the Company operates as MSD, develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing. Applying a comprehensive systems-and-solutions approach, Atotech’s portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in a wide variety of end markets. Atotech further broadens the Company’s capabilities by bringing leadership in critical chemistry solutions for electronics and packaging and specialty industrial applications.

On the Effective Date, pursuant to the Scheme and in accordance with the terms and conditions of the Implementation Agreement, Bidco acquired each issued and outstanding ordinary share of Atotech in exchange for per share consideration of $16.20 in cash and 0.0552 of a share of Company common stock. The Company funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the New Term Loan Facility, as defined in Note 8.

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

As a result of the Atotech Acquisition, the Company issued an aggregate of 10.7 shares of Company common stock to the former Atotech shareholders.

The purchase price of Atotech consisted of the following:


Cash consideration to Atotech stockholders, net	$	2,886
Value of MKS shares issued		1,186
Repayment of Atotech senior secured term loans		1,545
Settlement of accelerated Atotech share-based awards		47
Total purchase price, net of cash and cash equivalents acquired	$	5,664

Under the acquisition method of accounting, the total purchase price was allocated to the estimated acquired tangible and intangible assets and assumed liabilities of Atotech based on their fair values as of the Effective Date, except for contract assets and liabilities, which remain at book value in accordance with Accounting Standards Codification Topic 606. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed was allocated to goodwill and none of this goodwill or intangible assets will be deductible for tax purposes. The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors, including (1) broadening its position in key electronics and industrial markets to offer complementary solutions, and (2) leveraging component and systems expertise to provide robust solutions to meet its customers’ evolving technology needs.

The following table ~~provides a summary~~summarizes the allocation of the ~~gains (losses) on derivatives not designated~~purchase price to the preliminary fair values assigned to assets acquired and liabilities assumed at the Effective Date:


Cash and cash equivalents	$	238
Accounts receivable		283
Inventories		244
Other current assets		104
Property, plant and equipment		381
Intangible assets		2,726
Goodwill		3,064
Other assets		131
Total assets acquired		7,171
Accounts payable		194
Other current liabilities		166
Non-current deferred taxes		729
Non-current accrued compensation		99
Other non-current liabilities		81
Total liabilities assumed		1,269
Fair value of assets acquired and liabilities assumed		5,902
Less: Cash and cash equivalents acquired		(238	)
Total purchase price, net of cash and cash equivalents acquired	$	5,664

The allocation of purchase consideration to the estimated acquired tangible and intangible assets and assumed liabilities of Atotech is preliminary and subject to change during the measurement period. While the Company uses its best estimates and assumptions as ~~hedging instruments:~~

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Foreign exchange forward contracts:

Net gains (losses) recognized in income

$
1

$
(6
)

$
7

$
(7
)

7) ~~Leases~~

purchase price allocation process to value the assets acquired and liabilities assumed on the Effective Date, its estimates and assumptions are subject to refinement. The fair value of the acquired intangible assets was determined using the income approach. In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue growth rates, gross profit and operating expenses. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The finalization of the purchase accounting assessment may result in a change in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company’s results of operations and financial position. As a result, during the measurement period, which may be up to one year from the Effective Date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill to reflect additional information received about facts and circumstances which existed at the Effective Date. The Company ~~has various~~records adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company’s operating ~~leases for real estate and non-real estate items. Non-real estate leases~~results in the period in which the adjustments are mainly comprised of automobiles, but also include office equipment and other lower-valued items. The Company does not have any finance leases. As most of the Company's leases do not provide an implicit rate, an incremental borrowing rate is used based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.determined.

~~The elements of lease expense were as follows:~~

Three Months Ended June 30,

2022

2021

Lease cost:

Operating lease
$
7

$
6

Short-term lease

1

1

Total lease cost
$
8

$
7

Six Months Ended June 30,

2022

2021

Lease cost:

Operating lease cost
$
14

$
14

Short-term lease

2

2

Total lease cost
$
16

$
16

~~The weighted average discount rate and the weighted average remaining lease term were~~ ~~3.0% and~~ ~~14.1~~ ~~years, respectively, as of June 30, 2022. The weighted average discount rate and the weighted average remaining lease term were~~ ~~2.9% and~~ ~~14.6~~ ~~years, respectively, as of June 30, 2021. Operating cash flows used for operating leases for the six months ended June 30, 2022 and 2021 were $~~12 ~~in each period. Operating cash flows used for operating leases for the six months ended June 30, 2022 and 2021 were net of $~~1 ~~and $~~8~~, respectively, in tenant improvement allowance receipts.~~

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

~~Future lease payments under non-cancelable leases as of June 30, 2022 are detailed as follows:~~

2022 (remaining)

$
12

2023

23

2024

20

2025

18

2026

15

Thereafter

158

Total lease payments

246

Less: imputed interest

48

Total operating lease liabilities

$
198

The ~~remaining 2022 lease payment amount includes an immaterial amount~~preliminary valuations were based on the information that was available through the filing date of ~~tenant improvement allowances. Amounts presented~~this Quarterly Report on Form 10-Q that existed as of the Effective Date and the expectations and assumptions that have been deemed reasonable by the Company’s management. The size and breadth of the Atotech Acquisition will necessitate the use of this one-year measurement period to adequately analyze and assess a number of the factors used in establishing the fair value of certain tangible and intangible assets acquired and liabilities assumed as of the Effective Date and the related tax impacts of any changes made. The Company is still evaluating the legal entity allocation and related tax impacts of the assets acquired and liabilities assumed. Any potential adjustments made could be material in relation to the preliminary values presented.

The following table reflects the preliminary allocation of the acquired intangible assets and related estimate of useful lives at the Effective Date:


Customer relationships	$	1,756	11-14 years
Completed technology		595	8-9 years
Trade names		145	16 years
Backlog		40	1.5 years
In-process research and development		190
	$	2,726

The acquired intangible assets are being amortized on a straight-line basis, which approximates the economic use of the assets over their estimated useful lives. Upon completion of the related projects, we expect the in-process research and development (“IPR&D”) intangible asset to be amortized over its estimated useful life of eight to nine years.

Pro Forma Results

The following unaudited pro forma financial information presents the combined results of operations of the Company as if the Atotech Acquisition had occurred on January 1, 2021. The unaudited pro forma financial information is not necessarily indicative of what the Company’s condensed consolidated results of operations actually would have been had the acquisition occurred on the assumed date. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined Company.


	Three Months Ended		Six Months Ended
	June 30, 2022		June 30, 2022
Total net revenues	$	1,123	$	2,223
Net income	$	69	$	174

The unaudited pro forma information above ~~do not include payments relating~~give effect primarily to ~~immaterial leases excluded~~the following:

•

applying the Company’s accounting policies;

•

incremental interest expense related to the New Term Loan Facility;

•

incremental amortization of acquired intangible assets related to the estimated fair value from the ~~balance sheet, as these operating leases had terms~~purchase price allocation;

•

incremental depreciation of ~~less than twelve months.~~

acquired property, plant and equipment related to the estimated fair value from the purchase price allocation;

8) •

incremental compensation expense for share-based compensation arrangements; and

•

the estimated tax impact of the above adjustments.

(7)

Goodwill and Intangible Assets

Goodwill

The ~~Company's~~Company’s methodology for allocating the purchase price ~~relating to purchase acquisitions~~of an acquisition is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. The Company assigns assets acquired (including goodwill) and liabilities assumed to one or more reporting units as of the date of acquisition. If the

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process.

Goodwill and ~~purchased~~ intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year ~~and~~or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. To measure impairment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, no impairment exists. If the fair value of the reporting unit is less than the carrying value of the reporting unit, a goodwill impairment is recorded.

Amortizable intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment. When the Company determines that the carrying value of intangible assets or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, the Company uses the projected undiscounted cash flow method to determine whether an impairment exists, and then measures the impairment using discounted cash flows.

The process of evaluating the potential impairment of goodwill, intangible assets and ~~intangible~~other long-lived assets requires significant judgment.

The Company regularly monitors current business conditions and other factors, including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results.

During the quarter ended June 30, ~~2022, following softening~~2023, the Company noted softer industry demand, ~~for flexible PCB via drilling~~particularly in the personal computer and smartphone markets, and concluded there was a triggering event at each of its electronics and general metal finishing reporting units, which together constitute MSD, and the equipment ~~and declines in projected operating results for ESD,~~solutions reporting unit of PSD. For MSD, the Company ~~evaluated~~concluded information on the ~~carrying values~~softening of industry demand as of the filing date of this Quarterly Report on Form 10-Q did not exist as of the Effective Date.

For each of the three reporting units, the Company performed a quantitative assessment of goodwill ~~purchased intangible assets and other long-lived assets assigned to ESD and determined the carrying values were recoverable. The Company performed its analysis~~ using an equal weighting of the income approach and market approach. The income approach was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate. The key underlying assumptions included forecasted ~~revenue,~~revenues, which incorporated external market data, gross profit and operating ~~margin~~expenses, as well as an applicable discount ~~rate.~~ rate for each reporting unit. The market approach for each of the three reporting units incorporated observed multiples of guideline public companies. The market approach for the electronics and general metal finishing reporting units also incorporated multiples from guideline transactions.

Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by the Company's management. There are inherent uncertainties and management judgment required in these determinations. ~~In its~~

This quantitative assessment resulted in the following:


Reporting Unit	Goodwill Impairment	Remaining Goodwill
Electronics	$826	$1,420
General Metal Finishing	428	307
Equipment Solutions	372	100

In addition, the Company used an income approach to determine the fair value of the ~~ESD~~long-lived and indefinite lived intangible assets within these reporting units (Level 3 within the fair value hierachy). These valuations resulted in a $20 fair value and $152 impairment of completed technology within the equipment solutions reporting unit and a $72 fair value and $49 impairment of IPR&D within the electronics reporting unit. After evaluating forecast updates and carrying values, the Company did not identify impairments at any other of its reporting units.

For the completed technology valuation within the equipment solutions division, the forecasted future undiscounted cash flows were consistent with the Company’s goodwill analysis, using an approximate 7 year useful life, an 8% weighted-average forecasted revenue growth rate, and a discount rate of 13.5%. For the IPR&D intangible asset within the electronics reporting unit, the ~~Company~~forecasted undiscounted future cash flows utilized were consistent with the Company’s goodwill analysis, with estimated ~~fair value exceeded carrying value by~~time to complete in-process projects of up to 102 years, and a discount rate of 12.5%.

~~The changes in the carrying amount of goodwill and accumulated impairment loss during the six months ended June 30, 2022 were as follows:~~

Gross
Carrying
Amount

Accumulated
Impairment
Loss

Net

Beginning balance, January 1

$
1,373

$
(145
)

$
1,228

Foreign currency translation

(8
)

—

(8
)
Ending balance, June 30

$
1,365

$
(145
)

$
1,220

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

~~Intangible Assets~~

~~Components of the Company's intangible assets are comprised of the following:~~

As of June 30, 2022:

Gross

Accumulated
Amortization and Impairment Charges

Foreign
Currency
Translation

Net

Completed technology

$
556

$
(260
)

$
—

$
296

Customer relationships

318

(135
)

(2
)

181

Patents, trademarks, trade names and other

123

(55
)

(1
)

67

$
997

$
(450
)

$
(3
)

$
544

As of December 31, 2021:

Gross

Accumulated
Amortization and Impairment Charges

Foreign
Currency
Translation

Net

Completed technology(1)

$
556

$
(242
)

$
—

$
314

Customer relationships(1)

318

(126
)

—

192

Patents, trademarks, trade names and other(1)

123

(52
)

(1
)

70

$
997

$
(420
)

$
(1
)

$
576

~~(1)~~

~~During the twelve months ended December 31, 2021, the Company recorded $121~~ ~~of separately identified intangible assets related to its acquisition of Photon Control, representing $110~~ ~~in completed technology, $~~9 ~~in customer relationships and $~~2 ~~in patents, trademarks, trade names and other.~~

~~Aggregate amortization expense related to acquired intangible assets for the six months ended June 30, 2022 and 2021 was $~~30 ~~and $~~25~~, respectively.~~ ~~Aggregate net amortization expense related to acquired intangible assets for future years is as follows:~~

Year

Amount

2022 (remaining)

$
30

2023

58

2024

57

2025

56

2026

52

2027

52

Thereafter

183

~~The table above excludes $~~56 ~~of indefinite-lived trademarks and trade names that were not subject to amortization.~~

9) ~~Debt~~

~~The Company's outstanding debt is as follows:~~

June 30, 2022

December 31, 2021

Short-term debt:

Term Loan Facility

$
9

$
9

Japanese lines of credit

2

—

Total short-term debt

$
11

$
9

June 30, 2022

December 31, 2021

Long-term debt:

Term Loan Facility, net(1)

$
804

$
808

~~(1)~~

~~Net of deferred financing fees, original issuance discount and repricing fees in the aggregate amount of $~~7 ~~and $~~8 ~~as of June 30, 2022 and December 31, 2021, respectively.~~

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

The ~~Company recognized interest expense~~changes in the carrying amount of $7goodwill and $13 ~~for~~accumulated impairment loss during the ~~three and~~ six months ended June 30, ~~2022, respectively, and $~~2023 were as follows:


	Gross Carrying Amount			Accumulated Impairment Loss			Net
Beginning balance, January 1	$	4,454		$	(146	)	$	4,308
Impairment charge		—			(1,626	)		(1,626	)
Foreign currency translation		(107	)		—			(107	)
Ending balance, June 30	$	4,347		$	(1,772	)	$	2,575

Intangible Assets

T6he Company’s intangible assets are comprised of the following: ~~and $~~


As of June 30, 2023:	Gross		Accumulated Impairment Charges			Accumulated Amortization			Foreign Currency Translation			Net
Completed technology	$	1,212	$	(152	)	$	(356	)	$	(17	)	$	687
Customer relationships		2,072		(1	)		(264	)		(45	)		1,762
Patents, trademarks, trade names and other		437		(49	)		(101	)		(8	)		279
	$	3,721	$	(202	)	$	(721	)	$	(70	)	$	2,728

12 ~~for~~During the ~~three and~~ six months ended June 30, ~~2021,~~2023, $61 of IPR&D included within patents, trademarks, trade names, and other was reclassified into completed technology. During the six months ended June 30, 2023, $9 of IPR&D was written off to amortization expense as certain projects were cancelled.


As of December 31, 2022:	Gross		Accumulated Impairment Charges			Accumulated Amortization Charges			Foreign Currency Translation		Net
Completed technology	$	1,151	$	—		$	(303	)	$	4	$	852
Customer relationships		2,072		(1	)		(190	)		11		1,892
Patents, trademarks, trade names and other		498		—			(71	)		2		429
	$	3,721	$	(1	)	$	(564	)	$	17	$	3,173

Aggregate amortization expense related to acquired intangible assets for the six months ended June 30, 2023 and 2022 was $157 and $30, respectively. The increase in amortization of intangible assets was a result of increased amortization related to acquired intangible assets from the Atotech Acquisition. Aggregate net amortization expense related to acquired intangible assets for future years is as follows:


Year	Amount
2023 (remaining)	$	128
2024		226
2025		225
2026		222
2027		220
2028		220
Thereafter		1,364

The Company excluded from the above table intangible assets of $56 of indefinite-lived trademarks and trade names, and $67 of IPR&D, which were not subject to amortization.

(8)

Debt

The Company’s outstanding debt is as follows:


	June 30, 2023		December 31, 2022
Short-term debt:
New Term Loan Facility	$	88	$	93
Long-term debt, net:
New Term Loan Facility	$	4,819	$	4,834

Long-term debt is net of deferred financing fees, original issuance discount and repricing fees in the aggregate amount of $179 and $195 as of June 30, 2023 and December 31, 2022, respectively.

~~Senior Secured Term Loan~~New Credit ~~Facility~~Facilities

In connection with the completion of the ~~acquisition of Newport Corporation ("Newport") in 2016 (the "Newport Merger"),~~Atotech Acquisition, the Company entered into a ~~term loan~~ credit agreement ~~(as amended, the "Term Loan Credit Agreement")~~ with ~~Barclays~~JPMorgan Chase Bank, ~~PLC,~~N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto ~~which provided~~(the “New Credit Agreement”). The New Credit Agreement provides for (i) a senior secured term loan facility (the “New Term Loan Facility”) comprised of three tranches: a USD 1,000 loan (the “USD Tranche A”), a USD 3,600 loan (the “USD Tranche B”) and a EUR 600 loan (the “Euro Tranche B”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of USD 500(the ~~"Term Loan Facility") in~~“New Revolving Facility” and, together with the ~~original principal amount of $780. The Company has entered into seven amendments to the Term Loan Credit Agreement since 2016. The~~New Term Loan Facility, isthe “New Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions.

