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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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

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

As of ~~May 2,~~July 27, 2017, the registrant had ~~54,108,231~~54,275,561 shares of common stock outstanding.


	March 31, 2017			December 31, 2016			June 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	255,912		$	228,623		$	422,830		$	228,623
Restricted cash		5,274			5,287			5,282			5,287
Short-term investments		155,299			189,463			149,016			189,463
Trade accounts receivable, net		267,249			248,757			268,544			248,757
Inventories, net		285,518			275,869			304,707			275,869
Other current assets		52,266			50,770			51,721			50,770

Total current assets		1,021,518			998,769			1,202,100			998,769

Property, plant and equipment, net		169,833			174,559			167,212			174,559
Goodwill		590,502			588,585			586,865			588,585
Intangible assets, net		396,409			408,004			386,075			408,004
Long-term investments		9,933			9,858			10,329			9,858
Other assets		32,352			32,467			32,102			32,467

Total assets	$	2,220,547		$	2,212,242		$	2,384,683		$	2,212,242

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	10,623		$	10,993		$	9,810		$	10,993
Accounts payable		70,493			69,337			73,291			69,337
Accrued compensation		50,034			67,728			65,243			67,728
Income taxes payable		27,469			22,794			42,142			22,794
Deferred revenue		16,197			14,463			9,975			14,463
Other current liabilities		55,580			51,985			57,795			51,985

Total current liabilities		230,396			237,300			258,256			237,300
Long-term debt		552,232			601,229			551,846			601,229
Non-current deferred taxes		64,221			66,446			71,895			66,446
Non-current accrued compensation		46,201			44,714			48,560			44,714
Other liabilities		22,092			20,761			24,370			20,761

Total liabilities		915,142			970,450			954,927			970,450

Commitments and contingencies (Note 18)

Stockholders’ equity:
Preferred Stock, $0.01 par value per share, 2,000,000 shares authorized; none issued and outstanding		—			—			—			—
Common Stock, no par value, 200,000,000 shares authorized; 53,886,862 and 53,672,861 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively		113			113
Common Stock, no par value, 200,000,000 shares authorized; 54,273,154 and 53,672,861 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively								113			113
Additionalpaid-in capital		783,371			777,482			779,058			777,482
Retained earnings		550,385			494,744			661,341			494,744
Accumulated other comprehensive loss		(28,464	)		(30,547	)		(10,756	)		(30,547	)

Total stockholders’ equity		1,305,405			1,241,792			1,429,756			1,241,792

Total liabilities and stockholders’ equity	$	2,220,547		$	2,212,242		$	2,384,683	��	$	2,212,242

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


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
Net revenues:
Products	$	392,922		$	153,621		$	431,950		$	285,471		$	824,872		$	439,092
Services		44,231			30,060			48,807			40,390			93,038			70,450

Total net revenues		437,153			183,681			480,757			325,861			917,910			509,542
Cost of revenues:

Cost of products		205,060			85,352			229,304			163,993			434,364			249,345
Cost of services		26,546			20,416			31,870			25,955			58,416			46,371

Total cost of revenues (exclusive of amortization shown separately below)		231,606			105,768			261,174			189,948			492,780			295,716

Gross profit		205,547			77,913			219,583			135,913			425,130			213,826
Research and development		33,282			17,227			33,680			28,214			66,962			45,441
Selling, general and administrative		74,220			33,950			71,979			59,579			146,199			93,529
Acquisition and integration costs		1,442			2,494			790			20,055			2,232			22,549
Restructuring		522			—			2,064			24			2,586			24
Asset impairment								6,719			—			6,719			—
Amortization of intangible assets		12,501			1,683			11,468			8,855			23,969			10,538

Income from operations		83,580			22,559			92,883			19,186			176,463			41,745
Interest income		516			924			507			530			1,023			1,454
Interest expense		8,832			44			6,997			8,474			15,829			8,519
Other income		2,021			366
Gain on sale of business								74,856			—			74,856			—
Other (expense) income, net								(3,277	)		1,126			(1,256	)		1,493

Income before income taxes		77,285			23,805			157,972			12,368			235,257			36,173
Provision for income taxes		12,225			6,242			37,532			3,158			49,757			9,400

Net income	$	65,060		$	17,563		$	120,440		$	9,210		$	185,500		$	26,773

Other comprehensive income:
Changes in value of financial instruments designated as cash flow hedges, net of tax benefit⁽¹⁾	$	(2,440	)	$	(1,546	)
Changes in value of financial instruments designated as cash flow hedges, net of tax expense (benefit)⁽¹⁾							$	23		$	(319	)	$	(2,429	)	$	(1,865	)
Foreign currency translation adjustments, net of tax of $0		4,534			2,652			17,729			(8,886	)		22,264			(6,233	)
Unrecognized pension gain, net of tax expense⁽²⁾		115			—			123			—			205			—
Unrealized (loss) gain on investments, net of tax (benefit) expense⁽³⁾		(126	)		378			(168	)		68			(249	)		445

Total comprehensive income	$	67,143		$	19,047		$	138,147		$	73		$	205,291		$	19,120

Net income per share:
Basic	$	1.21		$	0.33		$	2.22		$	0.17		$	3.44		$	0.50

Diluted	$	1.18		$	0.33		$	2.19		$	0.17		$	3.37		$	0.50

Cash dividends per common share	$	0.175		$	0.17		$	0.175		$	0.17		$	0.35		$	0.34

Weighted average common shares outstanding:
Basic		53,769			53,235			54,178			53,461			53,973			53,348

Diluted		54,958			53,563			55,001			53,806			54,979			53,685

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


	Three Months Ended March 31,						Six Months Ended June 30,
	2017			2016			2017			2016
Cash flows provided by operating activities:
Net income	$	65,060		$	17,563		$	185,500		$	26,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,833			5,278			42,421			21,708
Amortization of debt issuance costs, original issue discount and soft call premium		2,715			—			3,742			2,408
Amortization of inventory step-up adjustment to fair value								—			10,119
Asset impairment								6,719			—
Gain on sale of business								(74,856	)		—
Stock-based compensation		8,782			4,152			14,989			14,668
Provision for excess and obsolete inventory		5,031			2,948			11,002			6,737
Provision for bad debt		316			17			511			85
Deferred income taxes		(1,809	)		347			7,798			1,381
Excess tax benefits from stock-based compensation		—			(233	)		—			(452	)
Other		85			68			796			72
Changes in operating assets and liabilities:
Trade accounts receivable		(15,215	)		(10,084	)		(15,901	)		(35,874	)
Inventories		(11,714	)		(844	)		(34,056	)		3,868
Income taxes		8,067			2,316			21,918			6,420
Other current assets		(1,525	)		(3,562	)
Other current and non-current assets								(2,779	)		(12,998	)
Accrued compensation		(16,786	)		(7,086	)		(161	)		391
Other current andnon-current liabilities		1,082			7,718			4,970			(993	)
Accounts payable		809			4,772			2,860			7,457
Other assets		(674	)		(189	)

Net cash provided by operating activities		66,057			23,181			175,473			51,770

Cash flows provided by investing activities:
Acquisition of businesses, net of cash acquired								—			(939,591	)
Net proceeds from sale of business								72,509			—
Purchases of investments		(42,292	)		(82,135	)		(69,582	)		(99,261	)
Maturities of investments		55,672			76,972			85,234			114,256
Sales of investments		21,179			128,250			25,319			336,276
Purchases of property, plant and equipment		(4,099	)		(2,156	)		(9,739	)		(7,264	)

Net cash provided by investing activities		30,460			120,931
Net cash provided by (used in) investing activities								103,741			(595,584	)

Cash flows used in financing activities:
Restricted cash		(148	)		—			(152	)		(5,559	)
Proceeds from short-term borrowings		736			—			8,453			10,597
Proceeds from long-term borrowings								184			743,913
Payments on short-term borrowings		(1,398	)		—			(9,257	)		(2,239	)
Payments on long-term borrowings		(51,570	)		—			(53,141	)		(50,000	)
Repurchase of common stock		—			(1,545	)		—			(1,545	)
Net payments related to employee stock awards		(2,894	)		(2,587	)		(13,413	)		(2,921	)
Dividend payments to common stockholders		(9,419	)		(9,056	)		(18,903	)		(18,141	)
Excess tax benefits from stock-based compensation		—			233			—			452

Net cash used in financing activities		(64,693	)		(12,955	)
Net cash (used in) provided by financing activities								(86,229	)		674,557

Effect of exchange rate changes on cash and cash equivalents		(4,535	)		(876	)		1,222			(4,042	)

Increase in cash and cash equivalents		27,289			130,281			194,207			126,701
Cash and cash equivalents at beginning of period		228,623			227,574			228,623			227,574

Cash and cash equivalents at end of period	$	255,912		$	357,855		$	422,830		$	354,275

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

The terms “MKS” and the “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 ~~March 31,~~June 30, 2017, and for the three and six months ended ~~March 31,~~June 30, 2017 and 2016 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, 2016 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 Form10-Q and do not include all of the information and note disclosures required by United States generally accepted accounting principles (“U.S. 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 Form10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 1, 2017.

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 anon-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, stock-based compensation, inventory, intangible assets, goodwill and other long-lived assets, warranty liabilities, pension liabilities, acquisition expenses, income taxes and investments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In ~~March~~May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-09, “Compensation-Stock Compensation (Topic 718)-Scope of Modification Accounting.” This standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for any interim period for which financial statements have not yet been issued. The Company does not expect adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This standard requires that an employer disaggregate the service cost component from the other components of net benefit cost. This standard also provides explicit guidance on how to present the service cost component and the other components of the net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The provisions of this ASU are effective for annual periods beginning after December 31, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company does not expect adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU2017-04, “Intangibles-Goodwill and Other (Topic 350).” This standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. The provisions of this ASU are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company expects to adopt this new standard in 2017 when it performs its annual goodwill impairment test in the fourth quarter. The Company does not expect adoption of this ASU ~~is not expected~~ to have a material impact on the Company’s consolidated financial statements.

interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is applicable under certain circumstances. The Company does not expect adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows (Topic 230)-Restricted Cash,” an amendment to ASU2016-15. This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. Early adoption is permitted. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years and should be applied at the time of adoption of ASU2016-15. The Company does not expect adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU2016-16, “Income Taxes (Topic 740)-Intra-Entity Transfer of Assets Other Than Inventory.” This standard requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs as opposed to when the assets have been sold to an outside party. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company is currently evaluating the requirements of this ASU and has not yet determined its impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU2016-15, “Statement of Cash Flows (Topic 230)-Classification of Certain Cash Receipts and Cash Payments.” This standard addresses eight specific cash flow issues with the objective of addressing the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the requirements of this ASU and has not yet determined its impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU2016-02, “Leases (Topic 842).” This standard requires the recognition of lease assets and liabilities for all leases, with certain exceptions, on the balance sheet. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the requirements of this ASU and has not yet determined its impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU2016-01, “Financial Instruments—Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial assets and liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU2014-09, ~~Revenue~~ “Revenue from Contracts with Customers (Topic 606).” ASU2014-09 provides for a single comprehensive model to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASU2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company does not plan to early adopt the standard, but has ~~preliminarily~~ concluded that it will use the modified retrospective method upon adoption in the first quarter of 2018.

implementation and will continue to report the status against that plan with the Company’s Audit Committee. The Company has established a cross functional project steering committee and implementation team to identify potential differences that would result from applying the requirements of the new standard to the Company’s revenue contracts and related expense line items. The Company has identified the various revenue streams, including product revenues, service revenues, installation and training, that could be impacted by Topic 606 and has started to review individual customer contracts related to these revenue streams to determine if any material differences exist between the current revenue standard, Accounting Standards Codification Topic 605 and

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

Topic 606. In the second quarter of 2017, the Company ~~will be~~began reviewing the additional disclosure requirements of the new standard and the potential impact on its internal control structure and revenue recognition policy. The Company has not completed its assessment of the new revenue recognition standard and has not yet determined the impact on its consolidated financial statements. The Company anticipates that it will complete its assessment of the new standard and its potential financial impact by the end of the third quarter of 2017.

The fair value of investments classified as short-term consists of the following:


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Available-for-sale investments:
Time deposits and certificates of deposit	$	3,479	$	23,818	$	13,530	$	23,818
Bankers’ acceptance drafts		1,117		1,439		1,934		1,439
Asset-backed securities		36,682		36,809		32,632		36,809
Commercial paper		12,134		24,381		11,629		24,381
Corporate obligations		51,393		46,707		46,990		46,707
Municipal bonds		251		591		250		591
Promissory note		675		675		675		675
U.S. treasury obligations		20,424		25,414		16,928		25,414
U.S. agency obligations		29,144		29,629		24,448		29,629

	$	155,299	$	189,463	$	149,016	$	189,463


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Available-for-sale investments:
Group insurance contracts	$	5,633	$	5,558	$	6,029	$	5,558
Cost method investments:
Minority interest in a private company⁽¹⁾		4,300		4,300		4,300		4,300

	$	9,933	$	9,858	$	10,329	$	9,858

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

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


										Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
As of June 30, 2017:
Short-term investments:
Available-for-sale investments:
Time deposits and certificates of deposit										$	13,530	$	—	$	—		$	13,530
Bankers’ acceptance drafts											1,934		—		—			1,934
Asset-backed securities											32,655		13		(36	)		32,632
Commercial paper											11,664		—		(35	)		11,629
Corporate obligations											46,915		81		(6	)		46,990
Municipal bonds											250		—		—			250
Promissory note											675		—		—			675
U.S. treasury obligations											16,905		23		—			16,928
U.S. agency obligations											24,437		14		(3	)		24,448

										$	148,965	$	131	$	(80	)	$	149,016


										Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
As of June 30, 2017:
Long-term investments:
Available-for-sale investments:
Group insurance contracts										$	6,888	$	—	$	(859	)	$	6,029


										Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
As of December 31, 2016:
Short-term investments:
Available-for-sale investments:
Time deposits and certificates of deposit										$	23,818	$	—	$	—		$	23,818
Bankers acceptance drafts											1,439		—		—			1,439
Asset-backed securities											36,847		6		(44	)		36,809
Commercial paper											24,423		—		(42	)		24,381
Corporate obligations											46,700		21		(14	)		46,707
Municipal bonds											591		—		—			591
Promissory note											675		—		—			675
U.S. treasury obligations											25,414		—		—			25,414
U.S. agency obligations											29,631		8		(10	)		29,629

										$	189,538	$	35	$	(110	)	$	189,463


										Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
As of December 31, 2016:	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Long-term investments:
Available-for-sale investments:
Group insurance contracts	$	6,276	$	—	$	(718	)	$	5,558	$	6,276	$	—	$	(718	)	$	5,558

The tables above, which show the gross unrealized gains and (losses) aggregated by investment category foravailable-for-sale investments as of ~~March 31,~~June 30, 2017 and December 31, 2016, reflect the inclusion within short-term investments of investments with contractual maturities greater than one year from the date of purchase. Management has the ability, if necessary, to liquidate any of its investments in order to meet the Company’s liquidity needs in the next 12 months. Accordingly, those 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 stock trades~~“ex-dividend.~~ “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 ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016.