Borrowings under the New Credit Facilities bear interest at a rate per annum equal to, at the ~~Company's~~Company’s option, ~~and subject to receipt of lender commitments in accordance with the Term Loan Credit Agreement. The maturity date of the Term Loan Facility is~~ ~~February 2, 2026. As of June 30, 2022,~~ ~~borrowings under the Term Loan Facility bear interest per annum at one~~any of the following, ~~rates selected by~~plus, in each case, an applicable margin: (a) with respect to the ~~Company: (a)~~USD Tranche A, the USD Tranche B and the New Revolving Facility, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the ~~"prime rate"~~prime rate quoted in The Wall Street Journal, or (3) a ~~LIBOR~~forward-looking term rate based on Term SOFR (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00%; and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50% and (II) with respect to the USD Tranche A and the New Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for ~~U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus~~ ~~1.00%, and (4) a floor of~~ ~~1.00%, plus, in each case, an applicable margin of~~ ~~0.75%; or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar~~Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a ~~LIBOR~~EURIBOR rate floor of 0.0%~~, plus an applicable margin of~~ ~~1.75~~%. The Company has elected the interest rate as described in clause (b) of the foregoing sentence. The Term Loan Credit Agreement provides that, unless an alternate rate of interest is agreed, all loans will be determined by reference to the base rate if the LIBOR rate cannot be ascertained, if regulators impose material restrictions on the authority of a lender to make LIBOR rate loans, or for other reasons.

~~Under the Term Loan Credit Agreement, the Company has the ability to incur additional incremental debt facilities in an amount up to (x) the greater~~The USD Tranche A was issued with original issue discount of ~~(1) $600~~ ~~and (2)~~ ~~100~~% of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with a secured leverage ratio test of ~~3.25:1.00.~~

~~The Company is required to make scheduled~~ ~~quarterly~~ ~~amortization payments each equal to~~ 0.25% of the ~~original~~ principal amount thereof. The USD Tranche B and the Euro Tranche B were issued with original issue discount of 2.00% of the principal amount thereof. The applicable margin for borrowings under the USD Tranche A is 1.50% with respect to base rate borrowings and 2.50% with respect to Term ~~Loan Facility.~~SOFR borrowings. The applicable margin for borrowings under the USD Tranche B is 1.75% with respect to base rate borrowings and 2.75% with respect to Term SOFR borrowings. The applicable margin for borrowings under the Euro Tranche B is 3.00%. The applicable margin for borrowings under the New Revolving Facility is 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings.

~~As of June 30, 2022, after giving effect~~In addition to ~~all amendments and repayments prior to such date, the~~paying interest on outstanding principal ~~amount~~under the New Credit Facilities, the Company is required to pay a commitment fee in respect of the unutilized commitments under the New Revolving Facility. The initial commitment fee is 0.375% per annum. Commencing with the delivery of financial statements with respect to the first quarter ending after the closing of the New Credit Agreement, the commitment fee is subject to downward adjustment based on the Company’s first lien net leverage ratio as of the end of the preceding quarter. The Company must also pay customary letter of credit fees and agency fees.

The Company incurred $242 of deferred financing fees and original issue discount related to the term loans under the New Term Loan Facility, which are included in long-term debt, net in the accompanying condensed consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method. A portion of the deferred financing fees and original issue discount was $accelerated in connection with the debt prepayment and extinguishment of the Prior Term Loan Facility (as defined below).~~820, and the interest rate was~~ ~~2.8~~%.

Under the ~~Term Loan~~New Credit Agreement, the Company is required to prepay outstanding term loans, subject to certain exceptions, with portions of its annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the ~~incurrence~~incurrences or ~~issuance~~issuances of certain debt.

All obligations under the Term Loan Facility are guaranteed by certain of the Company's domestic subsidiaries and are secured by substantially all of the Company's assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.

The Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the Term Loan Facility will be entitled to take various actions, including the acceleration of amounts due under the Term Loan Facility and all actions generally permitted to be taken by a secured creditor. At June 30, 2022, the Company was in compliance with all covenants under the Term Loan Credit Agreement.

~~Senior Secured Asset-Based Revolving Credit Facility~~

In February 2019, in connection with the completion of the acquisition of Electro Scientific Industries, Inc. (the "ESI Merger"), the Company entered into an asset-based revolving credit agreement with Barclays Bank PLC, as administrative agent and collateral agent, the other borrowers from time to time party thereto, and the lenders and letters of credit issuers from time to time party thereto (the "ABL Credit Agreement"), that provides a senior secured asset-based revolving credit facility of up to $~~100~~, subject to a borrowing base limitation (the "ABL Facility"). The Company has entered into two amendments to the ABL Credit Agreement since 2019. As of June 30, 2022, after giving effect to all amendments, the borrowing base for the ABL Facility at any time equals the sum of: (a) 85~~% of certain eligible accounts; plus (b) prior to certain notice and field examination and appraisal requirements, the lesser of (i)~~ 20~~% of net book value of eligible inventory in the United States and (ii)~~ 30~~% of the borrowing base, and after the satisfaction of such requirements, the lesser of (i) the lesser of (A)~~ 65~~% of the lower of cost or market value of certain eligible inventory and (B)~~ 85~~% of the net orderly liquidation value of certain eligible inventory and (ii)~~ 30~~% of the borrowing base; minus (c) reserves established by the administrative agent, in each case, subject to additional limitations and examination requirements for eligible accounts and eligible~~

1718

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

~~inventory acquired in an acquisition after February 1, 2019. The ABL Facility includes borrowing capacity in~~If at any time the ~~form~~aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit ~~up to $~~25~~. The Company has not borrowed against the ABL Facility to date.~~

~~As of June 30, 2022, borrowings~~ under the ~~ABL~~New Revolving Facility ~~bear interest at a rate per annum equal to, at~~exceeds the ~~Company's option, any of the following, plus, in each case, an applicable margin: (a) a base rate determined by reference to the highest of (1) the federal funds effective rate plus~~ ~~0.50%, (2) the "prime rate" quoted in~~ ~~The Wall Street Journal, (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus~~ ~~1.00% and (4) a floor of~~ ~~0.00%, plus, in each case, an applicable margin ranging from~~ ~~0.25% to~~ ~~0.50%; and (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, with a floor of~~ ~~0.00%, plus, in each case, an applicable margin ranging from~~ ~~1.25% to~~ ~~1.50%. The applicable margin for borrowings thereunder is subject to upward or downward adjustment each fiscal quarter, based on the average historical excess availability during the preceding quarter.~~

~~In addition to paying interest on any outstanding principal~~aggregate commitments under the ~~ABL~~New Revolving Facility, the Company is required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.

The Company may voluntarily prepay outstanding loans under the New Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans; provided, however, that subject to certain exceptions, if on or prior to the date that is twelve months after the closing date of the New Term Loan Facility, the Company prepays any loans under the USD Tranche B or the Euro Tranche B in connection with a repricing transaction, the Company must pay a ~~commitment fee in respect~~prepayment premium of 1.00% of the aggregate principal amount of the loans so prepaid. Additionally, the Company may voluntarily reduce the unutilized ~~commitments thereunder equal to~~ ~~0.25% per annum. The Company must also pay customary letter~~portion of ~~credit fees and agency fees.~~the commitment amount under the New Revolving Facility.

~~Under the ABL Facility, the~~The Company is required to ~~prepay amounts outstanding under the ABL Facility (1) if amounts outstanding under the ABL Facility exceed the lesser of (a) the commitment amount and (b) the borrowing base, in an amount required~~make scheduled quarterly payments each equal to reduce such shortfall, (2) if amounts outstanding under the ABL Facility in any currency other than U.S. dollars exceed the sublimit for such currency, in an amount required to reduce such shortfall, and (3) during any period in which the Company has excess availability less than the greater of (a) ~~10.0~~1.25% of the ~~lesser~~original principal amount of ~~(x)~~ the ~~commitment amount~~USD Tranche A (increasing to 1.875% in years 3 and ~~(y) the borrowing base (the "Line Cap")~~4 and ~~(b) $~~92.50 ~~for~~% in year 5) and 3 ~~consecutive business days, until the time when the Company has excess availability equal to or greater than the greater of (A)~~ ~~10.0~~0.25% of the ~~Line Cap~~original principal amount of the USD Tranche B and ~~(B) $~~9 ~~for~~ 30 ~~consecutive days, or during~~ the ~~continuance~~Euro Tranche B, beginning with the fiscal quarter ended December 31, 2022, with the balance due thereunder on the fifth anniversary of ~~an event~~the closing date in the case of ~~default, with immediately available funds~~the USD Tranche A and the seventh anniversary of the closing date in ~~its blocked accounts.~~the case of the USD Tranche B and the Euro Tranche B.

There is no scheduled amortization under the ~~ABL~~New Revolving Facility. Any principal amount outstanding under the ~~ABL~~New Revolving Facility is due and payable in full on the fifth anniversary of the closing ~~date, subject to a springing maturity~~date.

The Company incurred $7 of costs in connection with the New Revolving Facility, which were capitalized and included in other assets in the ~~event that term loans under~~accompanying condensed consolidated balance sheet and are being amortized to interest expense over the ~~Term Loan~~estimated life of four years. As a result of the termination of the Prior ABL Credit Facility in(as defined below) concurrently with the Company’s entry into the New Revolving Facility, the Company wrote off an ~~aggregate~~immaterial amount of ~~at least $100~~ ~~have an earlier maturity date than the ABL Facility.~~previously capitalized debt issuance costs.

All obligations under the ~~ABL Facility~~New Credit Facilities are guaranteed by certain of the ~~Company's~~Company’s wholly-owned domestic subsidiaries and are required to be guaranteed by certain of the Company’s future wholly-owned domestic subsidiaries, and are secured by substantially all of the ~~Company's~~Company’s assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.

~~From~~Under the ~~time when~~New Credit Agreement, the Company has ~~excess availability less than~~the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1,011 and (2) 75% of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the New Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt).

Under the USD Tranche A and the New Revolving Facility, so long as any USD Tranche A loans (or commitments in respect thereof) are outstanding as of the end of any fiscal quarter, the Company may not allow its total net leverage ratio as of the end of such fiscal quarter to be greater than 5.50 to 1.00, with an annual step-down of 0.25:1.00 and subject to a step-up of 0.50:1.00 for the four full fiscal quarter period following any material acquisition, not to exceed 5.50 to 1.00.

In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter of the Company when the aggregate amount of loans outstanding under the New Revolving Facility (net of (a) all letters of credit (whether cash collateralized or not) and (b) unrestricted cash of the Company and its restricted subsidiaries) exceeds ~~10.0~~35% of the ~~Line Cap and (b) $~~9 ~~until~~aggregate amount of all commitments under the ~~time when~~New Revolving Facility in effect as of such date, the Company ~~has excess availability equal~~may not allow its first lien net leverage ratio as of the end of each such fiscal quarter to orbe greater than ~~the greater of (a)~~ ~~10.0% of the Line Cap and (b) $~~9 ~~for~~ 30 consecutive days, or during the continuance of an event of default, the ABL Credit Agreement requires the Company to maintain a fixed charge coverage ratio, tested on the last day of each fiscal quarter, of at least ~~1.0~~6.00 to ~~1.0.~~1.00.

The ~~ABL~~USD Tranche B and the Euro Tranche B are not subject to financial maintenance covenants.

The New Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict the ability of the Company and each of its subsidiaries to incur additional indebtedness; pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its subordinated indebtedness; make investments, loans and acquisitions; create restrictions on the payment of dividends or other amounts to the Company from the Company’s restricted subsidiaries or restrictions on the ability of the Company’s restricted subsidiaries to incur liens; engage in transactions with its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions.

The New Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the ~~ABL Facility~~New Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the ~~ABL Facility~~New Credit Facilities and all actions permitted to be

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

taken by a secured creditor. As of June 30, 2023, the Company was in compliance with all covenants under the New Credit Agreement.

The proceeds of the New Term Loan Facility were used on the Effective Date, among other things, to fund a portion of the consideration payable in connection with the Atotech Acquisition and to refinance the Prior Term Loan Facility and the Prior ABL Credit Facility and certain indebtedness of Atotech. The Company also paid certain customary fees and expenses of JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Mizuho Bank, Ltd. in their respective capacities as lead arrangers and bookrunners in connection with the New Credit Facilities.

On the Effective Date, in connection with the entry into the New Credit Agreement described above, the Company terminated and prepaid the prior term loan credit facility under that certain Term Loan Credit Agreement, dated as of April 29, 2016, by and among the Company, Barclays Bank PLC and the other financial institutions from time to time party thereto (as amended, the “Prior Term Loan Credit Agreement” and the term loan credit facility thereunder, the “Prior Term Loan Facility”) and terminated the prior revolving credit facility under that certain ABL Credit Agreement, dated as of February 1, 2019, by and among the Company, Barclays Bank PLC and the other financial institutions from time to time party thereto (as amended, the “Prior ABL Credit Agreement” and the revolving credit facility thereunder, the “Prior ABL Credit Facility”).

As of June 30, 2023, the outstanding principal amount of the New Term Loan Facility was $5,086 and the weighted average interest rate was 7.7%. As of June 30, 2023, there were no borrowings under the New Revolving Facility.

Lines of Credit and Borrowing Arrangements

~~The Company's~~Certain of the Company’s Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. The lines of credit and financing facility provided for aggregate borrowings as of June 30, ~~2022~~2023 of up to an equivalent of $2514. There ~~was $~~were 2no borrowings outstanding under these arrangements at June 30, ~~2022. There were~~ 0 ~~borrowings outstanding under these arrangements at~~2023 and December 31, ~~2021.~~2022.

Contractual maturities of the ~~Company's~~Company’s debt obligations as of June 30, ~~2022~~2023 are as follows:


Year	Amount		Amount
2022 (remaining)	$	7
2023		9
2023 (remaining)			$	44
2024		9		93
2025		9		110
2026		788		116
2027				695
2028				43
Thereafter				3,985

~~10)~~ (9)

Product Warranties

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

The Company provides for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. The ~~Company's~~Company’s warranty obligations are affected by shipment volume, product failure rates, utilization levels, material usage and supplier warranties on parts delivered to the Company. Should actual product failure rates, utilization levels, material usage, or supplier warranties on parts differ from the ~~Company's~~Company’s estimates, revisions to the estimated warranty liability would be required. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers.

Product warranty activities were as follows:


	Six Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2023			2022
Beginning of period	$	21		$	18		$	27		$	21
Provision for product warranties		12			22			4			12
Charges to warranty liability		(14	)		(16	)		(8	)		(14	)
End of period	$	19		$	24		$	23		$	19

As of June 30, 2023, short-term product warranties of $17 and long-term product warranties of $6 were included within other current liabilities and other non-current liabilities, respectively, within the accompanying condensed consolidated balance

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

sheet. As of June 30, 2022, short-term product warranties of $18 and long-term product warranties of $1 were included within other current liabilities and other non-current liabilities, respectively, within the accompanying condensed consolidated balance sheet. As

(10)

Other Current Liabilities

Other current liabilities consisted of the following:


	June 30, 2023		December 31, 2022
Accrued compensation and other employee-related obligations	$	131	$	162
Deferred revenue and customer advances		85		94
Income taxes payable		79		51
Lease liabilities		28		26
Other		110		100
Total other current liabilities	$	433	$	433

(11)

Income Taxes

The Company’s effective tax rates for the three and six months ended June 30, ~~2021, short-term product warranties~~2023 were 1.2% and 3.2%, respectively. The goodwill impairment relating to the electronics and general metal finishing reporting units of MSD and the equipment solutions reporting unit of PSD was considered non-deductible goodwill for tax purposes and therefore no tax benefit was recorded related to the goodwill impairment. The tax effect of the impairment of the intangible assets was discretely recorded in its entirety during the three months ended June 30, 2023. The Company’s tax benefit of $2122 for the three months ended June 30, 2023 and ~~long-term product warranties of~~ $359 ~~were included within other current liabilities~~for the six months ended June 30, 2023, was primarily due to the loss from operations and ~~other non-current liabilities, respectively, within~~impairment of intangible assets for these periods. The Company’s effective tax rate for the ~~accompanying condensed consolidated balance sheet.~~

(12)

~~The Company's effective tax rates for the three and six months ended June 30, 2021 were~~ ~~15.1% and~~ ~~16.2~~%, respectively. The Company's effective tax rates for the three and six months ended June 30, 2021 were lower than the U.S. statutory tax rate mainly due to the U.S. deduction for FDII, windfall benefits from stock compensation, and the geographic mix of income earned by the Company's international subsidiaries being taxed at rates lower than the U.S. statutory tax rate, offset by the GILTI inclusion and additional withholding taxes on inter-company distributions due to the United Kingdom's withdrawal from the European Union.