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:

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

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 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 March 31, 2017 and are summarized as follows:~~

Assets and liabilities of the Company are measured at fair value on a recurring basis as of June 30, 2017 and are summarized as follows:

Assets and liabilities of the Company are measured at fair value on a recurring basis as of December 31, 2016 and are summarized as follows:

Money market funds are cash and cash equivalents and are classified within Level 1 of the fair value hierarchy.

The Company has letters of credit, which require it to maintain specified cash deposit balances, consisting mainly of money market funds, as collateral. Such amounts have been classified as restricted cash and are classified as Level 1.

Available-for-sale investments ~~consists~~consisted of time deposits and drafts, ~~denominated in the Euro currency,~~ certificates of deposit, bankers acceptance drafts, asset-backed securities (which include auto loans, credit card receivables and equipment trust receivables), commercial paper, corporate obligations, municipal bonds, promissory notes, U.S. treasury obligations and U.S. agency obligations.

The Company measures its debt and equity investments at fair value. The Company’savailable-for-sale investments are classified within ~~Level 1 and~~ Level 2 of the fair value hierarchy.

Israeli pension assets represent investments in mutual funds, government securities and other time deposits. These investments are set aside for the retirement benefit of the employees at the Company’s Israeli subsidiaries. These funds are classified within Level 2 of the fair value hierarchy.

As a result of the Company’s global operating activities, the Company is exposed to market risks from changes in foreign currency exchange and 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 fluctuations through the use of derivative financial instruments. The principal market in which the Company executes its foreign currency contracts is the institutional market in anover-the-counter environment with a relatively high level of price transparency. The market participants usually are large commercial banks. The forward foreign currency exchange contracts are valued using broker quotations or market transactions and are classified within Level 2 of the fair value hierarchy.

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

By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions, 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 any materialnon-performance by any of these counterparties.

On September 30, 2016, the Company entered into an interest rate swap agreement to fix the rate on approximately 50% of its remaining outstanding balance of the Credit Agreement, as described further in Note 9. This hedge fixes the interest rate paid on the hedged debt at 1.198% per annum plus the applicable credit spread, which was 2.75% as of ~~3.50%~~June 30, 2017, through September 30, 2020. The interest rate swap will be recorded at fair value on the balance sheet and changes in the fair value will be recognized in other comprehensive income (loss) (“OCI”). To the extent that this arrangement is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs. The notional amount of this transaction was $335,000 and had a fair value of ~~$5,428~~$4,294 at ~~March 31,~~June 30, 2017.

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

The Company also enters into forward exchange contracts to hedge certain balance sheet amounts and foreign currency option contracts related to the Israeli Shekel. To the extent the hedge accounting criteria is not met, the related foreign currency forward contracts and foreign currency option contracts are considered as economic hedges and changes in the fair value of these contracts are recorded immediately in earnings in the period in which they occur. These include hedges that are used to reduce exchange rate risks arising from the change in fair value of certain foreign currency-denominated assets and liabilities (i.e., payables, receivables) and other economic hedges where the hedge accounting criteria were not met.

As of ~~March 31,~~June 30, 2017 and December 31, 2016, the Company had outstanding forward foreign exchange contracts with gross notional values of ~~$124,959~~$75,501 and $120,208, respectively. The following tables provide a summary of the primary net hedging positions and corresponding fair values held as of ~~March 31,~~June 30, 2017 and December 31, 2016:


	December 31, 2016				June 30, 2017
Currency Hedged (Buy/Sell)	Gross Notional Value		Fair Value⁽¹⁾ Asset/(Liability)		Gross Notional Value		Fair Value⁽¹⁾ Asset/(Liability)
U.S. Dollar/Japanese Yen	$	30,522	$	763	$	23,206	$	162
U.S. Dollar/South Korean Won		50,049		1,342		22,528		(457	)
U.S. Dollar/Euro		18,040		156		14,396		(904	)
U.S. Dollar/U.K. Pound Sterling		6,067		117		4,713		(236	)
U.S. Dollar/Taiwan Dollar		15,530		64		10,658		(312	)

Total	$	120,208	$	2,442	$	75,501	$	(1,747	)


					December 31, 2016
Currency Hedged (Buy/Sell)					Gross Notional Value		Fair Value⁽¹⁾ Asset/(Liability)
U.S. Dollar/Japanese Yen					$	30,522	$	763
U.S. Dollar/South Korean Won						50,049		1,342
U.S. Dollar/Euro						18,040		156
U.S. Dollar/U.K. Pound Sterling						6,067		117
U.S. Dollar/Taiwan Dollar						15,530		64

Total					$	120,208	$	2,442

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

The following table provides a summary of the fair value amounts of the Company’s derivative instruments:


Derivatives Designated as Hedging Instruments	March 31, 2017			December 31, 2016			June 30, 2017			December 31, 2016
Derivative assets:
Foreign exchange contracts⁽¹⁾	$	664		$	2,985		$	610		$	2,985
Foreign currency options contracts⁽¹⁾		14			4
Foreign currency interest rate hedge⁽²⁾		5,428			4,900
Interest rate hedge⁽²⁾								4,294			4,900
Derivative liabilities:
Foreign exchange contracts⁽¹⁾		(3,666	)		(543	)		(2,357	)		(543	)
Foreign currency options contracts⁽¹⁾		—			(16	)

Total net derivative assets designated as hedging instruments	$	2,440		$	7,330		$	2,547		$	7,342

The net amount of existing gains as of ~~March 31,~~June 30, 2017 that the Company expects to reclassify from OCI into earnings within the next twelve months is immaterial.

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


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
Derivatives Designated as Cash Flow Hedging Instruments	2017			2016			2017			2016			2017			2016
Forward exchange contracts:
Net loss recognized in OCI⁽¹⁾	$	(6,978	)	$	(3,418	)
Net gain reclassified from accumulated OCI into income⁽²⁾	$	452		$	696
Net gain (loss) recognized in OCI⁽¹⁾							$	29		$	(14	)	$	(4,242	)	$	(3,433	)
Net (loss) gain reclassified from accumulated OCI into income⁽²⁾							$	(934	)	$	(419	)	$	(482	)	$	277

The following table provides a summary of the losses on derivatives not designated as hedging instruments:


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
Derivatives Not Designated as Hedging Instruments	2017			2016			2017			2016			2017			2016
Forward exchange contracts:
Net loss recognized in income⁽¹⁾	$	(1,463	)	$	(565	)	$	(219	)	$	(378	)	$	(1,682	)	$	(943	)

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Raw materials	$	159,354	$	150,150	$	172,948	$	150,150
Work-in-process		48,306		39,105		50,736		39,105
Finished goods		77,858		86,614		81,023		86,614

	$	285,518	$	275,869	$	304,707	$	275,869

On April 29, 2016, the Company completed its acquisition of Newport Corporation (“Newport”) pursuant to an Agreement and Plan of Merger, dated as of February 22, 2016 (the “Merger Agreement”), by and among the Company, PSI Equipment, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and Newport (the “Newport Merger”). At the effective time of the Newport Merger and pursuant to the terms and conditions of the Merger Agreement, each share of Newport’s common stock that was issued and outstanding immediately prior to the effective time of the Newport Merger was converted into the right to receive $23.00 in cash, without interest and subject to deduction for any required withholding tax.

Newport’s innovative solutions leverage its expertise in advanced technologies, including lasers, photonics and precision motion equipment, and optical components andsub-systems, to enhance the capabilities and productivity of its customers’ manufacturing, engineering and research applications. Newport is a global supplier of advanced-technology products and systems to customers in the scientific research and defense/security, microelectronics, life and health sciences and industrial manufacturing markets.


Cash paid for outstanding shares⁽¹⁾	$	905,254		$	905,254
Settlement of share-based compensation awards⁽²⁾		8,824			8,824
Cash paid for Newport debt⁽³⁾		93,200			93,200

Total purchase price	$	1,007,278			1,007,278

Less: Cash and cash equivalents acquired		(61,463	)		(61,463	)

Total purchase price, net of cash and cash equivalents acquired	$	945,815		$	945,815

The Company funded the payment of the aggregate consideration with a combination of the Company’s available cash on hand and the proceeds from the Company’s senior secured Term Loan Facility, as described in Note 9.

Under the acquisition method of accounting, the total ~~estimated~~ acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Newport 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. The Company ~~expects~~concluded that all such goodwill and intangible assets will not be deductible for tax purposes.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

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 Newport Merger:


Current assets (including cash)	$	186,137		$	186,137
Inventory		142,714			142,714
Intangible assets		404,506			404,506
Goodwill		396,027			396,027
Property, plant and equipment		119,932			119,932
Long-term assets		22,725			22,725

Total assets acquired		1,272,041			1,272,041
Current liabilities		95,156			95,156
Intangible liability		4,302			4,302
Other long-term liabilities		165,305			165,305

Total liabilities assumed		264,763			264,763

Fair value of assets acquired and liabilities assumed		1,007,278			1,007,278

Less: Cash and cash equivalents acquired		(61,463	)		(61,463	)

Total purchase price, net of cash and cash equivalents acquired	$	945,815		$	945,815

~~For~~The fair value write-up of acquired finished goods inventory was $15,090, the ~~year~~amount of which will be amortized over the expected period during which the acquired inventory is sold. Accordingly, for the three and six months ended ~~December 31,~~June 30, 2016, the Company recorded ~~$15,090 of~~a $10,119 incremental cost of sales ~~charges~~charge associated with the fair valuewrite-up of inventory acquired in the merger with Newport.

The fair valuewrite-up of acquired property, plant and equipment of $36,242 will be amortized over the useful life of the ~~asset.~~assets. Property, plant and equipment is valued at itsvalue-in-use, unless there was a known plan to dispose of the asset.

The acquired intangible assets are being amortized on a straight-line basis, which approximates the economic use of the asset.

The following table reflects the allocation of the acquired intangible assets and liabilities and related estimate of useful lives:


Order backlog	$	12,100	1 year	$	12,100	1 year
Customer relationships		247,793	6-18 years		247,793	6-18 years
Trademarks and trade names		55,900	Indefinite		55,900	Indefinite
Developed technology		75,386	4-8 years		75,386	4-8 years
In-process research and development		6,899	Undefined⁽¹⁾		6,899	Undefined	⁽¹⁾
Leasehold interest (favorable)		6,428	4-5 years		6,428	4-5 years

Total intangible assets	$	404,506		$	404,506

Leasehold interest (unfavorable)	$	4,302		$	4,302

The fair value of the acquired intangibles was determined using the income approach. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. 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.

The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors including: (1) potential buyer-specific synergies related to market opportunities for a combined product offering; and (2) potential to leverage the Company’s sales force to attract new customers and revenue and cross sell to existing customers.

The results of this acquisition were included in the Company’s consolidated operations beginning on April 29, 2016. Newport constitutes the Company’s Light & Motion reportable segment ~~(see Note~~(Note 16).

Certain executives from Newport ~~have~~had severance provisions in their respective Newport employment agreements. The agreements ~~include~~included terms that ~~are~~were accounted for as dual-trigger arrangements. Through the Company’s acquisition accounting, the expense

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

relating to these benefits was recognized in the combined entity’s financial statements, however, the benefit itself will not be distributed until the final provision is met by each eligible executive. The Company recorded costs of ~~$5,816~~$6,631 and $3,334 as compensation expense and stock-based compensation expense, respectively, for the ~~twelve~~three and six months ~~ended December 31,~~June 30, 2016, respectively, in connection with these severance provisions. The shares underlying the restricted stock units and stock appreciation rights that are eligible for accelerated vesting if the executive exercises his rights are not issued as of each reportingperiod-end and are excluded from the computation of basic earnings per share and included in the computation of diluted earnings per share for each reporting period.

The following unaudited pro-forma financial information presents the combined results of operations of the Company as if the acquisition of Newport had occurred on January 1, 2015. The unaudited pro-forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition occurred at the beginning of each year. In addition, the unaudited pro-forma financial information does not attempt to project the future results of operations of the combined company.

The unaudited pro-forma financial information above gives effect primarily to the following:

OnIn April ~~27,~~ 2016, the Company invested $9,300 for a minority interest in a private company, which operates in the field of semiconductor process equipment instrumentation. The Company accounted for this investment using the cost method of accounting. During the fourth quarter of 2016, the Company recognized an impairment loss on this investment of $5,000 based upon financial information of this private company.

In April 2017, the Company completed the sale of its Data Analytics Solutions business for total proceeds of $72,509, net of cash sold and recorded a gain of $74,856. This business, which had revenues in 2016 of $12,700 and was included in the Vacuum & Analysis segment, was no longer a part of the Company’s long-term strategic objectives.

The business did not qualify as a discontinued operation as this sale did not represent a strategic shift in the Company’s business, nor did the sale have a major effect on the Company’s operations. Therefore, the results of operations for all periods are included in the Company’s income from operations. The assets and liabilities of this business have not been reclassified or segregated in the consolidated balance sheet or consolidated statements of cash flows as the amounts were immaterial.

The Company’s methodology for allocating the purchase price relating to purchase acquisitions 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. Typically acquisitions relate to a single reporting unit and thus do not require the allocation of goodwill to multiple reporting units. If the 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 whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill and intangible 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.