~~As of June 30, 2022 and December 31, 2021, the total amounts of gross unrecognized tax benefits, which exclude interest and penalties, were $~~38 ~~and $~~43, respectively. The Company accrues interest expense, and if applicable, penalties, for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense. As of June 30, 2022 and December 31, 2021, the Company had accrued interest on unrecognized tax benefits of approximately $1 ~~in each period.~~

~~Over the next 12 months it is reasonably possible that the Company may recognize approximately $~~1 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal and foreign tax positions, primarily as a result of the expiration of certain statutes of limitations.

The Company and its subsidiaries are subject to examination by U.S. federal, state and foreign tax authorities. The U.S. federal statute of limitations remains open for tax years 2018 through the present. The U.S. statute of limitations for the one-time tax reported in 2017 remains open until 2024. The statute of limitations for the Company's tax filings in other jurisdictions varies between fiscal years 2016 through the present. The Company has certain federal credit carryforwards and state tax loss and credit carryforwards that are open to examination for tax years 2002 through the present.

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

~~12)~~ Net (Loss) Income Per Share

The following table sets forth the computation of basic and diluted net (loss) income per share:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		2022		2021		2023			2022		2023			2022
Numerator:
Net income	$	130	$	146	$	273	$	269
Net (loss) income									$	(1,769	)	$	130	$	(1,812	)	$	273
Denominator:
Shares used in net income per common share – basic		55.7		55.4		55.6		55.3
Shares used in net (loss) income per common share – basic										66.8			55.7		66.8			55.6
Effect of dilutive securities		0.1		0.3		0.2		0.3		—			0.1		—			0.2
Shares used in net income per common share – diluted		55.8		55.7		55.8		55.6
Net income per common share:
Shares used in net (loss) income per common share – diluted										66.8			55.8		66.8			55.8
Net (loss) income per common share:
Basic	$	2.33	$	2.64	$	4.90	$	4.86	$	(26.47	)	$	2.33	$	(27.14	)	$	4.90
Diluted	$	2.32	$	2.63	$	4.89	$	4.83	$	(26.47	)	$	2.32	$	(27.14	)	$	4.89

Basic earnings per share ~~("EPS"~~(“EPS”) is computed by dividing (loss) income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the treasury stock method) if securities containing potentially dilutive common shares ~~(restricted stock units ("RSUs"))~~ had been converted to such common shares, and if such assumed conversion is dilutive. In periods in which a net loss is recognized, the impact of restricted stock units (“RSUs”) is not included as they are antidilutive.

For the three and six months ended June 30, 2022, ~~and 2021,~~ the Company had an immaterial quantity of RSUs that ~~had no impact on~~were antidilutive and were excluded from the computation of diluted weighted-average shares.

~~13)~~ (13)

Stock-Based Compensation

Prior to May 10, 2022, the Company granted RSUs to employees and directors under the 2014 Stock Incentive Plan (the ~~"2014 Plan"~~“2014 Plan”). Following shareholder approval of the 2022 Stock Incentive Plan (the ~~"2022 Plan"~~“2022 Plan” and, together with the 2014 Plan, the ~~"Plans"~~“Plans”) on May 10, 2022, the Company discontinued granting RSUs to employees and directors under the 2014 Plan and began granting them under the 2022 Plan. The Plans are administered by the Compensation Committee of the ~~Company's~~Company’s Board of Directors. The Plans are intended to attract and retain employees and directors, and to provide an incentive for these individuals to assist the Company to achieve long-range performance goals and enable these individuals to participate in the long-term growth of the Company.

In connection with the Atotech Acquisition, all Atotech time-based RSUs and performance-based RSU awards outstanding immediately prior to the acquisition were cancelled and replaced with the Company’s time-based RSUs under the 2022 Plan in accordance with the Implementation Agreement. Based on a formula in the Implementation Agreement, such cancelled RSUs were replaced with the Company’s RSUs, which are subject to the terms and conditions of the 2022 Plan and the related RSU agreements.

The total stock-based compensation expense included in the ~~Company's~~Company’s condensed consolidated statements of operations and comprehensive (loss) income was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Cost of revenues	$	2	$	1	$	3	$	2	$	2	$	2	$	3	$	3
Research and development		2		1		3		2		2		2		3		3
Selling, general and administrative		9		7		15		15		9		9		25		15
Total pre-tax stock-based compensation expense	$	13	$	9	$	21	$	19
Total stock-based compensation expense									$	13	$	13	$	31	$	21

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

At June 30, ~~2022,~~2023, the total compensation expense related to unvested stock-based awards granted to employees and directors under the Plans that had not been recognized was $5465. The Company determines the fair value of RSUs based on the closing market price of the ~~Company's~~Company’s common stock on the date of the award and estimates the fair value of employee stock purchase plan rights using the Black-Scholes valuation model. Such values are recognized as expense on a straight-line basis for time-based awards and using the accelerated graded vesting method for performance-based awards, both over the requisite service periods.

The following table presents the activity for RSUs under the Plans:


	Six Months Ended June 30, 2022					Six Months Ended June 30, 2023
	Outstanding RSUs			Weighted Average Grant Date Fair Value Per Share		Quantity			Weighted Average Grant Date Fair Value Per Share
RSUs – beginning of period		0.5		$	127.93		0.8		$	118.96
Granted		0.4		$	113.14		0.7		$	87.09
Vested		(0.2	)	$	119.15
Vested or forfeited							(0.4	)	$	119.30
RSUs – end of period		0.7		$	122.15		1.1		$	98.84

~~The Company had an immaterial amount of stock appreciation rights outstanding as of June 30, 2022 and December 31, 2021.~~

(14)

Stockholders’ Equity

~~14)~~ ~~Stockholders' Equity~~

Share Repurchase Program

On July 25, 2011, the ~~Company's~~Company’s Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $200 of its outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means. The timing and quantity of any shares repurchased depends 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. The Company has repurchased approximately 2.6 shares of common stock for approximately $127 ~~pursuant to the program since its adoption. During the three and six months ended June 30, 2022 and 2021, there were~~ 0 ~~repurchases of common stock.~~

~~Cash Dividends~~

Holders of the Company's common stock are entitled to receive dividends when they are declared by the Company's Board of Directors. During each of the first and second quarters of 2022, the Company's Board of Directors declared a cash dividend of $~~0.22~~ ~~per share, which totaled $~~24~~. During the first and second quarters of 2021, the Company's Board of Directors declared a cash dividend of $0.20~~ ~~per share and $0.22~~ ~~per share, respectively, which totaled $~~23.

On ~~July 25, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.22~~ ~~per share to be paid on~~ ~~September 9, 2022~~ ~~to stockholders of record as of~~ ~~August 8, 2022~~.

Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company's Board of Directors. In addition, under the Term Loan Facility and ABL Facility, the Company may be restricted from paying dividends under certain circumstances.

~~15)~~ ~~Acquisition~~

~~Photon Control~~

On ~~July 15, 2021~~, the Company completed its acquisition of Photon Control (the "Photon Control Acquisition"), pursuant to a definitive agreement (the "Arrangement Agreement"). Photon Control designs, manufactures and distributes a wide range of optical sensors and systems to measure temperature and position used in semiconductor wafer fabrication. At the effective time of the Photon Control Acquisition and pursuant to the terms and conditions of the Arrangement Agreement, each share of Photon Control's common stock issued and outstanding as of immediately prior to the effective time of the Photon Control Acquisition, was converted into the right to receive CAD ~~3.60~~ per share in cash, without interest and subject to deduction for any required withholding tax. The Company funded the payment of the aggregate consideration with available cash on hand. Photon Control is included in the Company's PSD segment.

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

~~The purchase price of Photon Control consisted of the following:~~

Cash paid for outstanding shares

$
302

Less: Cash and cash equivalents acquired

(34
)
Total purchase price, net of cash and cash equivalents acquired

$
268

Under the acquisition method of accounting, the total estimated acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Photon Control based on their fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill and none of this goodwill or intangible assets will be deductible for tax purposes. The Company believes the amount of goodwill relative to identifiable intangible assets relates to enhancing the Company's Surround the Chamber® offering by adding optical sensors for temperature control for critical etch and deposition applications in semiconductor wafer fabrication.

~~The following table summarizes the allocation of the purchase price to the fair values assigned to assets acquired and liabilities assumed at the date of the Photon Control Acquisition:~~

Current assets

$
51

Intangible assets

121

Goodwill

168

Other non-current assets

9

Total assets acquired

349

Current liabilities

14

Non-current deferred taxes

32

Other long-term liabilities

1

Total liabilities assumed

47

Fair value of assets acquired and liabilities assumed

302

Less: Cash and cash equivalents acquired

(34
)
Total purchase price, net of cash and cash equivalents acquired

$
268

~~The acquired intangible assets are being amortized on a straight-line basis, which approximates the economic use of the assets over their estimated useful lives.~~

~~The following table reflects the allocation of the acquired intangible assets and related estimate of useful lives at the date of the Photon Control Acquisition:~~

Completed technology

$
110

9 years
Customer relationships

9

10 years
Backlog

2

1.5 years

$
121

The fair value of the acquired intangible assets was determined using the income approach. In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue growth rates, gross profit and operating margins. Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company's management. There are inherent uncertainties and management judgment required in these determinations. This acquisition resulted in a purchase price that exceeded the estimated fair value of tangible and intangible assets, the excess amount of which was allocated to goodwill.

~~16)~~ ~~Business Segment, Geographic Area, and Significant Customer Information~~

The Company is a global provider of instruments, systems, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

pursuant to the program since its adoption. During the three and ~~productivity~~six months ended June 30, 2023 and 2022, there were no repurchases of common stock. Under the New Credit Facilities, the Company may be restricted from repurchasing its common stock under certain circumstances.

Cash Dividends

Holders of the Company’s common stock are entitled to receive dividends when they are declared by the Company’s Board of Directors. During each of the first and second quarters of 2023 and 2022, the Company’s Board of Directors declared a cash dividend of $0.22 per share, which totaled $29 and $24 for ~~its customers. The Company's products~~the six months ended June 30, 2023 and 2022, respectively. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are ~~derived~~subject to the final determination of the Company’s Board of Directors. In addition, under the New Credit Facilities, the Company may be restricted from ~~its core competencies in pressure measurement~~paying dividends under certain circumstances.

(15)

Business Segment, Geographic Area, and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, vacuum technology, temperature sensing, lasers, photonics, optics, precision motion control, vibration control and laser-based manufacturing systems solutions. Significant Customer Information

The Company ~~also provides services relating~~has three reportable segments: VSD, PSD and MSD. During the third quarter of 2022, MKS consolidated ESD into PSD and prior periods were recast to ~~the maintenance and repair of its products, installation services and training.~~reflect this change. The ~~Company primarily serves the semiconductor, advanced electronics and specialty industrial markets.~~

~~The Company's~~Company’s Chief Operating Decision Maker ~~("CODM"~~(“CODM”), which is the ~~Company's~~Company’s Chief Executive Officer, utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess ~~performance.~~performance and allocate resources to the three segments.

Reportable Segments

VSD ~~provides a broad range of instruments, components~~delivers foundational technology solutions to leading edge semiconductor manufacturing, advanced electronics and ~~subsystems which~~specialty industrial applications. VSD products are derived from ~~the Company's~~our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, and vacuum technology.

PSD provides a ~~broad~~full range of ~~instruments, components~~solutions including lasers, beam measurement and ~~subsystems which are derived from the Company's core competencies in lasers, photonics, optics, temperature sensing,~~profiling, precision motion control, ~~and~~ vibration ~~control.~~

~~ESD provides a range of laser-based~~isolation systems, ~~and test products, including~~photonics instruments, temperature sensing, opto-mechanical components, optical elements, laser-based systems for flexible printed circuit board ~~("PCB"~~(“PCB”) ~~manufacturing, which includes flexible interconnect PCB~~ processing, laser-based systems ~~and~~for high density interconnect ~~solutions for rigid~~ PCB and package substrate manufacturing, and ~~substrate processing, and multi-layer~~high-speed multilayer ceramic capacitor ~~test systems.~~testing.

MSD develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing. Atotech is a brand within MSD. Applying a comprehensive systems-and-solutions approach, MSD’s portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in a wide variety of end markets.

The Company derives its segment results directly from the manner in which results are reported in its management reporting system. The accounting policies that the Company uses to derive reportable segment results are substantially the same as those used for external reporting purposes. The Company groups similar products within its 3three reportable segments.

The following table sets forth net revenues by reportable segment:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Vacuum Solutions Division	$	426	$	507	$	720	$	981
Photonics Solutions Division		279		258		475		526
Materials Solutions Division		298		—		602		—
	$	1,003	$	765	$	1,797	$	1,507

Three Months Ended

Six Months Ended June 30,

June 30, 2022

June 30, 2021

2022

2021

Vacuum Solutions Division

$
507

$
458

$
981

$
894

Photonics Solutions Division

228

193

456

375

Equipment Solutions Division

30

99

70

175

$
765

$
750

$
1,507

$
1,444

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

The following table ~~sets forth a reconciliation of~~reconciles gross profit by reportable segment to net (loss) income:


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		2022			2021		2023			2022			2023			2022
Gross profit by reportable segment:
Vacuum Solutions Division	$	219	$	212	$	425		$	417	$	193		$	219		$	301		$	425
Photonics Solutions Division		109		90		222			172		128			119			209			247
Equipment Solutions Division		10		53		25			88
Materials Solutions Division											149			—			296			—
Total gross profit by reportable segment		338		355		672			677		470			338			806			672
Operating expenses:
Research and development		53		50		105			97		75			53			147			105
Selling, general and administrative		101		97		193			193		172			101			348			193
Acquisition and integration costs		2		6		10			12		5			2			11			10
Restructuring and other		3		3		5			8
Restructuring											11			3			12			5
Amortization of intangible assets		15		13		30			25		76			15			157			30
Goodwill and intangible asset impairments											1,827			—			1,827			—
Gain on sale of long-lived assets		—		—		(7	)		—		—			—			—			(7	)
Income from operations		164		186		336			342
(Loss) income from operations											(1,696	)		164			(1,696	)		336
Interest income		1		—		1			—		(4	)		(1	)		(7	)		(1	)
Interest expense		7		6		13			12		88			7			173			13
Other expense (income), net		2		8		(3	)		9		11			2			9			(3	)
Income before income taxes		156		172		327			321
Provision for income taxes		26		26		54			52
Net income	$	130	$	146	$	273		$	269
(Loss) income before income taxes											(1,791	)		156			(1,871	)		327
(Benefit) provision for income taxes											(22	)		26			(59	)		54
Net (loss) income										$	(1,769	)	$	130		$	(1,812	)	$	273

~~Capital expenditures for the three and six months ended June 30, 2022 included a $~~42 ~~million purchase and expansion of a facility in South Korea.~~

Interest income, interest expense and income tax (benefit) expense are not presented by reportable segment because the necessary information is not classified within the segments nor used by the CODM.