~~The changes in the carrying amount of goodwill and accumulated impairment (loss) during the three months ended March 31, 2017 and year ended December 31, 2016 were as follows:~~

The changes in the carrying amount of goodwill and accumulated impairment (loss) during the six months ended June 30, 2017 and year ended December 31, 2016 were as follows:


As of December 31, 2016:	Gross		Accumulated Amortization			Foreign Currency Translation			Net
As of June 30, 2017:											Gross		Impairment Charges⁽¹⁾			Accumulated Amortization			Foreign Currency Translation			Net
Completed technology⁽¹⁾	$	176,586	$	(97,707	)	$	(1,068	)	$	77,811	$	176,586	$	(105	)	$	(108,587	)	$	(231	)	$	67,663
Customer relationships⁽¹⁾		285,044		(29,709	)		(3,404	)		251,931		285,044		(1,406	)		(38,801	)		(346	)		244,491
Patents, trademarks, trade names and other⁽¹⁾		111,723		(33,397	)		(64	)		78,262		111,723		—			(37,760	)		(42	)		73,921

	$	573,353	$	(160,813	)	$	(4,536	)	$	408,004	$	573,353	$	(1,511	)	$	(185,148	)	$	(619	)	$	386,075

Aggregate amortization expense related to acquired intangibles for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016 was ~~$12,501~~$23,969 and ~~$1,683,~~$10,538, respectively. The amortization expense for the ~~three~~six months ended ~~March 31,~~June 30, 2017 is net of ~~$177~~$366 amortization income from unfavorable lease commitments. Aggregate net amortization expense related to acquired intangible assets and unfavorable lease commitments for future years is as follows:


Year	Amount		Amount
2017 (remaining)	$	33,053	$	21,679
2018		42,951		43,072
2019		39,833		39,971
2020		27,940		27,976
2021		20,071		20,153
2022		17,475		17,505
Thereafter		155,672		156,437

In connection with the completion of the Newport Merger, the Company entered into a term loan credit agreement (the “Credit Agreement”) with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders from time to time party thereto (the “Lenders”), that provided senior secured financing of $780,000, subject to increase at the Company’s option in accordance with the Credit Agreement (the “Term Loan Facility”). Borrowings under the Term Loan Facility bear interest per annum at one of the following rates selected by the Company: (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 1.75%, plus, in each case, an applicable margin (that was initially 3.00% and was decreased as described below); or (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, subject to a LIBOR rate floor of 0.75%, plus an applicable margin (that was initially 4.00% and was decreased as described below). The Company has elected the interest rate as described in clause (b). The Term Loan Facility was issued with original issue discount of 1.00% of the principal amount thereof.

On June 9, 2016, the Company entered into Amendment No. 1 (the~~“Re-pricing~~ “Re-pricing Amendment 1”) to the Credit Agreement by and among the Company, the Lenders and Barclays Bank PLC, as administrative agent and collateral agent for the Lenders. The Re-pricing

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

Amendment 1 decreased the applicable margin for borrowings under the Company’s Term Loan Facility to 2.50% for base rate borrowings and 3.50% for LIBOR borrowings and extended the period during which a pre-payment premium may be required for a~~“Re-pricing~~ “Re-pricing Transaction” (as defined in the Credit Agreement) until six months after the effective date of theRe-pricing Amendment 1. In connection with the execution of theRe-pricing Amendment 1, the Company paid a pre-payment premium of 1.00%, or $7,300, as well as certain fees and expenses of the administrative agent and the Lenders, in accordance with the terms of the Credit Agreement. Immediately prior to the effectiveness of theRe-pricing Amendment 1, the Company prepaid $50,000 of principal under the Credit Agreement. In September 2016, the Company prepaid an additional $60,000 under the Credit Agreement.

On September 30, 2016, the Company entered into an interest rate swap agreement, which has a maturity date of September 30, 2020, to fix the rate on $335,000 of the outstanding balance of the Credit Agreement. The rate is fixed at 1.198% per annum plus the applicable credit spread, ~~of 3.50%.~~which was 2.75% at June 30, 2017.

On December 14, 2016, the Company entered into Amendment No. 2 (the “Re-pricing Amendment 2”) to the Credit Agreement by and among the Company, the Lenders and Barclays Bank PLC, as administrative agent and collateral agent for the Lenders. The Re-pricing Amendment 2 decreased the applicable margin for the Company’s term loan under the Credit Agreement to 2.75% for LIBOR borrowings and 1.75% for base rate borrowings and reset the period during which a pre-payment premium may be required for a “Re-pricing Transaction” (as defined in the Credit Agreement) until six months after the effective date of the Re-pricing Amendment. In November 2016, prior to the effectiveness of the Re-pricing Amendment 2, the Company prepaid an additional $40,000 of principal under the Credit Agreement. In March 2017, the Company prepaid $50,000 of principal under the Credit Agreement. After pre-payments of $200,000 and regularly scheduled principal payments of ~~$4,966,~~$6,536, the total outstanding principal balance was ~~$575,034~~$573,464 as of ~~March 31,~~June 30, 2017.

The Company incurred $28,747 of deferred finance fees, original issue discount and a re-pricing fee related to the term loans under the Term Loan Facility, which is included in long-term debt in the accompanying consolidated balance sheets and will be amortized to interest expense over the estimated life of the term loans using the effective interest method. A portion of these fees have been ~~written-off~~accelerated in connection with the various debt pre-payments during 2016 and ~~the first quarter of~~ 2017. The remaining balance of the deferred finance fees, original issue discount and re-pricing fee related to the Term Loan Facility was ~~$16,987~~$16,021 as of ~~March 31,~~June 30, 2017.

Under the 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 asset sales, certain casualty and condemnation events and the incurrence or issuance of certain debt. The Company is also required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the term loans outstanding on December 14, 2016 (the date of the Re-Pricing Amendment 2) less the amount of certain voluntary and mandatory repayments after such date, with the balance due on the seventh anniversary of the closing date.

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

The 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 ~~March 31,~~June 30, 2017, the Company was in compliance with all covenants under the Credit Agreement.

In connection with the completion of the Newport Merger, the Company also entered into an asset-based credit agreement with Deutsche Bank AG New York Branch, 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 Facility”), that provides senior secured financing of up to $50,000, subject to a borrowing base limitation. The borrowing base for the ABL Facility at any time equals the sum of: (a) 85% of certain eligible accounts; plus (b) subject to certain notice and field examination and appraisal 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; provided that until the administrative agent’s receipt of a field examination of accounts receivable the borrowing base shall be equal to 70% of the book value of certain eligible accounts. The ABL Facility includes borrowing capacity in the form of letters of credit up to $15,000. The Company has not drawn against the ABL ~~Facility.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

Borrowings under the ABL Facility bear interest per annum at one of the following rates selected by the Company: (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, and (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%, plus, in each case, an initial applicable margin of 0.75%; 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, plus an initial applicable margin of 1.75%. Commencing with the completion of the first fiscal quarter ending after the closing of the ABL Facility, 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.

The Company incurred $1,201 of costs in connection with the ABL Facility, which were capitalized and included in other assets in the accompanying consolidated balance sheets and will be amortized to interest expense using the straight-line method over the contractual term of five years of the ABL Facility.

In addition to paying interest on outstanding principal under the ABL Facility, the Company is required to pay a commitment fee in respect of the unutilized commitments thereunder. The initial commitment fee is 0.375% per annum. The total commitment fee recognized in interest expense ~~in 2016~~for the six months ended June 30, 2017 was ~~$128.~~$195. Commencing with the completion of the first fiscal quarter ending after the closing of the ABL Facility, the commitment fee is subject to downward adjustment based on the amount of average unutilized commitments for the three month period immediately preceding such adjustment date. The Company must also pay customary letter of credit fees and agency fees.

One of the Company’s Japanese subsidiaries has lines of credit and short-term borrowing arrangements with two financial institutions, which arrangements generally expire and are renewed at three month intervals. The lines of credit provided for aggregate borrowings as of ~~March 31,~~June 30, 2017 of up to an equivalent of ~~$20,547~~$20,505 U.S. dollars. One of the borrowing arrangements has an interest rate based on the Tokyo Interbank Offer Rate at the time of borrowing and the other has an interest rate based on the Japanese Short-Term Prime Lending Rate. There were no borrowings outstanding under these arrangements at ~~March 31,~~June 30, 2017 and December 31, 2016.

The Company assumed various revolving lines of credit and a financing facility with the completion of the Newport Merger. These revolving lines of credit and financing facility have no expiration date and provided for aggregate borrowings as of ~~March 31,~~June 30, 2017 of up to an equivalent of ~~$11,167~~$11,144 U.S. dollars. These lines of credit have a base interest rate of 1.25% plus a Japanese Yen overnight LIBOR rate.

One of the Company’s Austrian subsidiaries has four outstanding loans from the Austrian government to fund research and development. These loans are unsecured and do not require principal repayment as long as certain conditions are met. Interest on these loans is payable semi-annually. The interest rates associated with these loans range from 0.75% - 2.00%.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

The Company recognized interest expense of ~~$8,831~~$15,829 and ~~$44~~$8,519 for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016, respectively. The increase for the six months ended June 30, 2017, compared to 2016, is ~~primarily related~~due to the ~~Term Loan Facility.~~fact that the six months ended June 30, 2016 only included two months of interest expense as a result of the Newport Merger, which occurred in April 2016.

Contractual maturities of the Company’s debt obligations as of ~~March 31,~~June 30, 2017, are as follows:


Year	Amount		Amount
2017 (remaining)	$	9,053	$	6,669
2018		6,298		6,297
2019		6,687		6,879
2020		6,327		6,353
2021		6,282		6,282
2022		6,282		6,282
Thereafter		538,913		538,915

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

(in ~~other current liabilities in the consolidated balance sheets.~~thousands, except share and per share data)


	Three Months Ended March 31,						Six Months Ended June 30,
	2017			2016			2017			2016
Beginning of period	$	8,261		$	5,205		$	8,261		$	5,205
Assumed product warranty liability from Newport Merger								—			3,040
Provision for product warranties		3,014			783			7,555			2,991
Direct charges to warranty liability		(2,857	)		(984	)		(6,210	)		(3,202	)
Foreign currency translation		67			35			126			8

End of period	$	8,485		$	5,039
End of period⁽¹⁾							$	9,732		$	8,042

The Company’s effective tax rate for the three and six months ended ~~March 31,~~June 30, 2017 was 23.8% and ~~2016 was 15.8% and 26.2%~~21.2%, respectively. The effective tax rate for the three and six months ended ~~March 31,~~June 30, 2017 and related income tax expense, was 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 tax rate, the deduction for domestic production activities and the windfall stock compensation tax benefit related to the adoption of a new accounting standard that became applicable during the first quarter of 2017. The Company’s effective tax rate for the three and six months ended ~~March 31, 2017.~~

June 30, 2016 was 25.5% and 26.0%, respectively. The effective tax rate for the three and six months ended ~~March 31,~~June 30, 2016 was lower than the U.S. statutory tax rate ~~mainly~~primarily due to the ~~impact~~geographic mix of income and profits earned by the Company’s international subsidiaries being taxed at rates lower than the U.S. statutory tax ~~rates on foreign income~~rate, the federal research credit and the deduction for domestic production ~~activities.~~activities, offset by non-deductible acquisition-related costs and state income taxes.

As of ~~March 31,~~June 30, 2017, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was approximately ~~$25,925.~~$27,239. At December 31, 2016, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was approximately $25,465. As of ~~March 31,~~June 30, 2017, if these benefits were recognized in a future period, the timing of which is not estimable, the net unrecognized tax benefit of ~~$18,854,~~$18,760, excluding interest and penalties, would impact the Company’s effective tax rate. The Company accrues interest expense, and if applicable, penalties, for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense. As of ~~March 31,~~June 30, 2017 and December 31, 2016, the Company had accrued interest on unrecognized tax benefits of approximately ~~$469~~$444 and $491, respectively.

Over the next 12 months it is reasonably possible that the Company may recognize approximately ~~$1,702~~$1,686 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal, state and foreign tax positions primarily as a result of the expiration of certain statutes of limitations.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

The Company and its subsidiaries are subject to examination by U.S. federal, state and foreign tax authorities. The U.S. statute of limitations remains open for tax years 2013 through present. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2008 through present. We also have certain federal credit carry-forwards and state tax loss and credit carry-forwards that are open to examination for tax years 2000 through the present.

As a result of the acquisition of Newport, the Company has assumed all assets and liabilities of Newport’s defined benefit pension plans, which cover substantially all of its full-time employees in France, Germany, Israel and Japan. In addition, there are certain pension liabilities relating to former employees in the United Kingdom. The German plan is unfunded, as permitted under the plan and applicable laws. The net periodic benefit costs ~~during~~were approximately $247 and $507, for the three ~~months~~and six month periods ended ~~March 31,~~June 30, 2017, ~~were~~respectively, and approximately ~~$260~~$452 for both the three and ~~the~~six month periods ended June 30, 2016. The Company made contributions of ~~$227~~approximately $116 and $344 to these plans, during the three ~~months~~and six month periods ended ~~March 31, 2017.~~June 30, 2017, respectively, as required by local pension accounting law.

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


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2017		2016
Numerator:
Net income	$	65,060	$	17,563	$	120,440	$	9,210	$	185,500	$	26,773

Denominator:
Shares used in net income per common share – basic		53,769,000		53,235,000		54,178,000		53,461,000		53,973,000		53,348,000
Effect of dilutive securities:
Restricted stock units, stock appreciation rights and shares issued under employee stock purchase plan		1,189,000		328,000		823,000		345,000		1,006,000		337,000

Shares used in net income per common share – diluted		54,958,000		53,563,000		55,001,000		53,806,000		54,979,000		53,685,000

Net income per common share:
Basic	$	1.21	$	0.33	$	2.22	$	0.17	$	3.44	$	0.50
Diluted	$	1.18	$	0.33	$	2.19	$	0.17	$	3.37	$	0.50

Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the treasury stock method) if securities containing potentially dilutive common shares (restricted stock units and stock appreciation rights) had been converted to such common shares, and if such assumed conversion is dilutive.

For the three and six months ended ~~March 31,~~June 30, 2017, there were approximately 800 and 400 weighted-average restricted stock units, respectively, that would have had an anti-dilutive effect on EPS, and would thus need to be excluded from the computation of diluted weighted-average shares. For the three and six months ended June 30, 2016, there were noapproximately 1,000 weighted-average ~~shares of~~ restricted stock units ~~or stock appreciation rights~~ that would have had an anti-dilutive effect on EPS, and would thus need to be excluded from the computation of diluted weighted-average shares.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

On July 25, 2011, the Company’s Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $200,000 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 will depend 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 1,770,000 shares of common stock for approximately $52,000 pursuant to the program since its adoption.

There were no shares repurchased during the ~~three~~six months ended ~~March 31,~~June 30, 2017. During the ~~three~~six months ended ~~March 31,~~June 30, 2016, the Company repurchased approximately 45,000 shares of its common stock for $1,545, or an average price of $34.50 per share.

Holders of the Company’s common stock are entitled to receive dividends when they are declared by the Company’s Board of Directors. ~~During the three months ended March 31, 2017, the~~The Company’s Board of Directors declared a cash dividend of $0.175 per share in the first and second quarters of 2017, which ~~dividends~~ totaled ~~$9,419. During the three months ended March 31, 2016, the~~$18,903. The Company’s Board of Directors declared a cash dividend of $0.17 per share in the first and second quarters of 2016, which ~~dividends~~ totaled ~~$9,056.~~$18,141.

On July 31, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.175 per share to be paid on September 8, 2017 to shareholders of record as of August 28, 2017. 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 terms of the Company’s senior secured Term Loan Facility and its senior secured asset-based revolving credit facility, the Company may be restricted from paying dividends under certain circumstances.

As of the effective time of the Newport Merger, based on a formula provided in the Merger Agreement, (a) the Newport RSUs were converted automatically into RSUs with respect to 360,674 shares of the Company’s common stock (the “Assumed RSUs”), and (b) the Newport stock appreciation rights were converted automatically into stock appreciation rights with respect to 899,851 shares of the Company’s common stock (the “Assumed SARs”).

Included in the total number of Assumed RSUs were 36,599 RSUs for outside directors that were part of the Newport Deferred Compensation Plan (the “DC Plan”), from which 19,137 underlying shares were released in May ~~2016. As of March 31, 2017, 17,462 RSUs remained outstanding under the DC Plan,~~2016, and 5,515 underlying shares were released in May 2017. Combined with an additional ~~234~~260 shares that were added to the DC Plan due to reinvested ~~dividends.~~dividends as of June 30, 2017, 12,207 RSUs remain outstanding under the DC Plan. These Assumed RSUs will not become issued shares until their respective release dates.

The shares of the Company’s common stock that are subject to the Assumed SARs and the Assumed RSUs are issuable pursuant to the Company’s 2014 Stock Incentive Plan (the “Plan”).

The 1,260,525 shares of the Company’s common stock that are issuable pursuant to the Assumed RSUs and the Assumed SARs under the Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”), on a registration statement on FormS-8. These shares are in addition to the 18,000,000 shares of the Company’s common stock reserved for issuance under the Plan and previously registered under the Securities Act on a registration statement on FormS-8.

During the ~~three~~six months ended ~~March 31,~~June 30, 2017, the Company granted ~~171,179~~376,081 RSUs with a weighted average grant date fair value of ~~$66.06.~~$67.13. There were no SARs granted during the ~~three~~six months ended ~~March 31,~~June 30, 2017.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

The total stock-based compensation expense included in the Company’s consolidated statements of income and comprehensive income was as follows:


					Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended March 31, 2017		Three Months Ended March 31, 2016		2017		2016		2017		2016
Cost of revenues	$	930	$	440	$	1,187	$	890	$	2,117	$	1,330
Research and development expense		745		374		827		689		1,572		1,063
Selling, general and administrative expense		7,107		3,338		4,193		8,937		11,300		12,275

Totalpre-tax stock-based compensation expense	$	8,782	$	4,152	$	6,207	$	10,516	$	14,989	$	14,668

At ~~March 31,~~June 30, 2017, the total compensation expense related to unvested stock-based awards granted to employees, officers and directors under the Plan that had not been recognized was ~~$23,759,~~$28,787, net of estimated forfeitures. The future compensation expense is recognized on a straight-line basis over the requisite service period, net of estimated forfeitures except for retirement eligible employees in which the Company expenses the fair value of the grant in the period the grant is issued. The Company considers many factors when estimating expected forfeitures, including types of awards and historical experience. Actual results and future changes in estimates may differ substantially from the Company’s current estimates.


	Three Months Ended March 31, 2017					Six Months Ended June 30, 2017
	Outstanding RSUs			Weighted Average Grant Date Fair Value		Outstanding RSUs			Weighted Average Grant Date Fair Value
RSUs – beginning of period		1,325,516		$	34.38		1,325,516		$	34.38
Accrued dividend shares		47			66.20		73			71.76
Granted		171,179			66.06		376,081			67.13
Vested		(499,743	)		33.59		(675,662	)		34.48
Forfeited or expired		(34,180	)		33.50		(60,149	)		36.02

RSUs – end of period		962,819		$	40.46		965,859		$	46.96


	Three Months Ended March 31, 2017					Six Months Ended June 30, 2017
	Outstanding SARs			Weighted Average Grant Date Fair Value		Outstanding SARs			Weighted Average Grant Date Fair Value
SARs – beginning of period		599,334		$	28.10		599,334		$	28.10
Granted		—			—		—			—
Exercised		(120,206	)		25.81		(223,297	)		27.48
Forfeited or expired		(9,563	)		25.58		(14,238	)		27.37

SARs Outstanding – end of period		469,565		$	28.74		361,799		$	28.52

At ~~March 31,~~June 30, 2017, the Company’s outstanding and exercisable SARs, the weighted-average base value, the weighted average remaining contractual life and the aggregate intrinsic value thereof, were as follows:

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

The Company is a global provider of instruments, subsystems and process control solutions that measure, control, deliver, power, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. The Company also provides services relating to the maintenance and repair of products it sells, installation services and training.

The Company’s Chief Operating Decision Maker (“CODM”) 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. Based upon the information provided to the CODM, the Company has determined it has two reportable segments.

Effective April 29, 2016, in conjunction with the Newport Merger, the Company changed its reportable segments based upon the organizational structure of the Company and how the CODM utilizes information provided to allocate resources and make decisions. The Company’s two reportable segments are: Vacuum & Analysis and Light & Motion. The Vacuum & Analysis segment represents the legacy MKS business and the Light & Motion segment represents the legacy Newport business.

The Vacuum & Analysis segment provides a broad range of instruments, components and subsystems which are derived from the Company’s core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control, ~~and information technology,~~ ozone generation and delivery, RF & DC power, reactive gas generation and vacuum technology.

The Light & Motion segment provides a broad range of instruments, components and subsystems which are derived from the Company’s core competencies in lasers, photonics and optics.

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 does not disclose external or intersegment revenues separately by reportable segment as this information is not presented to the CODM for decision making purposes.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2017		2016
Vacuum & Analysis	$	277,984	$	183,681	$	309,819	$	207,359	$	587,803	$	391,040
Light & Motion		159,169		—		170,938		118,502		330,107		118,502

	$	437,153	$	183,681	$	480,757	$	325,861	$	917,910	$	509,542

The following is a reconciliation of segment gross profit to consolidated net income:


	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016		2017			2016			2017		��	2016
Gross profit by reportable segment:
Vacuum & Analysis	$	128,924		$	77,913	$	139,867		$	90,859		$	268,790		$	168,772
Light & Motion		76,623			—		79,716			45,054			156,340			45,054

Total gross profit by reportable segment		205,547			77,913		219,583			135,913			425,130			213,826
Operating expenses:
Research and development		33,282			17,227		33,680			28,214			66,962			45,441
Selling, general and administrative		74,220			33,950		71,979			59,579			146,199			93,529
Acquisition and integration costs		1,442			2,494		790			20,055			2,232			22,549
Restructuring		522			—		2,064			24			2,586			24
Asset impairment							6,719			—			6,719			—
Amortization of intangible assets		12,501			1,683		11,468			8,855			23,969			10,538

Income from operations		83,580			22,559		92,883			19,186			176,463			41,745
Interest and other (expense) income, net		(6,295	)		1,246
Gain on sale of business							74,856			—			74,856			—
Interest and other (expense), net							(9,767	)		(6,818	)		(16,062	)		(5,572	)

Income before income taxes		77,285			23,805		157,972			12,368			235,257			36,173
Provision for income taxes		12,225			6,242		37,532			3,158			49,757			9,400

Net income	$	65,060		$	17,563	$	120,440		$	9,210		$	185,500		$	26,773

The following is capital expenditures by reportable segment for the three and six months ended June 30, 2017 and 2016:

The following is ~~capital expenditures by reportable segment for the three months ended March 31, 2017 and 2016:~~

~~The following is~~ depreciation and amortization by reportable segment for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


	Vacuum & Analysis		Light & Motion		Total		Vacuum & Analysis		Light & Motion		Total
Three Months Ended March 31, 2017:
Three Months Ended June 30, 2017:
Depreciation and amortization	$	5,122	$	16,711	$	21,833	$	5,097	$	15,491	$	20,588

Three Months Ended March 31, 2016:
Six Months Ended June 30, 2017:
Depreciation and amortization	$	5,278	$	—	$	5,278	$	10,219	$	32,202	$	42,421

Three Months Ended June 30, 2016:
Depreciation and amortization							$	5,209	$	11,221	$	16,430

Six Months Ended June 30, 2016:
Depreciation and amortization							$	10,487	$	11,221	$	21,708

Total income tax expense is not presented by reportable segment because the necessary information is not available or used by the CODM.


March 31, 2017:	Vacuum & Analysis		Light & Motion		Corporate, Eliminations and Other			Total
June 30, 2017:										Vacuum & Analysis		Light & Motion		Corporate, Eliminations & Other			Total
Segment assets:
Accounts receivable	$	165,210	$	123,247	$	(21,208	)	$	267,249	$	177,144	$	102,893	$	(11,493	)	$	268,544
Inventory, net		167,322		118,196		—			285,518		182,717		121,990		—			304,707

Total segment assets	$	332,532	$	241,443	$	(21,208	)	$	552,767	$	359,861	$	224,883	$	(11,493	)	$	573,251


December 31, 2016:	Vacuum & Analysis		Light & Motion		Corporate, Eliminations and Other			Total
Segment assets:
Accounts receivable	$	148,516	$	121,516	$	(21,275	)	$	248,757
Inventory, net		165,040		110,829		—			275,869

Total segment assets	$	313,556	$	232,345	$	(21,275	)	$	524,626

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

Information about the Company’s operations in different geographic regions is presented in the tables below. Net revenues to unaffiliated customers are based on the location in which the sale originated. Transfers between geographic areas are at negotiated transfer prices and have been eliminated from consolidated net revenues.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2017		2016
Net revenues:
United States	$	218,050	$	94,218	$	244,649	$	168,471	$	462,699	$	262,689
Korea		44,878		20,550		59,827		26,048		104,705		46,598
Japan		37,792		16,236		36,865		25,532		74,657		41,768
Asia (excluding Korea and Japan)		88,243		33,456		91,630		64,891		179,873		98,347
Europe		48,190		19,221		47,786		40,919		95,976		60,140

	$	437,153	$	183,681	$	480,757	$	325,861	$	917,910	$	509,542


Long-lived assets:⁽¹⁾	March 31, 2017		December 31, 2016
United States	$	119,337	$	122,547
Europe		28,152		28,717
Asia		49,275		49,406

	$	196,764	$	200,670


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Reportable segment:
Vacuum & Analysis	$	200,206	$	199,453	$	196,857	$	199,453
Light & Motion		390,296		389,132		390,008		389,132

Total goodwill	$	590,502	$	588,585	$	586,865	$	588,585

Because the reportable segment information above does not reflect worldwide sales of the Company’s products, the Company groups its products into seven groups of similar products based upon the similarity of product function. Worldwide net revenue for each group of products is as follows:


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2017		2016
Analytical and Control Solutions Products	$	31,820	$	22,978	$	32,801	$	27,787	$	64,621	$	50,765
Materials Delivery Solutions Products		43,454		27,509		47,298		34,162		90,752		61,671
Power, Plasma and Reactive Gas Solutions Products		122,800		77,116		142,639		83,844		265,439		160,961
Pressure and Vacuum Measurement Products		79,910		56,078		87,081		61,566		166,991		117,643
Lasers Products		44,944		—		52,299		37,936		97,243		37,936
Optics Products		46,505		—		50,706		35,263		97,211		35,263
Photonics Products		67,720		—		67,933		45,303		135,653		45,303

	$	437,153	$	183,681	$	480,757	$	325,861	$	917,910	$	509,542

Sales of Analytical and Control Solutions Products; Materials Delivery Solutions Products; Power, Plasma and Reactive Gas Solutions Products; and Pressure and Vacuum Measurement Products are included in the Company’s Vacuum & Analysis segment. Sales of Lasers Products; Optics Products; and Photonics Products are included in the Light & Motion segment.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

The Company had two customers with net revenues greater than 10% of total net revenues in the periods shown as follows:


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
Applied Materials, Inc.		13.0	%		18.8	%		13.0	%		13.5	%		13.0	%		15.4	%
LAM Research Corporation		12.6	%		17.1	%		10.8	%		8.9	%		11.6	%		11.8	%

During the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016, the Company recorded restructuring charges of ~~$522~~$2,586 and $0, respectively. The restructuring charges for the ~~three~~six months ended ~~March~~June 30, 2017 primarily relate to: (i) the discontinuation of a product line resulting in the consolidation of two manufacturing plants related to our Light & Motion segment, which consolidation is expected to be completed by December 31, 2017, ~~relate to~~(ii) the restructuring of one of our international facilities and (iii) the consolidation of ~~certain~~two sales offices.