The following table sets forth segment assets by reportable segment:


June 30, 2023	Accounts receivable, net			Inventories		Total
Vacuum Solutions Division	$	258		$	541	$	799
Photonics Solutions Division		266			317		583
Materials Solutions Division		286			178		464
Corporate, Eliminations & Other		(179	)		—		(179	)
Total segment assets	$	631		$	1,036	$	1,667


December 31, 2022	Accounts receivable, net			Inventories		Total
Vacuum Solutions Division	$	307		$	491	$	798
Photonics Solutions Division		210			296		506
Materials Solutions Division		298			190		488
Corporate, Eliminations & Other		(95	)		—		(95	)
Total segment assets	$	720		$	977	$	1,697

The following table reconciles segment assets to total assets:


	June 30, 2023		December 31, 2022
Total segment assets	$	1,667	$	1,697
Cash and cash equivalents and short-term investments		758		910
Other current assets		303		187
Property, plant and equipment, net		777		800
Right-of-use assets, net		237		234
Goodwill and intangible assets, net		5,303		7,481
Other assets		185		186
Total assets	$	9,230	$	11,495

MKS INSTRUMENTS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

~~The following table sets forth segment assets by reportable segment:~~

June 30, 2022

Accounts
receivable

Inventory

Total

Vacuum Solutions Division

$
344

$
421

$
765

Photonics Solutions Division

162

202

364

Equipment Solutions Division

35

67

102

Corporate, Eliminations & Other

(60
)

(1
)

(61
)
Total segment assets

$
481

$
689

$
1,170

December 31, 2021

Accounts
receivable

Inventory

Total

Vacuum Solutions Division

$
285

$
339

$
624

Photonics Solutions Division

146

177

323

Equipment Solutions Division

36

62

98

Corporate, Eliminations & Other

(24
)

(1
)

(25
)
Total segment assets

$
443

$
577

$
1,020

~~The following is a reconciliation of segment assets to total assets:~~

June 30, 2022

December 31, 2021

Total segment assets

$
1,170

$
1,020

Cash and cash equivalents and short-term investments

1,067

1,042

Other current assets

112

85

Property, plant and equipment, net

377

326

Right-of-use assets

170

184

Goodwill and intangible assets, net

1,764

1,804

Other assets and long-term investments

89

79

Total assets

$
4,749

$
4,540

Geographic Area

Information about the ~~Company's~~Company’s operations by geographic area is presented in the tables below. Net revenues from unaffiliated customers are based on the location in which the sale originated. Intercompany sales between geographic areas are at tax transfer prices and have been eliminated from consolidated net revenues. ~~North America includes revenue from the United States and an immaterial amount of revenue from Canada.~~

Three Months Ended June 30,

Six Months Ended June 30,

Net revenues:

2022

2021

2022

2021

North America

$
356

$
292

$
736

$
574

South Korea

95

104

177

202

China

82

102

140

183

Other Asia

169

191

330

370

Europe

63

61

124

115

$
765

$
750

$
1,507

$
1,444


	Three Months Ended June 30,				Six Months Ended June 30,
Net revenues:	2023		2022		2023		2022
United States	$	366	$	347	$	620	$	690
China		175		82		322		149
South Korea		87		95		161		178
Germany		65		38		138		76
Other		310		203		556		414
	$	1,003	$	765	$	1,797	$	1,507

Long-lived assets include property, plant and equipment, net, right-of-use assets, net and certain other assets, and exclude goodwill, intangible assets and long-term tax-related accounts.

Long-lived assets:

June 30, 2022

December 31, 2021

United States

$
227

$
292

Mexico

223

133

Asia

133

106

Europe

35

36

$
618

$
567


Long-lived assets:	June 30, 2023		December 31, 2022
United States	$	515	$	508
Germany		155		160
China		159		175
Other		338		343
	$	1,167	$	1,186

~~MKS INSTRUMENTS, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in millions, except per share data)~~

(16)

Restructuring

The ~~following customers represented greater than 10%~~Company recorded restructuring charges of $11 and $12 during the three and six months ended June 30, 2023, respectively, primarily related to severance costs due to global cost-saving initiatives implemented in each of the ~~Company's net revenues as follows:~~

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Lam Research Corporation

15
%

12
%

16
%

13
%
Applied Materials, Inc.

13
%

11
%

12
%

11
%

~~On March 25, 2016, two putative class action lawsuits captioned Dixon Chung v. Newport Corp., et al.,~~

(17)

Commitments and Hubert C. Pincon v. Newport Corp., et al., were 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 a wholly-owned subsidiary of the Company ("Merger Sub"). The lawsuits named as defendants the Company, Newport, Merger Sub, and certain then current and former members of Newport’s board of directors. The lawsuits alleged that Newport’s directors breached their fiduciary duties to Newport’s stockholders in connection with the sale of Newport, which led to inadequate and unfair consideration, by agreeing to unfair deal protection devices and by omitting material information from the proxy statement. The complainants also alleged that the Company, Newport and Merger Sub aided and abetted the directors’ alleged breaches of their fiduciary duties and sought monetary damages, including pre- and post-judgment interest. The District Court consolidated the actions, and plaintiffs filed first amended complaint on October 24, 2016 and a second amended complaint on July 12, 2017, each of which were captioned In re Newport Corporation Shareholder Contingencies

Litigation and made substantially similar allegations and sought monetary damages, including pre- and post-judgment interest. The District Court denied plaintiffs’ motion for leave to file a third amended complaint on October 10, 2019 and thereafter entered summary judgment for the defendants on January 23, 2020. On March 30, 2022, the Nevada Supreme Court entered an order affirming in their entirety the District Court's orders granting defendants' motion for summary judgment and denying plaintiffs' motion for leave to file an amended complaint.

The Company is ~~also~~ subject to various legal proceedings and claims that have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the ~~Company's~~Company’s results of operations, financial condition or cash flows.

On ~~July 1, 2021~~, the Company entered into a definitive agreement with Atotech (as amended from time to time, the "Implementation Agreement") to acquire Atotech, a leading process chemicals technology company and a market leader in advanced electroplating solutions. Pursuant to the Implementation Agreement, the Company agreed to pay $~~16.20~~ ~~per share in cash and~~ ~~0.0552~~ of a share of MKS common stock for each outstanding common share of Atotech (the "Atotech Acquisition"). The final value of the consideration will be determined at the time of the closing of the Atotech Acquisition, which is subject to obtaining the required sanction by the Royal Court of Jersey and the satisfaction of customary closing conditions. The Company's obligation to complete the Atotech Acquisition is not subject to any financing condition. The Company intends to fund the cash portion of the transaction with a combination of available cash on hand and committed term loan debt financing.

In connection with entering into the Implementation Agreement, the Company entered into (a) a debt commitment letter, dated as of July 1, 2021, with JPMorgan Chase Bank, N.A. and Barclays Bank PLC (the "Commitment Parties") and (b) joinders to such commitment letter to add certain additional lender parties (together with the Commitment Parties, the "2021 Commitment Parties") dated as of July 23, 2021 ((a) and (b) together, the "2021 Commitment Letter"), pursuant to which, subject to the terms and conditions set forth therein, the 2021 Commitment Parties committed to provide (i) a senior secured term loan credit facility in an aggregate principal amount of $~~5,300~~, which would refinance the Term Loan Facility and be used to finance a portion of the Atotech Acquisition and refinance certain existing indebtedness of Atotech and (ii) a senior secured revolving credit facility with aggregate total commitments of $~~500, which would replace the ABL Facility.~~

On April 1, 2022, the Company entered into an amendment to the Implementation Agreement (the "Amendment"), providing for additional time for the satisfaction of certain closing conditions set forth in the Implementation Agreement, including approval of the Atotech Acquisition by the Royal Court of Jersey and receipt of regulatory approvals ("Clearances"), such that the Long Stop Date (as defined in the Implementation Agreement) was extended from March 31, 2022 to September 30, 2022.

In addition, the Amendment amended certain provisions related to obtaining the Clearances, the timing of the closing date and the obligations of the parties with respect to the debt financing contemplated in connection with the Atotech Acquisition and provides for the automatic termination of the Implementation Agreement if the closing has not occurred by the Long Stop Date.

In connection with the Amendment, the Company terminated the 2021 Commitment Letter and entered into (a) a new debt commitment letter, dated as of April 1, 2022, with the Commitment Parties and (b) joinders to such commitment letter to add certain additional lender parties (together with the Commitment Parties, the "2022 Commitment Parties") dated as of April 4, 2022 ((a) and (b) together, the "2022 Commitment Letter"), pursuant to which, among other things, the 2022 Commitment Parties committed to provide the Company with (i) a senior secured term loan B credit facility consisting of a $~~4,250~~ ~~term loan B and (ii) a senior secured term loan A credit facility consisting of a $1,000~~ ~~term loan A ((i) and (ii) together, the "2022 New Term Loan Facilities") and (iii) a senior secured revolving credit facility with aggregate total commitments of $500~~ ~~(the~~

"2022 New Revolving Credit Facility"). The 2022 New Term Loan Facilities and the 2022 New Revolving Credit Facility would replace the Term Loan Facility and the ABL Facility, respectively, be used to finance a portion of the Atotech Acquisition, to refinance certain existing indebtedness of Atotech, to pay fees and expenses in connection with the Atotech Acquisition, and, in the case of the 2022 New Revolving Credit Facility, be used for working capital and for general corporate purposes.

On April 11, 2022, in connection with the 2022 Commitment Letter, the Company completed the syndication of the 2022 New Term Loan Facilities, comprised of (i) two tranches of term loan B: a tranche of $~~3,600~~ ~~at the secured overnight financing rate ("SOFR") plus~~ ~~2.75%, a floor of~~ ~~0.50% and~~ ~~2.0% of original issue discount ("OID"), and a Euro tranche of EUR~~ ~~600~~ ~~at EURIBOR plus~~ ~~3.00%, a floor of~~ ~~0.00% and~~ ~~2.00% of OID; and (ii) a $1,000~~ ~~term loan A at SOFR plus~~ ~~2.50%, a floor of~~ ~~0.00% and~~ ~~0.25% of OID.~~

The 2022 Commitment Parties' obligations under the 2022 Commitment Letter and the closing and initial funding under the 2022 New Term Loan Facilities and the 2022 New Revolving Credit Facility are subject to certain customary conditions including, without limitation, the consummation of the Atotech Acquisition in accordance with the Implementation Agreement, the accuracy of specified representations and warranties of the Company and other customary closing conditions.

ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains ~~"forward-looking statements"~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding the future financial performance, business prospects and growth of ~~MKS.~~MKS Instruments, Inc. (“MKS”, the “Company,” “our,” or “we”), and the impact of the ransomware event we identified on February 3, 2023, including our ability to fulfill orders that were delayed by the ransomware event, and the expected impact on our revenues as a result of fulfilling such delayed orders. These statements are only predictions based on current assumptions and expectations. Any statements that are not statements of historical fact (including statements containing the words ~~"will," "projects," "intends," "believes," "plans," "anticipates," "expects," "estimates," "forecasts," "continues"~~“will,” “projects,” “intends,” “believes,” “plans,” “anticipates,” “expects,” “estimates,” “forecasts,” “continues” and similar expressions) should be considered to be forward-looking statements. Actual events or results may differ materially from those in the forward-looking statements set forth herein.

Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are manufacturing and sourcing risks, including the impact and duration of supply chain disruptions, component shortages and price increases, and changes in global demand and the impact of the COVID-19 pandemic with respect to such disruptions, shortages and price increases, our ability to complete the acquisition of Atotech Limited ("Atotech"), the terms of our existing term loan, the terms and availability of financing for the Atotech Acquisition (as defined below), the substantial indebtednessthat we ~~expect to incur in connection with the Atotech Acquisition and~~make are the need to generate sufficient cash flows to service and repay the substantial indebtedness we incurred in connection with our acquisition of Atotech Limited (“Atotech” and such ~~debt,~~transaction, the “Atotech Acquisition”), which we completed in August 2022; the terms of our existing credit facilities under which we incurred such debt; our entry into ~~Atotech's~~the chemicals technology business through the Atotech Acquisition, in which we do not have experience and which may expose us to significant additional ~~liabilities,~~liabilities; the risk ~~of litigation relating~~that we are unable to integrate the Atotech Acquisition ~~the risk that disruption from the Atotech Acquisition materially and adversely affects our businesses and operations and those of Atotech, the ability to~~successfully or realize the anticipated synergies, cost savings and other benefits of the Atotech ~~Acquisition,~~Acquisition; the ongoing assessment of the ransomware event we identified on February 3, 2023, including legal, reputational, financial and contractual risks resulting from the incident, and other risks related to cybersecurity, data privacy and intellectual property; competition from larger, more advanced or more established companies in our ~~and Atotech's respective markets,~~markets; the ability to successfully grow our business and the businesses of Atotech ~~Photon Control Inc. ("Photon Control"), which we acquired in July 2021,~~ and Electro Scientific Industries, Inc. ~~("ESI")~~, which we acquired in February 2019 and financial risks associated with those and potential ~~adverse reactions~~future acquisitions, including goodwill and intangible asset impairments; manufacturing and sourcing risks, including those associated with limited and sole source suppliers and the impact and duration of supply chain disruptions, component shortages, and price increases; changes in global demand and the impact of COVID-19 or ~~changes~~any other pandemic, including with respect to such supply chain disruptions, component shortages and price increases; risks associated with doing business ~~relationships resulting from pendency~~internationally, including trade compliance, regulatory restrictions on our products, components or ~~completion of~~markets, particularly the ~~Atotech Acquisition,~~semiconductor market, and unfavorable currency exchange and tax rate fluctuations, which risks become more significant as we grow our business internationally and in China specifically; conditions affecting the markets in which we ~~and Atotech~~ operate, including ~~the~~ fluctuations in capital spending in the semiconductor, ~~industry~~electronics manufacturing and ~~other advanced manufacturing markets,~~automotive industries, and fluctuations in sales to our ~~and Atotech's~~ major customers or disruptions or delays from third-party service providers upon which our operations may rely; the ability to anticipate and meet customer ~~demand,~~demand; the challenges, risks and costs involved with integrating ~~the~~or transitioning local and international operations of the companies we have ~~acquired,~~acquired; risks associated with the attraction and retention of key personnel; potential fluctuations in quarterly ~~results,~~results; dependence on new product ~~development,~~development; rapid technological and market ~~change,~~change; acquisition ~~strategy,~~strategy; volatility of stock ~~price, international operations,~~price; risks associated with chemical manufacturing and environmental regulation compliance; risks related to defective products; financial and legal risk ~~management,~~management; and the other important factors described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K ~~for the year ended December 31, 2021 and any subsequent Quarterly Reports on Form 10-Q, as~~ filed with the ~~U.S.~~ Securities and Exchange Commission ~~(the "SEC"). Additional risk factors may be identified from time to time in MKS' future filings with the SEC.~~on March 14, 2023. We are under no obligation to, and expressly disclaim any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise, ~~after the date of this report.~~even if subsequent events cause our views to change.

The ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~or MD&A,~~ describes principal factors affecting the results of ~~our~~ operations, financial condition and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our condensed consolidated financial statements. ~~Historically, we have~~This section provides an analysis of our financial results for the three months ended June 30, 2023 compared ~~our current quarter results~~ to the ~~same period~~three months ended March 31, 2023, and the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

We enable technologies that transform our world. We deliver foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications. We apply our broad science and engineering capabilities to create instruments, subsystems, systems, process control solutions and specialty chemicals technology that improve process performance, optimize productivity and enable unique innovations for many of the world's leading technology and industrial companies. Our solutions are critical to addressing the challenges of miniaturization and complexity in advanced device manufacturing by enabling increased power, speed, feature enhancement and optimized

connectivity. Our solutions are also critical to addressing ever-increasing performance requirements across a wide array of specialty industrial applications.

On February 3, 2023, we identified that we had become subject to a ransomware event. We took immediate action to activate our incident response and business continuity protocols to contain the ~~prior year. Beginning~~incident, including engaging appropriate incident response professionals and notifying law enforcement authorities. We then initiated the recovery phase, contained the incident, and have since reopened our affected manufacturing and service operations and completed restoration of virtually all of our information technology (“IT”) systems, including our enterprise resource planning systems.

Based on our investigation, we concluded ransomware actors encrypted certain of our systems by deploying malware. This incident required us to temporarily suspend operations at certain of our facilities and had a material impact in the first quarter of ~~2022, given the nature~~2023 on our ability to process orders, ship products and provide service to our Vacuum Solutions Division (“VSD”) and Photonics Solutions Division (“PSD”) customers. As a result of our ~~business, in particular cyclical variations~~inability to fulfill orders, we estimated the ransomware event negatively impacted our revenue in the ~~semiconductor~~first quarter of 2023 by approximately $160 million. We recovered approximately $120 million of the $160 million in the second quarter of 2023 as we shipped orders that were delayed during the first quarter. Please see “—Markets—Semiconductor Market,” “—Markets—Electronics and Packaging Market” and “—Markets—Specialty Industrial” for a discussion of the estimated impact of the ransomware event on our revenue by end market in the second quarter of 2023. As we have ~~changed~~already shipped most of the orders that were delayed as a result of the ransomware event, we do not expect the ransomware event to have a material impact on our ~~basis~~revenue in the second half of ~~comparison~~2023. The incident did not impact the operations of our Materials Solutions Division (“MSD”).