	Three Months Ended March 31, 2017			Six Months Ended June 30, 2017
Balance at January 1	$	540
Balance at December 31, 2016				$	540
Charged to expense		522			2,586
Payments and adjustment		(347	)		(586	)

Balance at March 31	$	715
Balance at June 30, 2017				$	2,540

On March 9, 2016, a putative class action lawsuit captionedDixon Chung v. Newport Corp., et alal., Case No.A-16-733154-C, was filed in the District Court, Clark County, Nevada on behalf of a putative class of stockholders of Newport for claims related to the Merger Agreement between the Company, Newport, and Merger Sub. The complaint, filed on March 9, 2016, named as defendants the Company, Newport and Merger Sub, and certain then-current and former members of Newport’s former board of directors. The complaint alleges that the named directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, and by agreeing to unfair deal protection devices. The complaint also alleges that the Company, Newport, and Merger Sub aided and abetted the named directors’ alleged breaches of their fiduciary duties. The complaint seeks injunctive relief, including to enjoin or rescind the Merger Agreement, monetary damages, and an award of attorneys’ and other fees and costs, among other relief. On March 25, 2016, the plaintiff in the Chung action filed an amended complaint, which adds certain allegations, including that the preliminary proxy statement filed by Newport on March 15, 2016 (the “Proxy”) omitted material information. The amended complaint also names as defendants the Company, Newport, Merger Sub, and then-current members of Newport’s board of directors.

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

On April 14, 2016, the Court granted plaintiffs’ motion to consolidate the Pincon and Chung actions and appointed counsel in the Pincon action as lead counsel. Also on April 14, 2016, the Court granted plaintiffs’ motion for expedited discovery and scheduled a hearing on plaintiffs’ anticipated motion for a preliminary injunction for April 25, 2016. On April 20, 2016, plaintiffs filed a motion to vacate the hearing on their anticipated motion for a preliminary injunction and notified the Court that they did not presently intend to file a motion for a preliminary injunction regarding the Merger Agreement. On April 22, 2016, the Court vacated the hearing on plaintiffs’ anticipated motion for a preliminary injunction. In August 2016, plaintiffs completed the expedited discovery that the Court ordered.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (continued)~~

On October 19, 2016, plaintiffs filed an amended complaint captionedIn re Newport Corporation Shareholder Litigation, Case No.A-16-733154-B, in the District Court, Clark County, Nevada, on behalf of a class of Newport’s stockholders for claims related to the Merger Agreement. The complaint names as defendants the Company, Newport, and the then-current members of Newport’s former board of directors. It alleges that the named directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, by agreeing to unfair deal protection devices, and by omitting material information from the Proxy. The complaint also alleges that the Company and Newport aided and abetted the named directors’ alleged breaches of their fiduciary duties. The complaint seeks monetary damages, includingpre- and post-judgment interest. On December 9, 2016, both the Company and the Newport defendants filed motions to dismiss. Plaintiffs filed an opposition to the motions to dismiss on January 13, 2017. On February 3, 2017, the Company and the Newport defendants filed their reply briefs in support of their motions to dismiss. A hearing on the motions to dismiss was held on February 15, 2017.

~~The Company believes that~~ On June 22, 2017, the ~~claims asserted in~~court dismissed the amended complaint ~~have no merit and~~against all defendants but granted plaintiffs leave to amend. On July 27, 2017, plaintiffs filed an amended complaint asserting claims against the ~~Company,~~ Newport ~~and the named~~directors. The Newport directors intend to defend vigorously against ~~these~~those claims. On July 28, 2017, the Company and Newport each entered into a stipulation and proposed order with plaintiffs whereby plaintiffs agreed not to assert any claims against the Company or Newport in an amended complaint and agreed to voluntarily dismiss the Company and Newport from the action.

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

~~In April~~On July 6, 2017, the Company ~~completed~~entered into Amendment No. 3 (the “Re-pricing Amendment 3”) to the ~~sale of its Data Analytics Solutions business~~Credit Agreement by and among the Company, the Lenders and Barclays Bank PLC, as administrative agent and collateral agent for ~~approximately $80,000 and expects~~the Lenders. The Re-pricing Amendment 3 decreased the applicable margin for the Company’s term loan under the Credit Agreement to ~~record apre-tax~~ ~~gain of approximately $75,000, during~~2.25% when the ~~second quarter of 2017. This business, which had net revenues in 2016 of $12,700 and was included~~Total Leverage Ratio (as defined in the ~~Vacuum & Analysis segment,~~Credit Agreement) is at or above 1.25:1 and to 2.00% when the Total Leverage Ratio is below 1.25:1, both with a LIBOR floor of 0.75%. The margin for base rate borrowings will decrease to 1.25% when the Total Leverage Ratio is at or above 1.25:1 and to 1.00% when the Total Leverage Ratio is below 1.25:1. The period in which a prepayment premium may be required for a “Re-pricing Transaction” (as defined in the Credit Agreement) was ~~no longer a part~~reset to six months after the effective date of the ~~Company’s long-term strategic objectives.~~Re-pricing Amendment 3.

~~The business did not qualify as a discontinued operation as this sale did not represent a strategic shift in~~On July 10, 2017, the ~~Company’s business, nor did~~Company prepaid $50,000 of principal under the ~~sale have a major effect on~~Credit Agreement, which reduced the ~~Company’s operations, therefore,~~total outstanding principal balance under the ~~results of operations for all periods are included in the Company’s income from operations.~~

~~The assets and liabilities of this business have not been reclassified or segregated in the consolidated balance sheet or consolidated statements of cash flows due~~Credit Agreement to ~~the immaterial amounts.~~$523,464.

~~ITEM 2.~~

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

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

This Quarterly Report on Form10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used herein, the words “believes,” “anticipates,” “plans,” “expects,” “estimates,” “would,” “will,” “intends” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect management’s current opinions and are subject to certain risks and uncertainties that could cause results to differ materially from those stated or implied. While we may elect to update forward looking statements in the future, we specifically disclaim any obligation to do so even if our estimates or expectations change. Risks and uncertainties include, but are not limited to those discussed in our Annual Report on Form10-K for the year ended December 31, 2016 in the section entitled “Risk Factors” as referenced in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form10-Q.

We are a global provider of instruments, subsystems and process control solutions that measure, control, power, deliver, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. Our products are derived from our core competencies in automation and control, gas composition analysis, lasers, materials delivery, optics, photonics, pressure, power, reactive gas and vacuum. We also provide services related to the maintenance and repair of our products, installation services and training.

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

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

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

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

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

Approximately ~~60% and 73%~~61% of our net revenues both for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016, respectively, were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers. As a result of our acquisition of Newport, we estimate that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers could account for approximately 50% to 60% of our total sales in future periods.

Approximately ~~40% and 27%~~39% of our net revenues both for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016, respectively, were from other advanced manufacturing applications. These include, but are not limited to, electronic thin film, life and health sciences, process and industrial technologies and research and defense.

Net revenues from semiconductor capital equipment manufacture and semiconductor device manufacture customers increased by ~~$125.4~~$120.6 million, or ~~93%,~~69% for the three months ended ~~March 31,~~June 30, 2017, compared to the same period in the prior year. This increase is ~~attributed to net~~

~~semiconductor revenues from the Newport Merger~~comprised of ~~$41.3 million and~~an increase in net semiconductor revenues ~~from~~of $99.0 million in the Vacuum & Analysis segment (the legacy MKS ~~business (Vacuum~~business) and $21.6 million in the Light & ~~Analysis segment), which~~Motion segment (the legacy Newport business). These increases are primarily due to volume increases from our semiconductor

customers. Net revenues from semiconductor capital equipment manufacture and semiconductor device manufacture customers increased ~~$84.1~~by $246.1 million, or ~~62%,~~80% for the ~~three~~six months ended ~~March 31,~~June 30, 2017, compared to the same period in the prior year. This increase is comprised of an increase in net semiconductor revenues from the Vacuum & Analysis segment of $183.1 million and an increase from the Light & Motion segment $63.0 million. These increases are primarily due to volume increases from our semiconductor customers. In addition, the increase in revenue in the Light & Motion segment is due to the fact that the three and six month periods ended June 30, 2016, only included two months of revenue as a result of the Newport Merger, compared to the respective periods in 2017. The semiconductor capital equipment industry is subject to rapid demand shifts, which are difficult to predict, and we are uncertain as to the timing or extent of future demand or any future weakness in the semiconductor capital equipment industry.

~~Our net~~Net revenues from customers in other advanced markets, which exclude semiconductor capital equipment and semiconductor device product applications, increased by ~~$128.0~~$34.2 million, or ~~261%~~23%, for the three months ended ~~March 31,~~June 30, 2017. The increase was primarily driven by the Light & Motion segment, whose net revenues increased $30.7 million primarily due to the fact that the three months ended June 30, 2016, only included two months of revenue due to the Newport Merger. These increases were mainly in the process and industrial technologies and research and defense markets. Net revenues from customers in other advanced markets increased by $162.3 million for the six month period ended June 30, 2017, compared to the same period in the prior year. ~~This~~The increase ~~is attributed to~~was primarily driven by the Light & Motion segment, whose net revenues ~~from~~increased $148.5 million primarily due to the fact that the six month period ended June 30, 2016, only included two months of revenue as a result of the Newport ~~Merger of $117.8 million and net revenues from the legacy MKS business (Vacuum & Analysis segment) which increased by $10.2 million, or 21%, from customers in other advanced markets.~~Merger. Revenues from customers in other advanced markets are made up of many different markets including electronic thin film, life and health sciences, process and industrial technologies and research and defense.

A significant portion of our net revenues is from sales to customers in international markets. For the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016, international net revenues accounted for approximately 50% and ~~49%~~48% of our net revenues, respectively. A significant portion of our international net revenues were in Korea, Japan, Israel, China and ~~Israel.~~Germany. We expect that international net revenues will continue to represent a significant percentage of our total net revenues.

In April 2017, we completed the sale of our Data Analytics Solutions business for ~~approximately $80.0~~total proceeds of $72.5 million, net of cash sold and ~~expect to record~~recorded apre-tax gain of ~~approximately $75.0 million, during the second quarter of 2017.~~$74.9 million. This business, which had net revenues in 2016 of $12.7 million and was included in the Vacuum & Analysis segment, was no longer a part of our long-term strategic objectives.

The business did not qualify as a discontinued operation as this sale did not represent a strategic shift in our business, nor did the sale have a major effect on our operations, therefore, the results of operations for all periods are included in our income from operations. The assets and liabilities of this business have not been reclassified or segregated in the consolidated balance sheet or consolidated statements of cash flows ~~due to~~as the ~~immaterial amounts.~~amounts were immaterial.

The preparation of our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. There have been no material changes in our critical accounting policies since December 31, 2016. For further information, please see the discussion of critical accounting policies in our Annual Report on Form10-K for the year ended December 31, 2016 in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”

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


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
Net revenues:
Product		89.9	%		83.6	%		89.8	%		87.6	%		89.9	%		86.2	%
Services		10.1			16.4			10.2			12.4			10.1			13.8

Total net revenues		100.0			100.0			100.0			100.0			100.0			100.0
Cost of revenues:
Cost of product revenues		46.9			46.5			47.7			50.3			47.3			48.9
Cost of service revenues		6.1			11.1			6.6			8.0			6.4			9.1

Total cost of revenues (exclusive of amortization shown separately below)		53.0			57.6			54.3			58.3			53.7			58.0

Gross profit		47.0			42.4			45.7			41.7			46.3			42.0
Research and development		7.6			9.4			7.0			8.7			7.3			8.9
Selling, general and administrative		17.0			18.4			15.0			18.3			15.9			18.4
Acquisition and integration costs		0.3			1.4			0.2			6.1			0.3			4.4
Restructuring		0.1			—			0.4			—			0.3			—
Asset impairment								1.4			—			0.7			—
Amortization of intangible assets		2.9			0.9			2.4			2.7			2.6			2.1

Income from operations		19.1			12.3			19.3			5.9			19.2			8.2
Interest and other (expense) income, net		(1.4	)		0.7
Gain on sale of business								15.6			—			8.1			—
Interest and other (expense), net								(2.0	)		(2.1	)		(1.7	)		(1.1	)

Income from operations before income taxes		17.7			13.0			32.9			3.8			25.6			7.1
Provision for income taxes		2.8			3.4			7.8			1.0			5.4			1.8

Net income		14.9	%		9.6	%		25.1	%		2.8	%		20.2	%		5.3	%


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016		2017		2016		2017		2016
Product	$	392.9	$	153.6	$	431.9	$	285.5	$	824.9	$	439.1
Service		44.2		30.1		48.8		40.4		93.0		70.4

Total net revenues	$	437.1	$	183.7	$	480.7	$	325.9	$	917.9	$	509.5

Product revenues increased ~~$239.3~~$146.4 million and $385.8 million during the three and six months ended ~~March 31,~~June 30, 2017, respectively, compared to the same ~~period~~periods in the prior year. ~~This increase was primarily attributed to~~Product revenues for the ~~Newport Merger, as revenues associated with Newport products were $146.4~~Vacuum & Analysis segment (legacy MKS business) increased by $99.3 million and $192.3 million for the three and six months ended ~~March 31, 2017.~~June 30, 2017, respectively, compared to the same periods in the prior year. The increase for the Vacuum & Analysis segment was primarily due to volume increases in net revenues from semiconductor customers. Product revenues for the Light & Motion segment (legacy Newport business) increased ~~for our legacy MKS business (Vacuum & Analysis segment)~~ by ~~$92.9~~$47.1 million and $193.5 million for the three and six months ended, ~~March 31,~~June 30, 2017, respectively, compared to the same ~~period~~periods in the prior year, primarily due to ~~an increase~~the fact that the three and six month periods ended June 30, 2016, only included two months of revenue in ~~product revenues from our semiconductor capital equipment and semiconductor device manufacture customers~~each respective period as a result of ~~$83.1 million, primarily due to volume and an increase in product revenues from our electronic thin film market of $6.0 million.~~the Newport Merger.