We engaged security specialists to assist in the ~~prior quarter.~~review, assessment and remediation of our IT controls and strengthened access requirements and unauthorized access detection. We are also implementing procedures to facilitate more timely restoration of our financial reporting systems.

As a result of the ransomware event, we incurred approximately $4 million and $7 million of net costs in the first and second quarters of 2023, respectively. These costs were primarily comprised of various third-party consulting services, including forensic experts, restoration experts, legal counsel, and other IT and accounting professional expenses, enhancements to our cybersecurity measures, costs to restore our systems and access our data, and employee-related expenses, including with respect to increased overtime. We expect to continue to incur these and other costs related to this incident in the future. As a result of the incident, we may be subject to subsequent investigations, claims or actions, in addition to other costs, fines, penalties, or other obligations related to impacted data, whether or not such data is misused. In addition, we are subject to class action lawsuits arising from this ransomware event. We are unable to predict at this time the potential timing and outcome of these claims and whether we may be subject to further private litigation or inquiries and proceedings by various government agencies, law enforcement and other governmental authorities. For additional information on the risks we face related to this incident and other cybersecurity incidents, refer to “Risk Factors—Risks Related to Cybersecurity, Data Privacy and Intellectual Property Protection” and “Risk Factors—Legal, Tax, Regulatory and Compliance Risks” in Part I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2023.

The preparation of our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported. There have been no material changes in our critical accounting policies since December 31, ~~2021.~~2022.

For further information about our critical accounting policies, please see the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 in the section captioned ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations –— Critical Accounting —Policies and Estimates."

We are a global provider of instruments, systems, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for our customers. Our products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, vacuum technology, temperature sensing, lasers, photonics, optics, precision motion control, vibration control and laser-based manufacturing systems solutions. We also provide services relating to the maintenance and repair of our products, installation services and training. We primarily serve the semiconductor, advanced electronics and specialty industrial markets.

On July 1, 2021, we entered into a definitive agreement with Atotech (as amended from time to time, the "Implementation Agreement") to acquire Atotech, a leading process chemicals technology company and a market leader in advanced electroplating solutions. Pursuant to the Implementation Agreement, we agreed to pay $16.20 per share in cash and 0.0552 of a share of our common stock for each outstanding common share of Atotech (the "Atotech Acquisition"). The final value of the consideration will be determined at the time of the closing of the Atotech Acquisition, which is subject to obtaining the required sanction by the Royal Court of Jersey and the satisfaction of customary closing conditions. Our obligation to complete the Atotech Acquisition is not subject to any financing condition. We intend to fund the cash portion of the transaction with a combination of available cash on hand and committed term loan debt financing.

On April 1, 2022, we entered into an amendment to the Implementation Agreement (the "Amendment"), providing for additional time for the satisfaction of certain closing conditions set forth in the Implementation Agreement, including approval of the Atotech Acquisition by the Royal Court of Jersey and receipt of regulatory approvals ("Clearances"), such that the Long Stop Date (as defined in the Implementation Agreement) was extended from March 31, 2022 to September 30, 2022.

In connection with the Amendment, we terminated our debt commitment letter, dated as of July 1, 2021, and entered into (a) a new debt commitment letter, dated as of April 1, 2022, with JPMorgan Chase Bank, N.A. and Barclays Bank PLC (the "Commitment Parties") and (b) joinders to such commitment letter to add certain additional lender parties (together with the Commitment Parties, the "2022 Commitment Parties") dated as of April 4, 2022 ((a) and (b) together, the "2022 Commitment Letter"), pursuant to which, among other things, the 2022 Commitment Parties committed to provide us with (i) a senior secured term loan B credit facility consisting of a $4.25 billion term loan B and (ii) a senior secured term loan A credit facility consisting of a $1.0 billion term loan A ((i) and (ii) together, the "2022 New Term Loan Facilities") and (iii) a senior secured revolving credit facility with aggregate total commitments of $500 million (the "2022 New Revolving Credit Facility"). The 2022 New Term Loan Facilities and the 2022 New Revolving Credit Facility would refinance the Term Loan Facility and the ABL Facility (each as defined below), respectively, be used to finance a portion of the Atotech Acquisition, to refinance certain existing indebtedness of Atotech, to pay fees and expenses in connection with the Atotech Acquisition, and, in the case of the 2022 New Revolving Credit Facility, be used for working capital and for general corporate purposes.

On April 11, 2022, in connection with the 2022 Commitment Letter, we completed the syndication of the 2022 New Term Loan Facilities, comprised of (i) two tranches of term loan B: a tranche of $3.6 billion at the secured overnight financing rate ("SOFR") plus 2.75%, a floor of 0.50% and 2.0% of original issue discount ("OID"), and a Euro tranche of EUR 600 million at EURIBOR plus 3.00%, a floor of 0.00% and 2.00% of OID; and (ii) a $1.0 billion term loan A at SOFR plus 2.50%, a floor of 0.00% and 0.25% of OID.

For additional information about the commitment letter we entered into on July 1, 2021, which we terminated in connection with the 2022 Commitment Letter, see Note 18 to the Condensed Consolidated Financial Statements.

On July 28, 2022, Atotech and we received unconditional merger approval from China’s State Administration for Market Regulation for the Atotech Acquisition. The Atotech Acquisition has now received all required regulatory clearances and is anticipated to close on August 17, 2022, subject to obtaining the required sanction by the Royal Court of Jersey and the satisfaction of customary closing conditions.”

~~In the first quarter of 2022, we updated the names of our three divisions in order~~VSD delivers foundational technology solutions to ~~simplify our naming conventions. Our reportable segments continue to be our three divisions.~~

~~The Vacuum Solutions Division ("VSD"), formerly the Vacuum & Analysis Division, provides a broad range of instruments, components~~leading edge semiconductor manufacturing, electronics and ~~subsystems, which~~packaging and specialty industrial applications. VSD products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, and vacuum technology.

~~The Photonics Solutions Division ("PSD"), formerly the Light & Motion Division,~~PSD provides a ~~broad~~full range of ~~instruments, components~~solutions including lasers, beam measurement and ~~subsystems, which are derived from our core competencies in lasers, photonics, optics, temperature sensing,~~profiling, precision motion control, ~~and~~ vibration ~~control.~~isolation systems, photonics instruments, temperature sensing, opto-mechanical components, optical elements, laser-based

~~The Equipment Solutions Division ("ESD"), formerly the Equipment & Solutions Division, provides a range of laser-based~~ 28

systems ~~and test products, including~~for flexible printed circuit board (“PCB”) processing, laser-based systems for ~~printed circuit board ("PCB") manufacturing, which include flexible~~high density interconnect PCB ~~processing systems~~ and ~~high-density interconnect solutions for rigid PCB~~package substrate manufacturing, and ~~substrate processing, and~~high-speed multi-layer ceramic capacitor ~~test systems.~~testing.

Beginning with the first quarter of 2022, we changed how we present revenue to better represent the end markets we serve and to enable investors to better understand the key drivers of our business. We separated what we previously categorized as Advanced Markets into our Advanced Electronics and Specialty Industrial end markets. Our Semiconductor end market remained unchanged.


	Three Months Ended										Six Months Ended										Three Months Ended										Six Months Ended
(dollars in millions)	June 30, 2022		% Total			March 31, 2022		% Total			June 30, 2022		% Total			June 30, 2021		% Total			June 30, 2023		% Total			March 31, 2023		% Total			June 30, 2023		% Total			June 30, 2022		% Total
Semiconductor	$	515		67	%	$	488		66	%	$	1,003		67	%	$	843		58	%	$	441		44	%	$	309		39	%	$	750		42	%	$	1,003		67	%
Advanced Electronics		77		10	%		82		11	%		159		10	%		252		18	%
Electronics and Packaging																						225		22	%		222		28	%		447		25	%		109		7	%
Specialty Industrial		173		23	%		172		23	%		345		23	%		349		24	%		337		34	%		263		33	%		600		33	%		395		26	%
Total net revenues	$	765		100	%	$	742		100	%	$	1,507		100	%	$	1,444		100	%	$	1,003		100	%	$	794		100	%	$	1,797		100	%	$	1,507		100	%

~~This market primarily relates to~~MKS is a critical solutions provider for semiconductor manufacturing. Our products are used in major semiconductor processing steps, such as depositing thin films of material onto silicon wafer substrates, etching, cleaning, lithography, metrology, and inspection. The semiconductor industry continually faces new challenges, as products become smaller, more powerful and highly mobile. Ultra-thin layers, smaller critical dimensions, new materials, 3D structures, and the ongoing need for higher yield and productivity drive the need for tighter process measurement and control, all of which MKS supports. We believe we are the broadest critical subsystem provider in the wafer fabrication equipment ecosystem and address over 85%of the market. We have characterized our broad and unique offering as Surround the WaferSM to reflect the technology enablement we provide across almost every major process in semiconductor manufacturing today.

A significant portion of our sales is ~~anticipated to continue to be~~ derived from products sold to semiconductor capital equipment manufacturers and semiconductor device manufacturers.

While the semiconductor device manufacturing market is global, major semiconductor manufacturers are concentrated in China, Japan, South Korea, Taiwan and the United States. The semiconductor industry is subject to rapid demand shifts, which are difficult to predict, and we cannot be certain as to the timing or extent of future demand or any future weakness in the semiconductor industry. Currently, we are experiencing softened demand in our semiconductor market consistent with a decline in industry-wide wafer fabrication equipment spending.

For the three months ended June 30, ~~2022,~~2023, net revenues in our semiconductor market increased by ~~$27~~$132 million or 6%43%, compared to the prior quarter. We estimate the ransomware event positively impacted our semiconductor market revenue for the three months ended June 30, 2023, as we estimate we recovered approximately $90 million of approximately $110 million in delayed orders from the three months ended March 31, 2023 as a result of the ransomware event. The remaining delayed orders are expected to be substantially fulfilled in the third quarter ~~and for~~of 2023.

For the six months ended June 30, ~~2022,~~2023, net revenues ~~increased by $160~~in our semiconductor market decreased $253 million, or ~~19%,~~25% compared to the same period in the prior ~~year. These increases~~year primarily due to softened demand for semiconductor capital equipment, partially the result of negative macroeconomic conditions.

In October 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published regulations that introduce new and novel restrictions related to end-uses in semiconductor, semiconductor manufacturing, supercomputer, and advanced computing, along with certain equipment used to develop and produce them (the “New BIS Rules”). The New BIS Rules restrict our direct and indirect sales to China and primarily impact our semiconductor market. As a result of the New BIS Rules, we initially expected an overall annualized reduction of net revenues ~~were mainly due~~in the range of $250 million to ~~volume increases and were broad-based across VSD and PSD, although supply constraints~~$350 million. We currently expect an annualized reduction of net revenues on the lower end of that range. While we continue to ~~affect~~adjust our ~~ability~~policies and practices to ~~fully meet customer demand. We expect~~ensure compliance with these ~~constraints~~regulations, and we will seek to ~~continue in~~mitigate their impact, there can be no assurances that the ~~near-term. The increase in net revenues from PSD included contributions from~~New BIS Rules will not have an effect on our ~~acquisition of Photon Control.~~business that exceeds our expectations.

MKS is a foundational solutions provider for the electronics and packaging market. Our portfolio includes photonics components, laser drilling systems, electronics chemistries and plating equipment that are critical for the manufacturing of PCBs and package substrates, as well as in wafer level packaging (“WLP”) applications. Similar to the semiconductor

industry, the PCB, package substrate and WLP industries demand smaller features, greater density, and better performance. We characterize our complementary offering of laser systems and chemistry solutions as Optimize the Interconnect, to reflect the unique technology enablement we provide at the Interconnect level within PCBs, package substrates and WLPs. This end market ~~primarily relates to sales of products~~also includes our vacuum and photonics solutions for ~~PCB~~display manufacturing ~~solar, display and electronic component~~ applications. These applications include flexible and rigid PCB processing/fabrication, glass coating and electronic thin films. Electronic thin films are a primary component of numerous electronic products, including flat panel displays, light emitting diodes, solar cells and data storage media. Advanced electronics manufacturers are located globally.

For the three months ended June 30, ~~2022,~~2023, net revenues in our ~~advanced~~ electronics and packaging market ~~decreased~~increased by $5$3 million, or 6%1%, compared to the prior ~~quarter~~quarter. The increase was primarily related to an increase in demand for electronic components, which we report in PSD, offset by a decrease in demand for chemistry solutions and plating equipment, which we report in MSD, due to a decline in end market demand for electronics, such as personal computers and smartphones.

For the six months ended June 30, ~~2022,~~2023, net revenues ~~decreased~~in our electronics and packaging market increased by ~~$93~~$338 million, or ~~37%~~310%, compared to the same period in the prior year. This ~~market has been impacted~~increase was mainly driven by the Atotech Acquisition, partially offset by decreased ~~industry~~ demand for flexible PCB via drilling ~~equipment. This~~systems, as a result of softened demand ~~has continued to soften~~for electronics, such as ~~customers have temporarily slowed capacity expansion, due in part to softness in smartphone demand. In addition, net revenues for~~personal computers and smartphones. We estimate the impact of the ransomware event on our ~~products for the consumer~~ electronics ~~markets have decreased.~~and packaging market was nominal.

~~This~~MKS’ strategy in the specialty industrial market ~~primarily relates~~is to ~~sales~~leverage our domain expertise and proprietary technologies across a broad array of ~~products for~~applications in industrial technologies, life and health sciences, and research and defense ~~applications.~~markets.

Industrial technologies encompass a wide range of diverse applications, ~~such as~~including chemistries for functional coatings, surface finishing and wear resistance in the automobile industry, vacuum solutions for synthetic diamond manufacturing and photonics for solar manufacturing. Other applications include, but are not limited to, vacuum and photonics solutions for light emitting diode and laser ~~marking, measurement and scribing, natural gas and oil production and environmental monitoring. Our industrial customers are located globally.~~diode manufacturing.

Our products for life and health sciences are used in a diverse array of applications, including bioimaging, medical instrument sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical production. ~~Our life and health sciences customers are located globally.~~

Our products for research and defense are sold to government, university and industrial laboratories for 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 providers and research laboratories are concentrated in China, Europe, Japan, South Korea, Taiwan and the United States.~~

For the three months ended June 30, ~~2022,~~2023, net ~~revenue~~revenues in our specialty industrial market ~~decreased~~increased by $1$74 million, or 1%28%, compared to the prior quarter. We estimate the effects of the ransomware event positively impacted our specialty industrial market revenue for the three months ended June 30, 2023 as we estimate we fulfilled approximately $30 million of the $45 million in delayed orders from the three months ended March 31, 2023 as a result of the ransomware event. Substantially all of the remaining orders that were delayed during the first quarter ~~and for~~of 2023 are expected to be fulfilled in the second half of 2023.

For the six months ended June 30, ~~2022,~~2023, net revenues ~~decreased $4~~in our specialty industrial market increased by $205 million, or 1%52%, compared to the same period in the prior year. ~~Although revenue~~This increase was mainly driven by net revenues of $235 million from the Atotech Acquisition which closed in ~~our specialty industrial market decreased slightly, demand across specialty industrial applications was steady.~~the third quarter of 2022, partially offset by decreases of $16 million at PSD and $14 million at VSD.

A significant portion of our net revenues is from sales to customers in international markets. For the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, international revenues accounted for approximately ~~52%~~65% and ~~60%~~54%, respectively, of our total net revenues. The increase in the percentage of international revenues is attributable to the Atotech Acquisition. A significant portion of our international net revenues was from China, South Korea and ~~South Korea.~~Germany. We expect international net revenues will continue to ~~represent~~account for a significant percentage of ~~our~~ total net revenues for the foreseeable future.

Long-lived assets located outside of the United States accounted for approximately ~~65%~~56% and ~~50%~~57% of our total long-lived assets as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The increase as of June 30, 2022 compared to December 31, 2021, was primarily a result of increased long-lived assets in our Mexico facility and the purchase and expansion of a facility in South Korea. Long-lived assets include property, plant and equipment, net, right-of-use assets, net and certain other assets and exclude goodwill, intangible assets and long-term tax-related accounts.

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

For the three months ended June 30, ~~2022,~~2023, net product revenues increased ~~$16~~$173 million compared to the prior ~~quarter, and for~~quarter. This increase was primarily due to the effects of the ransomware event which resulted in a substantial portion of the unfulfilled orders from the three months ended March 31, 2023 being recognized during the three months ended June 30, 2023.