Service revenues consisted mainly of fees for services related to the maintenance and repair of our products, installation and training. Service revenues increased ~~$14.1~~$8.4 million and $22.6 during the three and six months ended ~~March 31,~~June 30, 2017, compared to the same ~~period~~periods in the prior year. ~~This~~The increase in service revenues was primarily ~~attributed~~due to service revenues for the Light & Motion segment (legacy Newport ~~Merger, as revenues associated with Newport services were $12.7~~business), which increased by $5.2 million and $17.9 million for the three and six months ended, ~~March 31, 2017. Service revenues increased for our legacy MKS business (Vacuum & Analysis segment) by $1.4 million for the three months ended March 31,~~June 30, 2017, respectively, compared to the same ~~period~~periods in the prior year, primarily due to the fact that the three and six month periods ended June 30, 2016, only included two months of revenue in each respective period as a result of the Newport Merger. The remaining increases inof $3.2 million and $4.7 million for the three and six months ended June 30, 2017, respectively, were primarily due to service revenues from ~~our~~ semiconductor ~~capital equipment and semiconductor device manufacture customers of $1.0 million.~~customers.

Total international net revenues, including product and service, ~~was $219.1~~were $236.1 million and $455.2 million for the three and six months ended ~~March 31,~~June 30, 2017, ~~or 50.1% of net revenues,~~ compared to ~~$89.5~~$157.4 million and $246.9 million for the three and six months ended ~~March 31, 2016, or 48.7% of net revenues.~~ June 30, 2016.

The increase of $78.7 million and $208.3 million in ~~international~~net revenues for the three and six months ended June 30, 2017, compared to the same periods in the prior year, was due to significant increases in net revenues in Korea, Japan, Israel, Singapore, and Germany. These increases consist primarily of ~~$129.6 million primarily relates to $79.3 million~~volume increases from customers in the semiconductor industry and the fact that revenues from our Light and Motion segment for the three and six months ended June 30, 2016, only included two months of revenues in each respective period as a result of the Newport Merger. The remainder of the increase of $50.3 million is attributed to our legacy MKS business (Vacuum & Analysis) segment, primarily due to increases in revenue of $24.3 million in Korea, $6.4 million in Israel, $5.4 million in Shanghai, and $4.8 million in Singapore. The majority of our foreign revenues are from sales to customers in Asia, primarily in Korea, Japan and Israel.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016
(dollars in millions)					2017		2016		2017		2016
Net revenues:
Vacuum & Analysis	$	278.0	$	183.7	$	309.8	$	207.4	$	587.8	$	391.0
Light & Motion		159.1		—		170.9		118.5		330.1		118.5

Total net revenues	$	437.1	$	183.7	$	480.7	$	325.9	$	917.9	$	509.5

Net revenues for our Vacuum & Analysis segment increased ~~$94.3~~$102.4 million and $196.8 million for the three and six months ended ~~March 31,~~June 30, 2017, compared to the same ~~period~~periods in the prior ~~year,~~year. These increases were primarily attributed to increases in net revenues from our semiconductor capital equipment and semiconductor device manufacturer customers of $99.0 million and $183.1 million for the three and six month periods ended June 30, 2017, respectively. The remainder of the increases were attributed to net revenues from customers from our other advanced markets of $3.4 million and $13.7 million for the three and six months ended June 30, 2017, respectively, primarily from our process and industrial technologies market and our electronic thin film market.

Net revenues from our Light & Motion segment (legacy Newport business) increased $52.4 million and $211.6 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in the prior year. The increases for the three and six months ended June 30, 2017 were primarily due to the fact that the three and six month periods ended June 30, 2016 only included two months of revenue in each respective period as a result of the Newport Merger. These increases included an increase in net revenues from our semiconductor capital equipment and semiconductor device ~~manufacture~~manufacturer customers of ~~$84.1~~$21.6 million and ~~an increase in~~$63.0 million for the three and six month periods ended June 30, 2017, respectively. The remainder of the increases were attributed to net revenues from customers infrom our ~~electronic thin film~~other advanced markets of ~~$6.1 million.~~

~~Net revenues from our Light & Motion segment was $159.1~~$30.8 million and $148.6 million for the three and six months ended ~~March 31, 2017. This segment represents the legacy Newport business, which was acquired during the second quarter of 2016.~~June 30, 2017, respectively, primarily from our process and industrial technologies market, our research and defense market and our life and health sciences market.


	Three Months Ended March 31,									Three Months Ended June 30,									Six Months Ended June 30,
	2017			2016			% Points Change			2017			2016			% Points Change			2017			2016			% Points Change
Gross profit as a percentage of net revenues:
Product		47.8	%		44.4	%		3.4	%		46.9	%		42.6	%		4.3	%		47.3	%		43.2	%		4.1	%
Service		40.0			32.1			7.9			34.7	%		35.7			(1.0	)		37.2			34.2			3.0

Total gross profit		47.0	%		42.4	%		4.6	%		45.7	%		41.7	%		4.0	%		46.3	%		42.0	%		4.3	%

Gross profit as a percentage of net product revenues increased by ~~3.4~~4.3 percentage points for the three months ended ~~March 31,~~June 30, 2017, compared to the same period in the prior year. The increase was primarily attributed to ~~8.1~~3.7 percentage points related to favorable revenue volumes and 2.7 percentage points due to favorable material costs, as the three months ended June 30, 2016 included a charge of $10.1 million for the amortization of the inventory step-up adjustment to fair value related to the Newport Merger, partially offset by a decrease of ~~2.2 percentage points due to unfavorable mix, 1.9 percentage points due to higher labor and overhead charges, resulting from the Newport Merger and 0.4~~0.8 percentage points due to higher excess and obsolete inventory and warranty charges.

Gross profit as a percentage of net product revenues increased by 4.1 percentage points for the six months ended June 30, 2017, compared to the same period in the prior year. The increase was primarily attributed to 6.4 percentage points due to favorable revenue volumes, primarily due to the Newport Merger, partially offset by a decrease of 0.6 percentage points due to higher excess and obsolete inventory and warranty charges and 0.2 percentage points due to higher variable compensation.

Gross profit as a percentage of net service revenues decreased by 1.0 percentage points for the three months ended June 30, 2017, compared to the same period in the prior year. This decrease was primarily attributed to 2.4 percentage points due to higher variable compensation, primarily related to the Newport Merger, partially offset by 1.7 percentage points mainly due to lower labor and overhead costs. Gross profit as a percentage of net service revenues increased by ~~7.9~~3.0 percentage points for the ~~three~~six months ended ~~March 31,~~June 30, 2017, compared to the same period in the prior year. ~~This~~The increase was primarily attributed to ~~5.6~~2.8 percentage points due to favorable material costs,

primarily from an adjustment to material costs that we do not expect to ~~reoccur~~re-occur in the future, 1.7 percentage points due to favorable labor and ~~3.1~~overhead absorption and 1.0 percentage points due to favorable product ~~mix.~~mix, which was partially offset by 2.3 percentage points due to higher variable compensation costs, primarily related to the Newport Merger. Cost of service revenues, including salaries and related expenses and other fixed costs, ~~consists~~consisted primarily of providing services for repair and training.

The following is gross profit as a percentage of net revenues by reportable segment:


	Three Months Ended March 31,									Three Months Ended June 30,									Six Months Ended June 30,
	2017			2016			% Points Change			2017			2016			% Points Change			2017			2016			% Points Change
Gross profit:
Gross profit as a percentage of net revenues:
Vacuum & Analysis		46.4	%		42.4	%		4.0	%		45.1	%		43.8	%		1.3	%		45.7	%		43.2	%		2.5	%
Light & Motion		48.1			—			100.0			46.6			38.0			8.6			47.4			38.0			9.4

Total gross profit		47.0	%		42.4	%		4.6	%		45.7	%		41.7	%		4.0	%		46.3	%		42.0	%		4.3	%

Gross profit for our Vacuum & Analysis segment increased by ~~4.0~~1.3 and 2.5 percentage points for the three and six months ended ~~March 31,~~June 30, 2017, respectively, compared to the same ~~period~~periods in the prior ~~year,~~year. The increase for the three months ended June 30, 2017 was primarily ~~as a result of~~due to higher revenue volumes, ~~favorable labor and overhead charges,~~ partially offset by ~~unfavorable product mix.~~higher material costs and higher warranty costs. The increase for the six months ended June 30, 2017 was primarily due to higher revenue volumes.

Gross profit for our Light & Motion segment ~~was 48.1%~~increased by 8.6 and 9.4 percentage points for the three and six months ended ~~March 31, 2017.~~June 30, 2017, respectively. The ~~Light & Motion segment was established in~~gross profit for the ~~second quarter~~three and six months ended June 30, 2016 included a charge of ~~2016 as a result~~$10.1 million for the amortization of the inventory step-up adjustment to fair value related to the Newport Merger.


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016		2017		2016
Research and development expenses	$	33.7	$	28.2	$	67.0	$	45.4

Research and development expenses increased ~~$16.1~~$5.5 million for the three months ended ~~March 31,~~June 30, 2017, compared to the same period in the prior year. ~~The increase was~~These increases were primarily ~~attributed~~due to ~~$13.9 million from~~the fact that the Light & Motion segment (legacy Newport business) only included two months of expense during the three months ended June 30, 2016 as a result of the Newport Merger, ~~and consisted primarily of $10.2~~which occurred in April 2016. These increases included $3.7 million of compensation costs and related benefits, ~~$1.6~~$1.2 million of project materials and ~~$0.9~~$0.3 million of occupancy costs. ~~The remaining increase of $2.2~~

Research and development expenses increased $21.6 million ~~related~~for the six months ended June 30, 2017, compared to the ~~legacy MKS business (Vacuum~~same period in the prior year. These increases were primarily due to the fact that the Light & ~~Analysis segment) consisted primarily~~Motion segment (legacy Newport business) only included two months of ~~$0.9~~expense during the six months ended June 30, 2016 as a result of the Newport Merger, which occurred in April 2016. These increases included $14.5 million ~~for~~of compensation costs and related benefits, $3.7 million of project materials, $1.2 million of occupancy costs and ~~$0.6~~$0.7 million ~~for variable compensation related costs.~~of depreciation expense.

Our research and development efforts are primarily focused on developing and improving our instruments, components, subsystems and process control solutions to improve process performance and productivity.

We have thousands of products, and our research and development efforts primarily consist of a large number of projects related to these products, none of which is individually material to us. Current projects typically have durations of 3 to 30 months depending upon whether the product is an enhancement of existing technology or a new product. Our current initiatives include projects to enhance the performance characteristics of older products, to develop new products and to integrate various technologies into subsystems. These projects support in large part the transition in the semiconductor industry to smaller integrated circuit geometries and in the flat panel display and solar markets to larger substrate sizes, which require more advanced process control technology. Research and development expenses consist primarily of salaries and related expenses for personnel engaged in research and development, fees paid to consultants, material costs for prototypes and other expenses related to the design, development, testing and enhancement of our products.

We believe that the continued investment in research and development and ongoing development of new products are essential to the expansion of our ~~markets, and we~~markets. We expect to continue to make significant investment in research and development activities. We are subject to risks iffrom products ~~are~~ not being developed in a timely manner, ~~due to~~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 and other advanced technology 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. If our products are not chosen to be designed into our customers’ products, our net revenues may be reduced during the lifespan of those products.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016		2017		2016		2017		2016
Selling, general and administrative expenses	$	74.2	$	34.0	$	72.0	$	59.6	$	146.2	$	93.5

Selling, general and administrative expenses increased by ~~$40.2~~$12.4 million infor the three months ended ~~March 31,~~June 30, 2017, compared to the same period in the prior year. ~~The increase was~~These increases were primarily attributed to ~~$33.4 million from~~the Light & Motion segment (legacy Newport business) due to the fact that the three months ended June 30, 2016 only included two months of expense as a result of the Newport Merger, ~~and consisted primarily of $20.0~~which occurred in April 2016. The increase included $7.0 million of compensation costs and related benefits, ~~$2.2~~$1.2 million ~~for depreciation expense, $2.1~~in information technology related expenses, $0.9 million ~~for~~of commissions, ~~and $2.0~~$0.7 million ~~for~~of consulting and professional ~~fees. The remaining increase~~fees, $0.6 million of ~~$6.8~~depreciation expense, $0.5 million of occupancy costs and $0.4 million of expenses related to the ~~legacy MKS business (Vacuum~~sale of our Data Analytics Solutions business.

Selling, general and administrative expenses increased by $52.7 million for the six months ended June 30, 2017 compared, to the same period in the prior year. These increases were primarily attributed to the Light & ~~Analysis segment) consisted primarily~~Motion segment (legacy Newport business) due to the fact that the six months ended June 30, 2016 only included two months of ~~$4.4~~expense as a result of the Newport Merger, which occurred in April 2016. The increase included $31.3 million ~~for~~of compensation costs and related benefits, ~~primarily variable compensation, and $1.0~~$4.1 million ~~for~~of consulting and professional ~~fees.~~fees, $3.7 million of commissions, $2.8 million of depreciation expense, $2.0 million of travel and entertainment expenses, $1.7 million of occupancy costs, $1.6 million in marketing related expenses, $1.2 in information technology related expenses and $0.9 million of costs related to the sale of our Data Analytics Solutions business.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016		2017		2016		2017		2016
Acquisition and integration costs	$	1.4	$	2.5	$	0.8	$	20.1	$	2.2	$	22.5

We incurred ~~$1.4~~$0.8 million and ~~$2.5~~$2.2 million of acquisition and integration costs for the three months ended ~~March 31,~~June 30, 2017 and 2016, respectively, and $20.1 million and $22.5 million for the six months ended June 30, 2017 and 2016, respectively. These costs related to the Newport Merger. ~~These costs were primarily related to legal and other professional fees.~~

Restructuring expense of $2.1 million for the three months ended ~~March 31,~~June 30, 2017 ~~relates~~related to the discontinuation of a product line resulting in the consolidation of two manufacturing plants. Restructuring expense of $2.6 million for the six months ended June 30, 2017, related to the discontinuation of a product line resulting in the consolidation of two manufacturing plants, the restructuring of one of our international facilities and the consolidation of ~~certain~~two sales offices.

We recorded $6.7 million of asset impairment charges for the three and six months ended June 30, 2017 due to the consolidation of two manufacturing plants. These charges primarily related to the write-off of certain goodwill and intangible assets.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016		2017		2016		2017		2016
Amortization of intangible assets	$	12.5	$	1.7	$	11.5	$	8.9	$	24.0	$	10.5

Amortization of intangible assets increased by ~~$10.8~~$2.6 million and $13.5 million during the three and six months ended ~~March 31,~~June 30, 2017, respectively, compared to the same ~~period~~periods in the prior year. ~~This increase was~~These increases were primarily attributed to the amortization of intangible assets acquired in the Newport Merger.