For the six months ended June 30, ~~2022,~~2023, net product revenues increased ~~$50~~$285 million compared to the same period in the prior year. ~~These increases were primarily attributable to volume increases in our semiconductor market,~~This increase was mainly driven by the Atotech Acquisition with MSD net product revenues totaled $575 million for the six months ended June 30, 2023, partially offset by decreases in net product revenues of $242 million and $46 million in VSD and PSD, respectively. VSD and PSD net product revenues were negatively impacted by volume decreases as a result of softening demand in our ~~advanced~~semiconductor and electronics ~~market, primarily in ESD due to decreased industry demand for flexible PCB via drilling equipment~~ and ~~other products for the consumer electronics~~packaging markets.

Net service revenues consisted mainly of fees for services related to the maintenance and repair of our products, sales of spare parts, and installation and training. For the three months ended June 30, ~~2022,~~2023, net service revenues increased $7$36 million compared to the prior quarter, primarily related to increases in VSD and ~~for~~PSD net service revenues as a result of the ransomware event, which resulted in substantially all of the unfulfilled orders from the three months ended March 31, 2023 being recognized during the three months ended June 30, 2023.

For the six months ended June 30, ~~2022,~~2023, net service revenues increased ~~$13~~$5 million compared to the same period in the prior year. ~~We recorded increases~~This increase was mainly driven by the Atotech Acquisition, with MSD net services revenues totaled $27 million for the six months ended June 30, 2023, partially offset by decreases in ~~both periods~~net service revenues of $17 million and $5 million in

VSD and PSD, respectively. VSD and PSD net service revenues were negatively impacted by volume decreases as a result of softening demand in our semiconductor and ~~advanced~~ electronics and packaging markets.

For the three months ended June 30, ~~2022,~~2023, net revenues from VSD and PSD increased ~~$33~~$133 million and $81 million compared to the prior quarter, ~~and for~~respectively, primarily due to the effects of the ransomware event which resulted in a substantial portion of the unfulfilled orders from the three months ended March 31, 2023 being recognized during the three months ended June 30, 2023.

For the six months ended June 30, ~~2022,~~2023, net revenues ~~increased $87~~from VSD decreased $261 million compared to the same period in the prior ~~year. These increases were~~year, which was largely reflective of volume ~~increases~~decreases in the semiconductor market.

For the six months ended June 30, 2023, net revenues from PSD decreased $51 million compared to the same period in the prior year partially due to decreased industry demand for flexible PCB via drilling equipment as a result of softened demand for electronics, such as personal computers and smartphones, and partially due to decreased demand in the specialty industrial market.

For the three months ended June 30, ~~2022,~~2023, net revenues from PSD were flat compared to the prior quarter, with increases in net revenues from our semiconductor market offsetting decreases in net revenues from our advanced electronics market. For the six months ended June 30, 2022, net revenues increased $81 million compared to the same period in the prior year, reflective of volume increases in the semiconductor market, including contributions from our acquisition of Photon Control.

~~For the three months ended June 30, 2022, net revenues from ESD~~MSD decreased ~~$10~~$6 million compared to the prior quarter, primarily due to lower equipment sales to customers of our electronics and general metal finishing reporting units. There were no net revenues from MSD for the six months ended June 30, 2022, ~~net revenues decreased $105 million compared to~~as MSD was established in connection with the ~~same period~~closing of the Atotech Acquisition in the prior year. These decreases were due to decreased industry demand for flexible PCB via drilling equipment that has continued to soften as customers have temporarily slowed capacity expansion, due in part to softness in smartphone demand.third quarter of 2022.

Gross margin for our products decreased for the three and six months ended June 30, 2022, compared to the prior quarter and compared to the same period in the prior year, respectively. The decreases in gross margin were primarily due to higher materials costs reflective of global component shortages, higher logistics costs and unfavorable overhead absorption arising from the effect of component shortages on manufacturing efficiencies. The decrease in our product gross margin for the six months ended June 30, 2022, compared to the same period in the prior year, was partially offset by higher revenue volumes, favorable product mix and lower warranty costs.

~~Gross margin for our services~~ increased for the three and six months ended June 30, ~~2022,~~2023, compared to the ~~prior~~first quarter and compared to the same period in the prior year, respectively. The increase in ~~our service~~ gross margin for our products for the three months ended June 30, 2023 was mainly the result of higher revenue volumes and favorable direct labor and overhead absorption as the ransomware event negatively impacted VSD and PSD operations in the first quarter of 2023. The increase in gross margin for our products for the six months ended June 30, 2023 was primarily due to favorable product mix, including contributions from MSD, which had higher gross margins than VSD and PSD. The six months ended June 30, 2022 included no revenue from MSD, as MSD was established in connection with the closing of the Atotech Acquisition in the third quarter of 2022.

Gross margin for our services increased for the three months ended June 30, 2023 compared to the prior quarter and decreased for the six months ended June 30, 2023 compared to the same period in the prior ~~year,~~year. The increase in gross margin for our services for the three months ended June 30, 2023 was ~~reflective~~mainly the result of higher revenue volumes and favorable direct labor and overhead absorption, as the ransomware event negatively impacted VSD and PSD operations in the first quarter of 2023. The decrease in gross margin for our ~~efforts~~services for the six months ended June 30, 2023 was primarily due to ~~transition customers to higher-value offerings such as service contracts~~unfavorable product mix and ~~the mix of products serviced. This increase was partially offset by unfavorable~~lower overhead ~~efficiency and higher excess and obsolete charges on service-related parts.~~absorption.

The following table sets forth gross margin as a percentage of net revenues by reportable segment:

Gross margin for VSD ~~decreased~~increased for the three months ended June 30, ~~2022~~2023, compared to the prior quarter, primarily due to higher revenue volumes and ~~gross~~favorable absorption and lower excess and obsolete charges. Gross margin for VSD for the three months ended March 31, 2023 was negatively impacted by the ransomware event. Gross margin for VSD decreased for the six months ended June 30, 2022 compared to the same period in the prior year, in each case primarily due to higher material costs reflective of global component shortages, higher logistics costs and unfavorable overhead absorption. These decreases in gross margin were partially offset by favorable product mix and higher revenue volumes.

Gross margin for PSD decreased for the three months ended June 30, 2022, compared to the prior quarter, primarily due to higher material costs reflective of global component shortages, higher logistics costs and unfavorable product mix. Gross margin for PSD increased for the six month period ended June 30, 2022,2023, compared to the same period in the prior year, primarily due to ~~higher~~lower revenue volumes and unfavorable overhead absorption as a result of softening demand in our semiconductor market, offset by favorable product mix ~~partially offset by unfavorable absorption, higher~~and favorable purchase price variances as material costs ~~reflective~~were higher in the first half of ~~global~~2022 as a result of supply chain component ~~shortages and higher logistics costs.~~shortages.

Gross margin for ~~ESD decreased~~PSD increased for the three months ended June 30, ~~2022,~~2023, compared to the prior quarter, primarily due to higher revenue volumes and ~~gross~~favorable absorption partially offset by unfavorable product mix. Gross Margin for PSD for the three months ended March 31, 2023 was negatively impacted by the ransomware event. Gross margin for ~~ESD~~PSD decreased for the six months ended June 30, ~~2022~~2023, compared to the ~~same period in the~~ prior year, ~~in each case~~ primarily due to ~~unfavorable absorption, from lower revenue volumes, unfavorable product mix,~~higher scrap and material costs and higher ~~logistics costs.~~excess and obsolete charges.

Gross margin for MSD increased for the three months ended June 30, 2023, compared to the prior quarter, primarily due to favorable product mix. There were no net revenues from MSD for the six months ended June 30, 2022 as MSD was established in connection with the closing of the Atotech Acquisition in the third quarter of 2022.

For the three months ended June 30, 2023, research and development expenses increased by $3 million, compared to the prior quarter, primarily due to increases of $2 million in compensation-related costs and $2 million in project materials, offset by a decrease of $1 million in occupancy costs. For the six months ended June 30, ~~2022,~~2023, research and development expenses increased $8by $42 million, compared to the same period in the prior year, ~~primarily due to increases of $5 million in compensation-related costs, $1 million in consulting costs and $1 million in occupancy costs, reflective of increased research and development headcount.~~substantially from the Atotech Acquisition.

Our research and development efforts are primarily focused on developing and improving our instruments, components, chemistry, subsystems, systems and process control solutions to improve process performance and productivity. We have thousands of products, and our research and development efforts primarily consist of a large number of projects related to these products, none of which is individually material to us. ~~Current projects~~Projects typically have ~~durations~~a duration of 3 to 3036 months ~~depending upon whether the~~but may be extended for development of new products.

We continue to make product ~~is an enhancement of existing technology or a new product. Our products have continuously advanced as we strive~~advancements to meet our ~~customers'~~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 processing and process control technology, the continuing drive toward more complex and accurate components and devices within the handset and tablet market, the transition to 5G for both devices and infrastructure, ~~supporting~~ the growth in units and via counts ofin the high density interconnect PCB drilling market, and the ~~industry~~ transition from internal combustion to electric ~~cars in the automotive market.~~vehicles. In addition, we have developed, and continue to develop, products that support the migration to new classes of materials, ultra-thin layers, and 3D structures that are used in small geometry manufacturing. In our chemistry and equipment plating businesses, a majority of our research and development investment supports existing customers' product improvement needs and their short-term research and development goals, which enables us to pioneer new high-value solutions while limiting commercial risk. Research and development expenses consist primarily of salaries and related expenses for personnel engaged in research and development, fees paid to consultants, material costs for prototypes and other expenses related to the design, development, testing and enhancement of our products.

We believe that the continued investment in research and development and ongoing development of new products are essential to the expansion of our markets. We expect to continue to make significant investment in research and development activities. We are subject to risks from products not being developed in a timely manner, as well as from rapidly changing customer requirements and competitive threats from other companies and technologies. Our success primarily depends on our products being designed into new generations of equipment for the semiconductor, ~~industry~~electronics and ~~other advanced manufacturing~~packaging, and specialty industrial markets. We develop products that are technologically advanced so that they are positioned to be chosen for use in each successive generation of semiconductor capital equipment and advanced ~~market~~markets applications. If our products are not chosen to be designed into our ~~customers'~~customers’ products, our net revenues may be reduced during the lifespan of those products.

For the three months ended June 30, ~~2022,~~2023, selling, general and administrative expenses decreased $2 million, compared to the prior quarter, primarily due to a decrease of $1 million in compensation-related costs and a decrease of $3 million in net costs incurred as a result of the ransomware event, offset by increases of $3 million in consulting and professional fees, including audit and tax fees. For the six months ended June 30, 2023, selling, general and administrative expenses increased $9$155 million, ~~sequentially, with $5~~compared to the same period in the prior year, mainly driven by the Atotech Acquisition, as well as an increase in compensation-related costs partially offset by a decrease in bad debt expense. For the six months ended June 30, 2023, selling, general and administrative costs also included $11 million in ~~increases from annual compensation adjustments, including equity award grants. The remaining increases were primarily for consulting and professional fees, marketing and related travel~~net costs ~~and information technology-related costs.~~incurred as a result of the ransomware event.

Acquisition and integration costs incurred during the three months ended June 30, ~~2022~~2023 and March 31, ~~2022~~2023 and the six months ended June 30, 2023 and 2022 were primarily related to consulting and professional fees related to ~~our pending acquisition of Atotech. Acquisition~~the Atotech Acquisition.

Restructuring charges during the three and ~~integration costs for the~~ six months ended June 30, ~~2021,~~2023 and the three months ended March 31, 2023 were ~~primarily~~ related to ~~consulting~~severance costs as a result of global cost saving initiatives implemented in the first and ~~professional fees related to our acquisition~~second quarters of ~~Photon Control, the pending acquisition of Atotech and a proposed acquisition that was not consummated.~~

~~Restructuring and other costs~~charges during the ~~three and~~ six months ended June 30, 2022 were primarily related to severance costs due to a global cost-saving initiative and the closure of two facilities in Europe. ~~Restructuring and other costs during~~

For the three months ended ~~March 31, 2022 were primarily related~~June 30, 2023, amortization of intangible assets decreased by $5 million, compared to the ~~closure of a facility in Europe. Restructuring and other costs during the three and six months ended June 30, 2021 were~~prior quarter, primarily ~~related to duplicate facility costs attributed to entering into new facility leases, severance costs~~ due to the first quarter including a ~~global cost-saving initiative, costs related to the pending closure~~write-off of ~~a facility in Europe~~$9 million of MSD in-process research and ~~movement of certain products to low-cost regions.~~

development projects that were cancelled. For the six months ended June 30, ~~2022,~~2023, amortization of intangible assets increased ~~by $5~~$127 million, compared to the same period in the prior year, due to amortization ~~expense from~~of intangible assets of $128 million as a result of the Atotech Acquisition.

During the quarter ended June 30, 2023, as a result of softer industry demand, particularly in the personal computer and smartphone markets, we concluded there was a triggering event at our ~~acquisition~~Electronics (“EL”) and General Metal Finishing (“GMF”) reporting units, which together constitute MSD, and the Equipment Solutions Business (“ESB”) reporting unit of ~~Photon Control.~~PSD. We concluded there was no triggering event at our other reporting units within VSD and PSD.

For the EL, GMF and ESB reporting units, we performed a quantitative assessment of goodwill using a combination of market approach and the income approach. Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by our management. There are inherent uncertainties and management judgment required in these determinations.

This quantitative assessment resulted in a non-cash goodwill impairment of $826 million for the EL reporting unit, $428 million for the GMF reporting unit and $372 million for the ESB reporting unit. In addition, we recorded a $49 million impairment of in-process research and development allocated to the EL reporting unit and a $152 million impairment related to completed technology allocated to the ESB reporting unit.

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 could materially and adversely affect our financial condition and operating results.

~~For the three months ended March 31, 2022 and~~In the six months ended June 30, 2022, we recorded a gain from the sale of a minority interest investment in a private company.

For the three months ended June 30, 2023, interest expense increased $3 million, compared to the prior quarter, primarily due to higher interest rates related to the outstanding borrowings on the New Term Loan Facility we entered into in connection with the Atotech Acquisition. For the six months ended June 30, 2023, interest expense increased $160 million, compared to the same period in the prior year, primarily due to borrowings on the New Term Loan Facility we entered into in connection with the Atotech Acquisition.

Other expense (income), net, for the three ~~months ended June 30, 2022~~ and six months ended June 30, ~~2021, consisted primarily of net foreign exchange and fair value losses.~~

~~Other expense (income), net, for the~~2023, three months ended March 31, ~~2022~~2023 and ~~the~~ six months ended June 30, 2022 consisted primarily of net foreign exchange and fair value ~~gains.~~gains and losses.

Our effective tax ~~rates~~rate for the three months ended June 30, ~~2022~~2023 and March 31, ~~2022 were 17.0%~~2023 was 1.2% and ~~16.3%~~46.6%, respectively. ~~The~~Our effective tax ~~rates~~rate for the three months ended June 30, ~~2022~~2023 was lower than the U.S. statutory tax rate primarily due to the tax benefit related to the impairment of intangible assets discretely recorded during the three months ended June 30, 2023. The goodwill impairment relating to the electronics and general metal finishing reporting units of MSD and the equipment solutions reporting unit of PSD was considered non-deductible goodwill for tax purposes and therefore no tax benefit was recorded related to the goodwill impairment. Our effective tax rate for the three months ended March 31, ~~2022 were lower~~2023 was higher than the U.S. statutory tax rate mainly due to the geographic mix of income earned by our international subsidiaries being

taxed at higher rates than the U.S. statutory rate, offset by the U.S. foreign tax credit and the U.S. deduction for foreign derived intangible income ~~("FDII"~~(“FDII”).

Our effective tax rate for the six months ended June 30, 2023 and June 30, 2022 was 3.2% and 16.6%, respectively. Our effective tax rate for the six months ended June 30, 2023 was lower than the U.S. statutory tax rate primarily due to the tax benefit related to the impairment of intangible assets. Our effective tax rate for the six months ended June 30, 2022 was lower than the U.S. statutory rate mainly due to the U.S. deduction for FDII and the geographic mix of income earned by ~~the Company's~~our international subsidiaries being taxed at rates lower than the U.S. statutory tax rate, offset by the U.S. global intangible low-taxed income ~~inclusion ("GILTI").~~

Our effective tax rates for the six months ended June 30, 2022 and June 30, 2021 were 16.6% and 16.2%, respectively. The effective tax rates for the six months ended June 30, 2022 and June 30, 2021 were lower than the U.S. statutory tax rate mainly due to the geographic mix of income earned by the Company's international subsidiaries being taxed at rates lower than the U.S. statutory taxinclusion.

rate, benefits of stock compensation, and the U.S. deduction for FDII offset by the U.S. tax effects of the U.S. GILTI inclusion and the write-off of deferred tax assets related to certain foreign net operating losses.

Over the next 12 months, it is reasonably possible that we may recognize approximately $1 million of previously net unrecognized tax benefits, excluding interest and penalties, related to U.S. federal, state and foreign tax positions as a result of the expiration of statutes of limitation. The U.S. federal statute of limitations remains open for tax years 2018 through the present. The U.S. statute of limitation for the one-time tax reported in 2017 remains open until 2024. The statute of limitations for our tax filings in other jurisdictions varies between fiscal years 2016 through the present. We also have certain federal credit carryforwards and state tax loss and credit carryforwards that are open to examination for tax years 2002 through the present.

On a quarterly basis, we evaluate both positive and negative evidence that affects the realizability of net deferred tax assets and assess the need for a valuation allowance. The future benefit to be derived from our deferred tax assets is dependent upon our ability to generate sufficient future taxable income in each jurisdiction of the right type to realize the assets.

Our future effective tax rate depends on various factors, including the impact of tax legislation, further interpretations and guidance from U.S. federal and state governments on the impact of proposed regulations issued by the Internal Revenue Service, further interpretations and guidance from foreign governments, the geographic composition of our pre-tax income, and changes in income tax reserves for unrecognized tax benefits. We monitor these factors and timely adjust our estimates of the effective tax rate accordingly. We expect ~~that~~ the ~~geographic mix of pre-tax income~~Atotech Acquisition will continue to have ~~a favorable~~an unfavorable impact on our effective tax rate as MSD operates primarily in jurisdictions with tax rates higher than the U.S. statutory tax rate. However, the geographic mix of pre-tax income can change based on multiple factors, resulting in changes to the effective tax rate in future periods. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits ~~include~~includes estimates and requires judgment by management. Accordingly, we ~~could~~may record additional provisions or benefits for U.S. federal, state, and foreign tax matters in future periods as new information becomes available.

On March 28, 2022, the Biden Administration released its fiscal year 2023 budget blueprint, which includes an increase to the corporate tax rate from 21% to 28%, an increase to GILTI taxes, reductions of the FDII benefit, a new minimum tax based on an Organization of Economic Co-operation and Development agreement and other provisions. If these tax proposals are enacted in their current form, we expect our income tax expense would materially increase.

Cash and cash equivalents and short-term marketable investments at June 30, ~~2022~~2023 and December 31, ~~2021~~2022 totaled ~~$1.1 billion~~$758 million and ~~$1.0 billion,~~$910 million, respectively. The primary driver in our current and anticipated future cash flows is, and we expect will continue to be, cash generated from operations, consisting primarily of our net (loss) income, excluding non-cash charges and changes in operating assets and liabilities. In periods when our sales are growing, higher sales to customers will result in increased trade receivables, and inventories will generally increase as we build products for future sales. This may result in lower cash generated from operations. Conversely, in periods when our sales are declining, our ~~trade~~ accounts receivable and inventory balances will generally decrease, resulting in increased cash from operations. We believe that our current cash and investments position and available borrowing capacity, together with the cash anticipated to be generated from our operations will be sufficient to satisfy our estimated working capital, planned capital expenditure requirements, payments of debt, and any future cash dividends declared by our Board of Directors or share repurchases through at least the next 12 months and the foreseeable future.

Net cash ~~provided by~~used in operating activities was ~~$146~~$22 million for the six months ended June 30, ~~2022,~~2023, resulting from a net ~~income~~loss of ~~$273~~$1,812 million, which included non-cash charges of ~~$84~~$2,012 million, mainly the result of a $1,827 million non-cash impairment of goodwill and intangible assets, offset by a net increase in working capital of ~~$211~~$222 million. The net increase in working capital was primarily due to a decrease in accounts payable of $108 million, a decrease in income taxes payable of $56 million, a decrease of $35 million in accrued compensation, and increases in inventory of ~~$133~~$94 million and ~~trade~~other current and non-current assets of $11 million. This net increase in working capital was partially offset by a decrease in accounts receivable of $53 million, as a result of increased business levels and timing of sales, and a decrease of $49 million in accrued compensation resulting from the payment of variable compensation. These increases in working capital were partially offset by an increase in accounts payable and accrued expenses of $30$80 million.

Net cash used in investing activities was $1$34 million for the six months ended June 30, ~~2022,~~2023, consisting primarily ~~due to $83~~of $35 million in ~~purchases of property, plant and equipment, which included a $42 million purchase and expansion of a facility in South Korea, partially offset by $76 million in maturities of investments.~~capital expenditures.

Net cash used in financing activities was ~~$31~~$78 million for the six months ended June 30, ~~2022,~~2023, primarily due to ~~$24~~$45 million of payments on our New Term Loan Facility and $29 million of dividend ~~payments and $5 million related to net tax payments on the vesting of employee stock awards.~~payments.

Holders of our common stock are entitled to receive dividends when ~~and if~~ they are declared by our Board of Directors. ~~Our~~During each of the first and second quarters of 2023 and 2022, our Board of Directors declared a cash dividend of $0.22 per ~~share during each of~~share. The cash dividends totaled $29 million and $24 million for the ~~first~~six months ended June 30, 2023 and ~~second quarters of~~ 2022, which totaled $24 million. On July 25, 2022, our Board of Directors declared a quarterly cash dividend of $0.22 per share to be paid on September 9, 2022 to stockholders of record as of August 8, 2022.respectively. 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. In addition, under the ~~terms of our Term Loan Facility and ABL Facility, each~~New Credit Facilities as defined and described further below, we may be restricted from paying dividends under certain circumstances.

On ~~July 1, 2021,~~August 17, 2022, we ~~entered into~~completed the Atotech Acquisition. The total net purchase price, including cash consideration, net of cash acquired, value of MKS shares issued, repayment of Atotech debt and settlement of share-based awards totaled $5.7 billion. We funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the New Term Loan Facility, as defined below. As a result of the Atotech Acquisition, we issued an Implementation Agreement to acquire Atotech, a leading process chemicals technology company and a market leader in advanced electroplating solutions. Pursuant to the Implementation Agreement, we agreed to pay $16.20 per share in cash and 0.0552aggregate of ~~a share~~10.7 million shares of our common stock ~~for each outstanding common share of Atotech. The final value of~~to the ~~consideration will be determined at the time of the closing of the~~former Atotech Acquisition, which is subject to obtaining the required sanction by the Royal Court of Jersey and the satisfaction of customary closing conditions. Our obligation to complete the Atotech Acquisition is not subject to any financing condition.shareholders. Additional information regarding the funding of the ~~acquisition and~~Atotech Acquisition, the ~~2022~~entry into the New Term Loan ~~Facilities,~~Facility and the ~~2022~~ New Revolving ~~Credit~~ Facility and the replacement of the Prior Term Loan Facility and the Prior ABL Credit Facility, is discussed ~~under "Pending Acquisition of Atotech" above and in Note 18 to the Notes to the Condensed Consolidated Financial Statements.~~

In connection with the completion of the ~~acquisition of Newport Corporation ("Newport") in 2016 (the "Newport Merger"),~~Atotech Acquisition, we entered into a ~~term loan~~ credit agreement ~~(as amended, the "Term Loan Credit Agreement")~~ with ~~Barclays~~JPMorgan Chase Bank, ~~PLC,~~N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto ~~which provided~~(the “New Credit Agreement”). The New Credit Agreement provides for (i) a senior secured term loan facility (the “New Term Loan Facility”) comprised of three tranches: a USD 1 billion loan (the “USD Tranche A”), a USD 3.6 billion loan (the “USD Tranche B”) and a EUR 600 million loan (the “Euro Tranche B”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of USD 500 million (the ~~"Term Loan Facility") in~~“New Revolving Facility” and, together with the ~~original principal amount of $780 million. We have entered into seven amendments to the Term Loan Credit Agreement since 2016. The~~New Term Loan Facility, isthe “New Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions.

Borrowings under the New Credit Facilities bear interest at a rate per annum equal to, at our option, and subject to receipt of lender commitments in accordance with the Term Loan Credit Agreement. The maturity date of the Term Loan Facility is February 2, 2026. As of June 30, 2022, borrowings under the Term Loan Facility bear interest per annum at oneany of the following, ~~rates selected by us:~~plus, in each case, an applicable margin: (a) with respect to the USD Tranche A, the USD Tranche B and the New Revolving Facility, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the ~~"prime rate"~~prime rate quoted in The Wall Street Journal, or (3) a ~~London~~forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00%; and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50% and (II) with respect to the USD Tranche A and the New Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate ~~("LIBOR"~~(“EURIBOR”) rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%, and (4) a floor of 1.00%, plus, in each case, an applicable margin of 0.75%; or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollarEuro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a ~~LIBOR~~EURIBOR rate floor of 0.0%~~, plus an~~. The USD Tranche A was issued with original issue discount of 0.25% of the principal amount thereof. The USD Tranche B and the Euro Tranche B were issued with original issue discount of 2.00% of the principal amount thereof. The applicable margin offor borrowings under the USD Tranche A is 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings. The applicable margin for borrowings under the USD Tranche B is 1.75% with respect to base rate borrowings and 2.75% with respect to Term SOFR borrowings. The applicable margin for borrowings under the Euro Tranche B is 3.00%. ~~We have elected~~The applicable margin for borrowings under the New Revolving Facility is 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings.

In addition to paying interest ~~rate as described~~on outstanding principal under the New Credit Facilities, we are required to pay a commitment fee in ~~clause (b)~~respect of the ~~foregoing sentence.~~unutilized commitments under the New Revolving Facility. The ~~Term Loan~~initial commitment fee is 0.375% per annum. Commencing with the delivery of financial statements with respect to the first quarter ending after the closing of the New Credit Agreement, ~~provides that, unless an alternate rate of interest~~the commitment fee is agreed, all loans will be determined by reference to the base rate if the LIBOR rate cannot be ascertained, if regulators impose material restrictions on the authority of a lender to make LIBOR rate loans, or for other reasons.

Under the Term Loan Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $600 million and (2) 100% of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to ~~pro forma compliance with a secured~~downward adjustment based on our first lien net leverage ratio ~~test~~as of ~~3.25:1.00.~~the end of the preceding quarter. We must also pay customary letter of credit fees and agency fees.

We ~~are required to make scheduled quarterly amortization payments each equal to 0.25% of the original principal amount of the Term Loan Facility. As of June 30, 2022, the remaining balance~~incurred $242 million of deferred ~~finance~~financing fees and original issue discount ~~and repricing~~ fees related to the term loans under the New Term Loan Facility, ~~was $7 million.~~

Aswhich are included in long-term debt in the accompanying condensed consolidated balance sheets and are being amortized to interest expense over the estimated life of ~~June 30, 2022, after giving effect to all amendments~~the term loans using the effective interest method. A portion of the deferred financing fees and ~~repayments prior to such date,~~original issue discount has been accelerated in connection with the ~~outstanding principal amount~~debt prepayment and extinguishment of the Prior Term Loan Facility ~~was $820 million, and the interest rate was 2.8%~~(as defined below).

Under the ~~Term Loan~~New Credit Agreement, we are required to prepay outstanding term loans, subject to certain exceptions, with portions of our annual excess cash flow as well as with the net cash proceeds of certain of our asset sales, certain casualty and condemnation events and the ~~incurrence~~incurrences or ~~issuance~~issuances of certain debt.

If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the New Revolving Facility exceeds the aggregate commitments under the New Revolving Facility, we are required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.

We may voluntarily prepay outstanding loans under the New Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans; provided, however, that subject to certain exceptions, if on or prior to the date that is twelve months after the closing date of the New Term Loan Facility, we prepay any loans under the USD Tranche B or the Euro Tranche B in connection with a repricing transaction, we must pay a prepayment premium of 1.00% of the aggregate principal amount of the loans so

prepaid. Additionally, we may voluntarily reduce the unutilized portion of the commitment amount under the New Revolving Facility.

We are required to make scheduled quarterly payments each equal to 1.25% of the original principal amount of the USD Tranche A (increasing to 1.875% in years 3 and 4 and 2.50% in year 5) and 0.25% of the original principal amount of the USD Tranche B and the Euro Tranche B, beginning with the fiscal quarter ending December 31, 2022, with the balance due thereunder on the fifth anniversary of the closing date in the case of the USD Tranche A and the seventh anniversary of the closing date in the case of the USD Tranche B and the Euro Tranche B.

There is no scheduled amortization under the New Revolving Facility. Any principal amount outstanding under the New Revolving Facility is due and payable in full on the fifth anniversary of the closing date.

We incurred $7 million of costs in connection with the New Revolving Facility, which were capitalized and included in other assets in the accompanying condensed consolidated balance sheet and are being amortized to interest expense over the estimated life of four years. As a result of our Prior ABL Credit Facility (as defined below) being terminated concurrently with our entry into the New Revolving Facility, we wrote off an immaterial amount of previously capitalized debt issuance costs.

All obligations under the ~~Term Loan Facility~~New Credit Facilities are guaranteed by certain of our wholly-owned domestic subsidiaries and are required to be guaranteed by certain of our future wholly-owned domestic subsidiaries and are secured by substantially all of our assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.

~~The Term Loan~~Under the New Credit Agreement, ~~contains customary representations~~we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1.01 billion and ~~warranties, affirmative and negative covenants and provisions relating~~(2) 75% of consolidated EBITDA, plus (y) an amount equal to ~~events~~the sum of ~~default. If an event~~all voluntary prepayments of ~~default occurs,~~term loans under the ~~lenders under the~~New Term Loan Facility, ~~will be entitled~~plus (z) an additional unlimited amount subject to ~~take various actions, including~~pro forma compliance with certain leverage ratio tests (based on the ~~acceleration~~security and priority of ~~amounts due under~~such incremental debt).

Under the ~~Term Loan~~USD Tranche A and the New Revolving Facility, ~~and all actions generally permitted~~so long as any USD Tranche A loans (or commitments in respect thereof) are outstanding as of the end of any fiscal quarter, we may not allow our total net leverage ratio as of the end of such fiscal quarter to be ~~taken by a secured creditor. At June 30, 2022, we were in compliance~~greater than 5.50 to 1.00, with ~~all covenants under the Term Loan Credit Agreement.~~

~~In February 2019, in connection with the completion~~an annual step-down of ~~the ESI Merger, we entered into an asset-based revolving credit agreement with Barclays Bank PLC, as administrative agent~~0.25:1.00 and collateral agent, the other borrowers from time to time party thereto, and the lenders and letters of credit issuers from time to time party thereto (the "ABL Credit Agreement"), that provides the ABL Facility of up to $100 million, subject to a ~~borrowing base limitation. We have entered into two amendments to the ABL Credit Agreement since 2019. As~~step-up of ~~June 30, 2022, after giving effect to all amendments, the borrowing base~~0.50:1.00 for the ~~ABL Facility at any time equals the sum of: (a) 85% of certain eligible accounts; plus (b) prior to certain notice and field examination and appraisal~~

requirements, the lesser of (i) 20% of net book value of eligible inventory in the United States and (ii) 30% of the borrowing base, and after the satisfaction of such requirements, the lesser of (i) the lesser of (A) 65% of the lower of cost or market value of certain eligible inventory and (B) 85% of the net orderly liquidation value of certain eligible inventory and (ii) 30% of the borrowing base; minus (c) reserves established by the administrative agent, in each case, subject to additional limitations and examination requirements for eligible accounts and eligible inventory acquired in an acquisition after February 1, 2019. The ABL Facility includes borrowing capacity in the form of letters of credit up to $25 million. We have not borrowed against the ABL Facility to date.

As of June 30, 2022, any borrowings under the ABL Facility bear interest at a rate per annum equal to, at our option, any of the following, plus, in each case, an applicable margin: (a) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the "prime rate" quoted in ~~The Wall Street Journal~~, (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% and (4) a floor of 0.00%, plus, in each case, an applicable margin ranging from 0.25% to 0.50%; and (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, with a floor of 0.00%, plus, in each case, an applicable margin ranging from 1.25% to 1.50%. The applicable margin for borrowings thereunder is subject to upward or downward adjustment eachfour full fiscal quarter ~~based on the average historical excess availability during the preceding quarter.~~period following any material acquisition, not to exceed 5.50 to 1.00.