	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2017			2016		2017			2016			2017			2016
Interest (expense) income, net	$	(8.3	)	$	0.9
Interest (expense), net						$	(6.5	)	$	(7.9	)	$	(14.8	)	$	(7.1	)

Interest ~~expense,~~(expense), net decreased by $1.4 million and increased by ~~$9.2~~$7.7 million ~~during~~for the three and six months ended June 30, 2017, respectively, compared to the same periods in the prior year. The decrease for the three months ended ~~March 31,~~June 30, 2017, was due primarily to principal pre-payments of $200.0 million over the past twelve months and the re-pricing of our Term Loan Facility. The increase for the six months ended June 30, 2017 compared to the same period in the prior ~~year. This increase is primarily attributed~~year, was due to ~~$8.8 million~~the fact that the six month period ended June 30, 2016 only included two months of interest expense ~~related to~~as a result of the Newport Merger.

We recorded a $74.9 million gain for the three and six months ended June 30, 2017 on the sale of our ~~Term Loan Facility.~~Data Analytics Solutions business during the second quarter of 2017.


	Three Months Ended March 31,				Three Months Ended June 30,					Six Months Ended June 30,
(dollars in millions)	2017		2016		2017			2016		2017			2016
Other income	$	2.0	$	0.4
Other (expense) income, net					$	(3.3	)	$	1.1	$	(1.3	)	$	1.5

~~Other~~The changes in other (expense) income, ~~increased by $1.6 million~~net for the three and ~~relates~~six months ended June 30, 2017 and 2016, respectively, primarily related to ~~favorable~~changes in foreign exchange.


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions)	2017		2016		2017		2016		2017		2016
Provision for income taxes	$	12.2	$	6.2	$	37.5	$	3.2	$	49.8	$	9.4

Our effective tax rate for the three and six months ended ~~March 31,~~June 30, 2017 was 23.8 % and ~~2016 was 15.8% and 26.2%~~21.2%, respectively. The effective tax rate for the three and six months ended ~~March 31,~~June 30, 2017, was lower than the U.S. statutory tax rate mainly due to the geographic mix of income and profits earned by our international subsidiaries being taxed at rates lower than the U.S. statutory tax rate, the deduction for domestic production activities and the stock compensation benefit related to the adoption of a new accounting standard that became applicable during the first quarter ~~ended March 31,~~of 2017. Our effective tax rate for the three and six months ended ~~March 31,~~June 30, 2016 was 25.5% and 26.0%, respectively. Our effective tax rate for the three and six months ended June 30, 2016 was lower than the U.S. statutory tax rate due to the ~~impact~~geographic mix of ~~lower tax rates on~~income and profits earned by our international subsidiaries being taxed at rates lower than the U.S. statutory tax rate, the federal research credit and the impact of the deduction for domestic production ~~activities.~~activities offset by non-deductible acquisition related costs and state income taxes.

Our future effective tax rate depends on various factors, including the impact of tax legislation, the geographic composition of ourpre-tax income, and changes in 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 ofpre-tax income will continue to have a favorable impact on our effective tax rate however the geographic mix ofpre-tax income can change based on multiple factors resulting in changes to the effective tax rate in future periods. We also expect that the impact of the windfall stock compensation tax benefit on the tax rate will vary significantly from quarter to quarter due to the timing of vesting and exercise of stock grants and the impact of changes in our stock price.

Our effective tax rate could be adversely affected by changes in the valuation of deferred tax assets and liabilities. In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our ability to generate sufficient future taxable income in the United States.

Additionally, the recognition and measurement of certain tax benefits include estimates and judgment by management. Accordingly, we could record additional provisions or benefits for U.S. federal, state, and foreign taxes matters in future periods as new information becomes available.

Cash and cash equivalents and short-term marketable investments totaled ~~$411.2~~$571.8 million at ~~March 31,~~June 30, 2017, compared to $418.1 million at December 31, 2016.

Net cash provided by operating activities was ~~$66.1~~$175.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2017, and resulted from net income of ~~$65.1~~$185.5 million, which includednon-cash charges of ~~$36.9~~$13.1 million, offset by a net increase in working capital of ~~$35.9~~$23.1 million. The net increase in working capital was primarily due to ~~a decrease in accrued compensation of $16.8 million, asyear-end~~ ~~bonuses were paid,~~ an increase in ~~trade accounts receivable~~inventories of ~~$15.2~~$34.1 million and an increase in ~~inventories~~accounts receivable of ~~$11.7~~$15.9 million, related to an increase in business activities and an increase in other current and non-current assets of ~~$1.5~~$2.8 million. These increases, in working capital were partially offset by an increase in accrued income taxes of ~~$8.1~~$21.9 million, other current and non-current liabilities of $5.0 million, and ~~an increase in other current andnon-current~~ ~~liabilities~~accounts payable of ~~$1.1~~$2.9 million.

Net cash provided by operating activities was ~~$23.2~~$51.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2016 and resulted from net income of ~~$17.6~~$26.8 million, which includednon-cash charges of ~~$12.6~~$56.7 million, offset by a net increase in working capital of ~~$7.0~~$31.7 million. The net increase in working capital was primarily due to an increase in trade accounts receivable of ~~$10.1~~$35.9 million, related to an increase in business activities ~~a decrease in accrued compensation of $7.1 million~~ and an increase in other current assets and non-current assets of ~~$3.6~~$13.0 million. These increases in working capital were partially offset by an increase in ~~accrued liabilities of $7.7 million, an increase in~~ accounts payable of ~~$4.8~~$7.4 million, ~~and~~ an increase in income taxes of ~~$2.3~~$6.4 million and a decrease in inventories of $3.9 million.

Net cash provided by investing activities was ~~$30.5~~$103.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2017, due to proceeds received from the sale of our Data Analytics Solutions business of $72.5 million and net sales and maturities of short-term investments of $40.9 million, offset by purchases of production-related equipment of $9.7 million. Net cash used in investing activities was $595.6 million for the six months ended June 30, 2016 and resulted primarily from ~~$34.6~~the Newport Merger for $939.6 million and the purchase of production-related equipment of $7.3 million, partially offset by the net sale and maturities of ~~short-term~~ investments ~~partially offset by $4.1~~of $351.3 million, in purchases of production-related equipment. Net cash provided by investing activities was $120.9 million for the three months ended March 31, 2016 and resulted primarily from $123.1 million of net sale and maturities of short-term investments which was used to partially finance the Newport ~~acquisition, partially offset by $2.2 million in purchases of production-related equipment.~~Merger.

Net cash used in financing activities was ~~$64.7~~$86.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2017, and resulted primarily from ~~$51.6~~partial repayment of the Term Loan Facility of $53.1 million ~~used~~($50.0 million was pre-paid and $3.1 million was a regularly scheduled payment of principal), net payments on short-term borrowings, primarily short-term lines of credit of $0.8 million, dividend payments made to common stockholders of $18.9 million and net payments related to tax payments for employee stock awards of $13.4 million. Net cash provided by financing activities was $674.6 million for the ~~partial repayment of~~six months ended June 30, 2016 and resulted primarily from net proceeds related to the Term Loan Facility used to finance the Newport Merger ~~($50~~of $730.0 million, ~~waspre-paid~~ ~~and $1.6 million was a regularly scheduled payment of principal), $9.4 million of~~partially offset by dividend payments made to common stockholders ~~and $2.9~~of $18.1 million, restricted cash of $5.6 million for collateral cash deposits relating to letters of credit and net payments related to tax payments ~~for employee stock awards. Net cash used in financing activities was $13.0 million for the three months ended March 31, 2016, and resulted primarily from $9.1 million of dividend payments~~ made ~~to common stockholders, $2.6 million of net payments related to tax payments~~ for employee stock awards ~~and $1.5 million used in the repurchase~~ of ~~our common stock.~~$2.9 million.

On July 25, 2011, our Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $200 million of our outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means. The 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.

During the ~~three~~six months ended ~~March 31,~~June 30, 2017, there were no repurchases of our common stock. During the ~~three~~six months ended ~~March 31,~~June 30, 2016, we repurchased approximately 45,000 shares of our common stock for $1.5 million, or an average price of $34.50 per share.

~~During the three months ended March 31, 2017, our~~Our Board of Directors declared a cash dividend of $0.175 per share during the first and second quarters of 2017 that totaled ~~$9.4~~$18.9 million. ~~During the three months ended March 31, 2016, our~~Our Board of Directors declared a cash dividend of $0.17 per share during the first and second quarters of 2016 that totaled ~~$9.1~~$18.1 million.

On July 31, 2017, the Company’s Board of Directors declared a quarterly cash dividend of $0.175 per share to be paid on September 8, 2017 to shareholders of record as of August 28, 2017. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of ~~our~~the Company’s Board of Directors. In addition, under the terms of our senior secured Term Loan Facility and our senior secured asset-based revolving credit facility, we may be restricted from paying dividends under certain circumstances.

Our total cash and cash equivalents and short-term marketable investments at ~~March 31,~~June 30, 2017 consisted of ~~$152.0~~$235.3 million held in the United States and ~~$259.2~~$336.5 million held by our foreign subsidiaries, substantially all of which cash held by foreign subsidiaries would be subject to tax in the United States if returned to the United States. We believe our existing United States cash and short-term investment balances are adequate to meet domestic operating needs, including estimated working capital, planned capital expenditure requirements, payment of debt and any future cash dividends, if declared, during the next twelve months and the foreseeable future.

OnIn April ~~27,~~ 2016, we invested $9.3 million for a minority interest in a private company, which operates in the field of semiconductor process equipment instrumentation. We accounted for this investment using the cost method of accounting. During the fourth quarter of 2016, we recognized an impairment loss on this investment of $5.0 million.

In connection with the completion of the Newport Merger, we entered into a term loan credit agreement (the “Credit Agreement”) with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders from time to time party thereto (the “Lenders”), that provided senior secured financing of $780.0 million, subject to increase at our option in accordance with the Credit Agreement (the “Term Loan Facility”). Borrowings under the Term Loan Facility bear interest per annum at one of the following rates selected by the Company: (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 1.75%, plus, in each case, an applicable margin (that was initially 3.00% and was decreased as described below); or (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, subject to a LIBOR rate floor of 0.75%, plus an applicable margin (that was initially 4.00% and was decreased as described below). We have elected the interest rate as described in clause (b). The Term Loan Facility was issued with original issue discount of 1.00% of the principal amount thereof.

In June 2016, we entered into Amendment No. 1 (the~~“Re-pricing~~ “Re-pricing Amendment 1”) to the Credit Agreement by and among the Company, the Lenders and Barclays Bank PLC, as administrative agent and collateral agent for the Lenders. TheRe-pricing Amendment 1 decreased the applicable margin for borrowings under our Term Loan Facility to 2.50% for base rate borrowings and 3.50% for LIBOR borrowings and extended the period during which a pre-payment premium may be required for a~~“Re-pricing~~ “Re-pricing Transaction” (as defined in the Credit Agreement) until six months after the effective date of theRe-pricing Amendment 1. In connection with the execution of theRe-pricing Amendment 1, we paid a pre-payment premium of 1.00%, or $7.3 million, as well as certain fees and expenses of the administrative agent and the Lenders, in accordance with the terms of the Credit Agreement. Immediately prior to the effectiveness of theRe-pricing Amendment 1, we prepaid ~~$50.0��~~$50.0 million of principal under the Credit Agreement. In September 2016, we prepaid an additional $60.0 million under the Credit Agreement.

In September 2016, we entered into an interest rate swap agreement, which has a maturity date of September 30, 2020, to fix the rate on $335.0 million of the outstanding balance of the Credit Agreement. The rate is fixed at 1.198% per annum plus the applicable credit spread, ~~of 3.50%.~~which was 2.75% at June 30, 2017.

In December 2016, we entered into Amendment No. 2 (the “Re-pricing Amendment 2”) to the Credit Agreement by and among the Company, the Lenders and Barclays Bank PLC, as administrative agent and collateral agent for the Lenders. The Re-pricing Amendment 2 decreased the applicable margin for the Company’s term loan under the Credit Agreement to 2.75% for LIBOR borrowings and 1.75% for base rate borrowings and reset the period during which a pre-payment premium may be required for a “Re-pricing Transaction” (as defined in the Credit Agreement) until six months after the effective date of the Re-pricing Amendment. In November 2016, prior to the effectiveness of the Re-pricing Amendment 2, we prepaid an additional $40.0 million of principal under the Credit Agreement. In March 2017, the Company prepaid $50.0 million of principal under the Credit Agreement.

On July 6, 2017, we entered into Amendment No. 3 (the “Re-pricing Amendment 3”) to our Credit Agreement by and among the Company, the Lenders and Barclays Bank PLC, as administrative agent and collateral agent for the Lenders. The Re-pricing Amendment 3 decreased the applicable margin for our term loan under the Credit Agreement to 2.25% when the Total Leverage Ratio (as defined in the Credit Agreement) is at or above 1.25:1 and to 2.00% when the Total Leverage Ratio is below 1.25:1, both with a LIBOR floor of 0.75%. The margin for base rate borrowings will decrease to 1.25% when the Total Leverage Ratio is at or above 1.25:1 and to 1.00% when the Total Leverage Ratio is below 1.25:1. The period in which a prepayment premium may be required for a “Re-pricing Transaction” (as defined in the Credit Agreement) was reset to six months after the effective date of the Re-pricing Amendment 3.

On July 10, 2017, we prepaid $50.0 million of principal under the Credit Agreement. After pre-payments of ~~$200.0~~$250.0 million and regularly scheduled principal payments of ~~$5.0~~$6.5 million, the total outstanding principal balance was ~~$575.0 million as of March 31, 2017.~~$523.5 million.

We incurred $28.7 million of deferred finance fees, original issue discount and a re-pricing fee related to the term loans under the Term Loan Facility, which are included in long-term debt in the accompanying consolidated balance sheets and will be amortized to interest expense over the estimated life of the term loans using the effective interest method. A portion of these fees have been ~~written-off~~accelerated in connection with the various debt pre-payments during ~~2016.~~2016 and 2017. The remaining balance of the deferred finance fees, original issue discount and re-pricing fee related to the Term Loan Facility was ~~$17.0~~$16.0 million as of ~~March 31,~~June 30, 2017.