In addition, ~~to paying interest on any~~in the event there are no loans outstanding ~~principal~~ under the ~~ABL Facility, we are required to pay a commitment fee in respect~~USD Tranche A, as of the ~~unutilized commitments thereunder equal to 0.25% per annum. We must also pay customary letter~~end of any fiscal quarter of ours when the aggregate amount of loans outstanding under the New Revolving Facility (net of (a) all letters of credit ~~fees~~(whether cash collateralized or not) and ~~agency fees.~~(b) unrestricted cash of ours and our restricted subsidiaries) exceeds 35% of the aggregate amount of all commitments under the New Revolving Facility in; effect as of such date, we may not allow our first lien net leverage ratio as of the end of each such fiscal quarter to be greater than 6.00 to 1.00.

~~Under~~The USD Tranche B and the ~~ABL Facility, we~~Euro Tranche B are ~~required~~not subject to prepay amounts outstanding under the ABL Facility (1) if amounts outstanding under the ABL Facility exceed the lesser of (a) the commitment amount and (b) the borrowing base, in an amount required to reduce such shortfall, (2) if amounts outstanding under the ABL Facility in any currency other than U.S. dollars exceed the sublimit for such currency, in an amount required to reduce such shortfall, and (3) during any period in which we have excess availability less than the greater of (a) 10.0% of the lesser of (x) the commitment amount and (y) the borrowing base (the "Line Cap") and (b) $9 million for 3 consecutive business days, until the time when we have excess availability equal to or greater than the greater of (A) 10.0% of the Line Cap and (B) $9 million for 30 consecutive days, or during the continuance of an event of default, with immediately available funds in our blocked accounts.financial maintenance covenants.

~~There is no scheduled amortization under the ABL Facility. Any principal amount outstanding under the ABL Facility is due~~The New Credit Agreement contains a number of negative covenants that, among other things and payable in full on the fifth anniversary of the closing date, subject to a springing maturity in the event that term loans under the Term Loan Facility in an aggregate amount of at least $100 million have an earlier maturity date than the ABL Facility.

~~All obligations under the ABL Facility are guaranteed by certain of our domestic subsidiaries and are secured by substantially all of our assets and the assets of such subsidiaries,~~ subject to certain exceptions, restrict our ability and ~~exclusions.~~

~~From the time when we have excess availability less than the greater~~each of ~~(a) 10.0% of the Line Cap~~our subsidiaries to incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or our subordinated indebtedness; make investments, loans and (b) $9 million until the time when we have excess availability equal to or greater than the greater of (a) 10.0% of the Line Cap and (b) $9 million for 30 consecutive days, or during the continuance of an event of default, the ABL Credit Agreement requires that we maintain a fixed charge coverage ratio, testedacquisitions; create restrictions on the ~~last day~~payment of ~~each fiscal quarter,~~dividends or other amounts to us from our restricted subsidiaries or restrictions on the ability of ~~at least 1.0~~our restricted subsidiaries to ~~1.0.~~incur liens; engage in transactions with our affiliates; sell assets, including capital stock of our subsidiaries; materially alter the business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions.

The ~~ABL~~New Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the ~~ABL Facility~~New Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the ~~ABL Facility~~New Credit Facilities and all actions permitted to be taken by a secured creditor. As of June 30, 2023, we were in compliance with all covenants under the New Credit Agreement.

39The proceeds of the New Term Loan Facility were used on the Effective Date, among other things, to fund a portion of the consideration payable in connection with the Atotech Acquisition and to refinance the Prior Term Loan Facility, the Prior ABL Credit Facility and certain indebtedness of Atotech. We also paid certain customary fees and expenses of JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Mizuho Bank, Ltd. in their respective capacities as lead arrangers and bookrunners in connection with the New Credit Facilities.

On the Effective Date, in connection with the entry into the New Credit Agreement described above, we terminated and prepaid the prior term loan credit facility under that certain Term Loan Credit Agreement, dated as of April 29, 2016, by and among us, Barclays Bank PLC and the other financial institutions from time to time party thereto (as amended, the “Prior Term Loan Credit Agreement” and the term loan credit facility thereunder, the “Prior Term Loan Facility”) and terminated the prior revolving credit facility under that certain ABL Credit Agreement, dated as of February 1, 2019, by and among the

us, Barclays Bank PLC and the other financial institutions from time to time party thereto (as amended, the “Prior ABL Credit Agreement” and the revolving credit facility thereunder, the “Prior ABL Credit Facility”).

As of June 30, 2023, the outstanding principal amount of the New Term Loan Facility was $5.1 billion and the weighted average interest rate was 7.7%. As of June 30, 2023, there were no borrowings under the New Revolving Facility.

~~Our~~Certain of our Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. ~~The~~These lines of credit and financing facility provided for aggregate borrowings as of June 30, ~~2022~~2023 of up to an equivalent of ~~$25~~$14 million. ~~Total borrowings outstanding under these arrangements were $2 million at June 30, 2022.~~ There were no borrowings ~~outstanding~~ under these arrangements at June 30, 2023 and December 31, ~~2021.~~2022.

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally, and in the normal course of business, are exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps and caps to manage interest rate exposure.

By nature, all financial instruments involve market and credit risks. We enter into derivative instruments with major investment grade financial institutions and no collateral is required. We have policies to monitor the credit risk of these counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.

We ~~entered into~~have various interest rate swap agreements as described further in Note 54 to the Notes to the Condensed Consolidated Financial Statements that exchange the variable ~~LIBOR interest~~Term SOFR rate to a fixed rate in order to manage the exposure to interest rate fluctuations associated with the variable ~~LIBOR interest~~Term SOFR rate paid on the outstanding balance of the New Term Loan Facility. We ~~expect to enter into~~acquired USD London Interbank Offered Rate (“LIBOR”) interest rate ~~swap~~cap agreements ~~in order to manage the exposure to interest rate fluctuations associated with the variable SOFR~~as a result of the ~~2022~~Atotech Acquisition and we utilized these agreements to offset the Term SOFR rate on our New Term Loan ~~Facilities.~~Facility. Effective June 30, 2023, our USD LIBOR based interest rate caps were converted to Term SOFR. We also had two USD LIBOR based swaps that were converted to Term SOFR, effective June 30, 2023. The conversions from USD LIBOR to Term SOFR did not have a material impact on our results of operations.

There have been no changes outside the ordinary course of business to our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Information concerning market risk is contained in the section entitled ~~"Quantitative~~“Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk” contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission on ~~February 28, 2022.~~March 14, 2023. As of June 30, ~~2022,~~2023, there were no material changes in our exposure to market risk from December 31, ~~2021.~~2022.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2022.~~2023. The term ~~"disclosure~~“disclosure controls and procedures,"” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange ~~Commission's~~Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the ~~issuer's~~issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on ~~the~~that evaluation, ~~of our disclosure controls and procedures as of June 30, 2022,~~ our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~such date, our~~June 30, 2023, the Company’s disclosure controls and procedures were not effective atbecause of the ~~reasonable assurance level to ensure that information required to be disclosed by us~~material weakness in ~~reports that we file or submit under~~our internal control over financial reporting as described below and in “Controls and Procedures” contained in our Annual Report on Form 10-K for the ~~Exchange Act is recorded, processed, summarized and reported within~~year ended December 31, 2022 filed with the ~~time periods specified in~~ Securities and Exchange Commission ~~rules~~on March 14, 2023.

Based on its assessment, our management concluded that a material weakness existed as of December 31, 2022 which has not been remediated as of June 30, 2023. We did not maintain sufficient information technology (“IT”) controls to prevent or detect, on a timely basis, unauthorized access to the Company’s financial reporting systems. Specifically, we did not design and ~~forms, and is accumulated and communicated~~maintain effective controls with regard to our ~~management, including~~financial reporting systems related to access authentication, intrusion detection and response capability, and backup and restoration such that recovery from a cybersecurity incident could be performed in a more timely manner. This material weakness did not result in a misstatement to the annual or interim consolidated financial statements previously filed or included in this Quarterly Report on Form 10-Q. However, this material weakness could result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

We have been actively addressing the identified material weakness. Some remediation measures have been completed and actions with regard to our ~~Chief Executive Officer~~remediation plan are ongoing and ~~Chief Financial Officer as appropriate~~include the following:

Though the remediation plan is subject to continual review, we expect the remediation plan described above will address the identified material weakness. The remediation plan is subject to oversight by the Audit Committee of our Board of Directors and the identified material weakness will not be considered remediated until the remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded that newly implemented controls are operating effectively.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~For a description of our material legal proceedings, see Note 18 to the Notes to the Condensed Consolidated Financial Statements contained in Part 1, Item 1 of this Quarterly Report on Form 10-Q.~~

Information regarding risk factors affecting the ~~Company's~~Company’s business is discussed in the section entitled ~~"Risk Factors"~~“Risk Factors” in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission on ~~February 28, 2022.~~March 14, 2023.

The following table describes, for the quarterly period covered by this report, each trading arrangement for the sale or purchase of Company securities adopted or terminated by our directors and officers that is either (1) a contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (a “Rule 10b5-1 trading arrangement”) or (2) a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K):


Name (Title)	Action Taken (Date of Action)	Type of Trading Arrangement	Nature of Trading Arrangement	Duration of Trading Arrangement	Aggregate Number of Securities
Gerald G. Colella (Chairman of the Board of Directors)	Adoption (May 8, 2023)	Rule 10b5-1 trading arrangement	Sale	Until August 7, 2024, or such earlier date upon which all transactions are completed or expire without execution	Up to 30,000 shares

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Massachusetts	04-2277512
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

2 Tech Drive, Suite 201, Andover, Massachusetts	01810
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	MKSI	Nasdaq Global Select Market


PART I. FINANCIAL INFORMATION

	ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	3

		Condensed Consolidated Balance Sheets – June 30, ~~2022~~2023 and December 31, ~~202~~12022	3

		Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income – Three and ~~six months ended~~Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022	4

		Condensed Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity – Three and ~~six months ended~~Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022	5

		Condensed Consolidated Statements of Cash Flows – Six months ended June 30, ~~2022~~2023 and ~~2021~~2022	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	ITEM 2.	~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2927

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4140

	ITEM 4.	CONTROLS AND PROCEDURES	4140

PART II. OTHER INFORMATION

	~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~	42

	ITEM 1A.	RISK FACTORS	4241

	ITEM 5.	OTHER INFORMATION	41

	ITEM 6.	EXHIBITS	4342

SIGNATURES			4543


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended June 30, 2021
	VSD		PSD		ESD		Total
Net revenues:
Products	$	399	$	176	$	82	$	657
Services		59		17		17		93
Total net revenues	$	458	$	193	$	99	$	750


	Six Months Ended June 30, 2021
	VSD		PSD		ESD		Total
Net revenues:
Products	$	778	$	341	$	143	$	1,262
Services		116		34		32		182
Total net revenues	$	894	$	375	$	175	$	1,444


As of June 30, 2022:	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
Short-term investments:
Time deposits and certificates of deposit	$	1	$	—	$	—	$	1
Banker's acceptance drafts		1		—		—		1
	$	2	$	—	$	—	$	2


As of December 31, 2021:	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Estimated Fair Value
Short-term investments:
Available-for-sale investments:
Time deposits and certificates of deposit	$	22	$	—	$	—	$	22
Commercial paper		42		—		—		42
U.S. treasury obligations		11		—		—		11
U.S. agency obligations		1		—		—		1
	$	76	$	—	$	—	$	76


	June 30, 2022
Currency Hedged (Buy/Sell)	Gross Notional Value		Fair Value(1)
U.S. dollar/Japanese yen	$	66	$	5
U.S. dollar/South Korean won		111		5
U.S. dollar/euro		17		1
U.S. dollar/U.K. pound sterling		7		—
U.S. dollar/Taiwan dollar		45		2
Total	$	246	$	13


								June 30, 2022		June 30, 2022		December 31, 2021
Trade Date	Effective Date	Maturity	Fixed Rate			Notional Amount at Effective Date		Notional Amount		Fair Value Asset (Liability)		Fair Value Asset (Liability)
April 3, 2019	April 5, 2019	March 31, 2023		2.309	%	$	200	$	200	$	1	$	(5	)
October 29, 2020	October 26, 2021	February 28, 2025		0.485	%	$	200	$	200		13		4
October 29, 2020	March 31, 2022	February 28, 2025		0.623	%	$	100	$	100		15		5
								Total		$	29	$	4


As of June 30, 2022:	Gross		Accumulated Amortization and Impairment Charges			Foreign Currency Translation			Net
Completed technology	$	556	$	(260	)	$	—		$	296
Customer relationships		318		(135	)		(2	)		181
Patents, trademarks, trade names and other		123		(55	)		(1	)		67
	$	997	$	(450	)	$	(3	)	$	544


	June 30, 2022		December 31, 2021
Long-term debt:
Term Loan Facility, net(1)	$	804	$	808


Cash paid for outstanding shares	$	302
Less: Cash and cash equivalents acquired		(34	)
Total purchase price, net of cash and cash equivalents acquired	$	268


Current assets	$	51
Intangible assets		121
Goodwill		168
Other non-current assets		9
Total assets acquired		349
Current liabilities		14
Non-current deferred taxes		32
Other long-term liabilities		1
Total liabilities assumed		47
Fair value of assets acquired and liabilities assumed		302
Less: Cash and cash equivalents acquired		(34	)
Total purchase price, net of cash and cash equivalents acquired	$	268


June 30, 2022	Accounts receivable			Inventory			Total
Vacuum Solutions Division	$	344		$	421		$	765
Photonics Solutions Division		162			202			364
Equipment Solutions Division		35			67			102
Corporate, Eliminations & Other		(60	)		(1	)		(61	)
Total segment assets	$	481		$	689		$	1,170


	June 30, 2022		December 31, 2021
Reportable segment:
Vacuum Solutions Division	$	195	$	195
Photonics Solutions Division		552		558
Equipment Solutions Division		473		475
Total goodwill	$	1,220	$	1,228


	VSD			PSD			MSD			Total
Reportable segment:
Gross goodwill, at December 31, 2022	$	336		$	1,031		$	3,087		$	4,454
Foreign currency translation		(1	)		(1	)		(105	)		(107	)
Gross goodwill, at June 30, 2023		335			1,030			2,982			4,347

Accumulated goodwill impairment, at December 31, 2022		(141	)		(5	)		—			(146	)
Impairment charge		—			(372	)		(1,254	)		(1,626	)
Accumulated goodwill impairment, at June 30, 2023		(141	)		(377	)		(1,254	)		(1,772	)

Goodwill, net of accumulated impairment and foreign currency translation, at June 30, 2023	$	194		$	653		$	1,728		$	2,575


Exhibit No.		Exhibit Description

~~+2.1 (1)~~		~~Amendment to Implementation Agreement, dated April 1, 2022, by and among Atotech Limited, MKS Instruments, Inc. and Atotech Manufacturing, Inc.~~

+3.1 ~~(2)~~(1)		Restated Articles of Organization of the Registrant

~~+3.2 (3)~~+3.2 (2)		Articles of Amendment to Restated Articles of Organization of the Registrant, as filed with the Secretary of State of Massachusetts on May 18, 2001

+3.3 ~~(4)~~(3)		Articles of Amendment to Restated Articles of Organization of the Registrant, as filed with the Secretary of State of Massachusetts on May 16, 2002

+3.4 ~~(5)~~(4)		Amended and Restated By-Laws of the Registrant

~~+10.1 (1)~~		~~Commitment Letter, by and among MKS Instruments, Inc., JPMorgan Chase Bank, N.A. and Barclays Bank PLC, dated as of April 1, 2022~~

+10.2 (6)*		~~2022 Stock Incentive Plan~~

+10.3 (7)*		~~Form of Restricted Stock Unit Agreement for Non-Employee Directors under the 2022 Stock Incentive Plan~~

+10.4 (7)*		~~Form of Restricted Stock Unit Agreement for Employees under the 2022 Stock Incentive Plan~~

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)


	MKS INSTRUMENTS, INC.

Date: August ~~3, 2022~~4, 2023	By:	/s/ Seth H. Bagshaw
		Seth H. Bagshaw
		~~Senior~~Executive Vice President, Chief Financial Officer and Treasurer
		(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company