Under the 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 asset sales, certain casualty and condemnation events and the incurrence or issuance of certain debt. We are also required to make scheduled quarterly payments each equal to 0.25% of the principal amount of the term loans outstanding on ~~December 14, 2016~~July 6, 2017 (the date of the Re-Pricing Amendment 2)3) less the amount of certain voluntary and mandatory repayments after such date, with the balance due on the seventh anniversary of the closing date.

All obligations under the Term Loan 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 and exclusions.

The 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 ~~March 31,~~June 30, 2017, we were in compliance with all covenants under the Credit Agreement.

In connection with the completion of the Newport Merger, we also entered into an asset-based credit agreement with Deutsche Bank AG New York Branch, 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 Facility”), that provides senior secured financing of up to $50.0 million, subject to a borrowing base limitation. The borrowing base for the ABL Facility at any time equals the sum of: (a) 85% of certain eligible accounts; plus (b) subject to certain notice and field examination and appraisal 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; provided that until the administrative agent’s receipt of a field examination of accounts receivable the borrowing base shall be equal to 70% of the book value of certain eligible accounts. The ABL Facility includes borrowing capacity in the form of letters of credit up to $15.0 million. We have not drawn against the ABL Facility.

Borrowings under the ABL Facility bear interest per annum at one of the following rates selected by us: (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, and (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%, plus, in each case, an initial applicable margin of 0.75%; 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, plus an initial applicable margin of 1.75%. Commencing with the completion of the first fiscal quarter ending after the closing of the ABL Facility, 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.

We have incurred $1.2 million of costs in connection with the ABL Facility, which were capitalized and included in other assets in the accompanying consolidated balance sheets and will be amortized to interest expense using the straight-line method over the contractual term of five years of the ABL Facility.

In addition to paying interest on outstanding principal under the ABL Facility, we are required to pay a commitment fee in respect of the unutilized commitments thereunder. The initial commitment fee is 0.375% per annum. The total commitment fee recognized in interest expense ~~in 2016~~for the six months ended June 30, 2017 was ~~$0.1~~$0.2 million. Commencing with the completion of the first fiscal quarter ending after the closing of the ABL Facility, the commitment fee is subject to downward adjustment based on the amount of average unutilized commitments for the three month period immediately preceding such adjustment date. We must also pay customary letter of credit fees and agency fees.

One of our Japanese subsidiaries has lines of credit and short-term borrowing arrangements with two financial institutions which arrangements generally expire and are renewed at three month intervals. The lines of credit provided for aggregate borrowings as of ~~March 31,~~June 30, 2017, of up to an equivalent of $20.5 million U.S. dollars. One of the borrowing arrangements has an interest rate based on the Tokyo Interbank Offer Rate at the time of borrowing and the other has an interest rate based on the Japanese Short-Term Prime Lending Rate. There were no borrowings outstanding under these arrangements at ~~March 31,~~June 30, 2017 and December 31, 2016.

We assumed various revolving lines of credit and a financing facility with the completion of the Newport Merger. These revolving lines of credit and financing facility have no expiration date and provided for aggregate borrowings as of ~~March 31,~~June 30, 2017, of up to an equivalent of ~~$11.2~~$11.1 million U.S. dollars. These lines of credit have a base interest rate of 1.25% plus a Japanese Yen overnight LIBOR rate.

One of our Austrian subsidiaries has four outstanding loans from the Austrian government to fund research and development. These loans are unsecured and do not require principal repayment as long as certain conditions are met. Interest on these loans is payable semi-annually. The interest rates associated with these loans range from 0.75% - 2.00%.

We do not have any financial partnerships with unconsolidated entities, such as entities often referred to as structured finance, special purpose entities or variable interest entities, which are often established for the purpose of facilitatingoff-balance sheet arrangements or for other contractually narrow or limited purposes. Accordingly, we have nooff-balance sheet arrangements that have or are reasonably expected to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

In addition to debt obligations and pension obligations as described within this document, we also have capital and operating lease obligations and purchase obligations.

In ~~March~~May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-09, “Compensation-Stock Compensation (Topic 718)-Scope of Modification Accounting.” This standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for any interim period for which financial statements have not yet been issued. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715)-Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This standard requires that an employer disaggregate the service cost component from the other components of net benefit cost. This standard also provides explicit guidance on how to present the service cost component and the other components of the net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The provisions of this ASU are effective for annual periods beginning after December 31, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

In January 2017, the ~~(“FASB”)~~FASB issued ASU2017-04, “Intangibles-Goodwill and Other (Topic 350).” This standard simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. The provisions of this ASU are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to adopt this new standard in 2017 when we perform our annual goodwill impairment test in the fourth quarter. ~~The~~We do not expect the adoption of this ASU ~~is not expected~~ to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU2017-01, “Business Combinations (Topic 805)-Clarifying the Definition of a Business.” This standard clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard also provides a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is applicable under certain circumstances. We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows (Topic 230)-Restricted Cash,” an amendment to ASU2016-15. This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. Early adoption is permitted. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years and should be applied at the time of adoption of ASU2016-15. We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU2016-16, “Income Taxes (Topic 740)-Intra-Entity Transfer of Assets Other Than Inventory.” This standard requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs as opposed to when the assets have been sold to an outside party. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. We are currently evaluating the requirements of this ASU and have not yet determined its impact on our consolidated financial statements.

In August 2016, the FASB issued ASU2016-15, “Statement of Cash Flows (Topic 230)-Classification of Certain Cash Receipts and Cash Payments.” This standard addresses eight specific cash flow issues with the objective of addressing the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the requirements of this ASU and have not yet determined its impact on our consolidated financial statements.

In February 2016, the FASB issued ASU2016-02, “Leases (Topic 842).” This standard requires the recognition of lease assets and liabilities for all leases, with certain exceptions, on the balance sheet. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the requirements of this ASU and have not yet determined its impact on our consolidated financial statements.

In January 2016, the FASB issued ASU2016-01, “Financial Instruments—Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial assets and liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU2014-09, ~~Revenue~~ “Revenue from Contracts with Customers (Topic 606).” ASU2014-09 provides for a single comprehensive model to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in Generally Accepted Accounting Principles when it becomes effective. ASU2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We do not plan to early adopt the standard, but have ~~preliminarily~~ concluded that we will use the modified retrospective method upon adoption in the first quarter of 2018.

In March, April, May and December 2016, the FASB issued additional updates to the new revenue standard relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements, narrow-scope improvements and practical expedients, and technical corrections and improvements, respectively. We have reviewed our plan for the implementation and will continue to report the status against that plan with our Audit Committee. We have established a cross functional project steering committee and implementation team to identify potential differences that would result from applying the requirements of the new standard to the our revenue contracts and related expense line items. We have identified the various revenue streams, including product revenues, service revenues, installation and training, that could be impacted by Topic 606 and ~~has~~have started to review individual customer contracts related to these revenue streams to determine if any material differences exist between the current revenue standard, Accounting Standards Codification Topic 605 and Topic 606. In the second quarter of 2017, we ~~will be~~began reviewing the additional disclosure requirements of the new standard and the potential impact on ~~its~~our internal control structure and revenue recognition policy. We have not completed our assessment of the new revenue recognition standard and have not yet determined the impact on our consolidated financial statements. We anticipate that we will complete our assessment of the new standard and its potential financial impact by the end of the third quarter of 2017.

Information concerning market risk is contained in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report on Form10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 1, ~~2017.~~2107. As of ~~March 31,~~June 30, 2017, there were no material changes in our exposure to market risk from December 31, 2016.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~June 30, 2017. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’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 management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended ~~March 31,~~June 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On March 9, 2016, a putative class action lawsuit captionedDixon Chung v. Newport Corp., et ~~al,~~al., Case No.A-16-733154-C, was filed in the District Court, Clark County, Nevada on behalf of a putative class of the Company’s stockholders for claims related to the February 22, 2016 Agreement and Plan of Merger (the “Merger Agreement”) between the Company, Newport Corporation (“Newport”), and PSI Equipment, Inc., a Nevada corporation and a wholly owned subsidiary of the Company, which was merged with Newport on April 29, 2016 and is the surviving corporation of such merger (“Merger Sub”). The complaint names as defendants the Company, Newport, Merger Sub, and certain then-current and former members of Newport’s former board of directors. The complaint alleges that the named directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, and by agreeing to unfair deal protection devices. The complaint also alleges that the Company, Newport, and Merger Sub aided and abetted the named directors’ alleged breaches of their fiduciary duties. The complaint seeks injunctive relief, including to enjoin or rescind the Merger Agreement, monetary damages, and an award of attorneys’ and other fees and costs, among other relief. On March 25, 2016, the plaintiff in the Chung action filed an amended complaint, which adds certain allegations, including that the definitive proxy statement filed by Newport on March 29, 2016 (“the Proxy”) omitted material information. The amended complaint also names as defendants the Company, Newport, Merger Sub, and then-current members of Newport’s board of directors.

Also on March 25, 2016, a second putative class action complaint captionedHubert C. Pincon v. Newport Corp., et al., Case No.A-16-734039-B, was filed in the District Court, Clark County, Nevada, on behalf of a putative class of the Company’s stockholders for claims related to the Merger Agreement. The complaint names as defendants the Company, Newport, and Merger Sub and the members of Newport’s former board of directors. It alleges that the named directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, by agreeing to unfair deal protection devices, and by omitting material information from the Proxy. The complaint also alleges that the Company, Newport, and Merger Sub aided and abetted the named directors’ alleged breaches of their fiduciary duties. The complaint seeks injunctive relief, including to enjoin or rescind the Merger Agreement, and an award of attorneys’ and other fees and costs, among other relief.

Information regarding risk factors affecting the Company’s business are discussed in the Company’s Annual Report on Form10-K for the year ended December 31, 2016 in the section entitled “Risk Factors.” There have been no material changes from the risks disclosed therein.

The exhibits filed as part of this quarterly report on Form10-Q are listed in the exhibit index immediately preceding the exhibits and are incorporated herein.

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 of of incorporation or organization)		(I.R.S. Employer Identification No.)

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


Large accelerated filer	☒		Accelerated filer	☐

Non-accelerated filer	☐ ~~(Do~~	(Do not check if a smaller reporting company)	Smaller reporting company	☐

			Emerging growth company	☐


PART I.		FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited).

	Condensed Consolidated Balance Sheets – ~~March 31,~~June 30, 2017 and December 31, 2016		3

	Condensed Consolidated Statements of Operations and Comprehensive Income – Three and six months ended ~~March 31,~~June 30, 2017 and 2016		4

	Condensed Consolidated Statements of Cash Flows – ~~Three~~Six months ended ~~March 31,~~June 30, 2017 and 2016		5

	Notes to Unaudited Condensed Consolidated Financial Statements		6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~OPERATIONS.		3132

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK~~RISK.		4144

ITEM 4.	CONTROLS AND ~~PROCEDURES~~PROCEDURES.		4144

PART II.		OTHER INFORMATION

ITEM 1.	LEGAL ~~PROCEEDINGS~~PROCEEDINGS.		4244

ITEM 1A.	RISK ~~FACTORS~~FACTORS.		4345

ITEM 6.	~~EXHIBITS~~EXHIBITS.		4345

SIGNATURES			4446

EXHIBIT INDEX			4547


	Three Months Ended March 31, 2017							Twelve Months Ended December 31, 2016
	Gross Carrying Amount		Accumulated Impairment (Loss)			Net		Gross Carrying Amount			Accumulated Impairment (Loss)			Net
Beginning balance at January 1	$	727,999	$	(139,414	)	$	588,585	$	339,117		$	(139,414	)	$	199,703
Acquired goodwill⁽¹⁾		—		—			—		396,027			—			396,027
Foreign currency translation		1,917		—			1,917		(7,145	)		—			(7,145	)

Ending balance at March 31, 2017 and December 31, 2016	$	729,916	$	(139,414	)	$	590,502	$	727,999		$	(139,414	)	$	588,585


	Six Months Ended June 30, 2017									Twelve Months Ended December 31, 2016
	Gross Carrying Amount			Accumulated Impairment (Loss)			Net			Gross Carrying Amount			Accumulated Impairment (Loss)			Net
Beginning balance at January 1	$	727,999		$	(139,414	)	$	588,585		$	339,117		$	(139,414	)	$	199,703
Acquired goodwill⁽¹⁾		—			—			—			396,027			—			396,027
Sale of business⁽²⁾		(3,115	)		—			(3,115	)		—			—			—
Impairment loss⁽³⁾		—			(4,862	)		(4,862	)		—			—			—
Foreign currency translation		6,257			—			6,257			(7,145	)		—			(7,145	)

Ending balance at June 30, 2017 and December 31, 2016	$	731,141		$	(144,276	)	$	586,865		$	727,999		$	(139,414	)	$	588,585


As of March 31, 2017:	Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
Short-term investments:
Available-for-sale investments:
Time deposits and certificates of deposit	$	3,479	$	—	$	—		$	3,479
Bankers’ acceptance drafts		1,117		—		—			1,117
Asset-backed securities		36,711		12		(41	)		36,682
Commercial paper		12,160		—		(26	)		12,134
Corporate obligations		51,328		70		(5	)		51,393
Municipal bonds		251		—		—			251
Promissory note		675		—		—			675
U.S. treasury obligations		20,418		6		—			20,424
U.S. agency obligations		29,114		34		(4	)		29,144

	$	155,253	$	122	$	(76	)	$	155,299


Level 1		Quoted prices in active markets for identical assets or liabilities assessed 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.


			Fair Value Measurements at Reporting Date Using
Description	March 31, 2017		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	$	1,263	$	1,263	$	—	$	—
Time deposits and certificates of deposit		2,300		—		2,300		—
Bankers’ acceptance drafts		682		—		682		—
Commercial paper		10,604		—		10,604		—
Corporate obligations		1,550		—		1,550		—
Restricted cash – money market funds		5,274		5,274		—		—
Available-for-sale investments:
Time deposits and certificates of deposit		3,479		—		3,479		—
Bankers’ acceptance drafts		1,117		—		1,117		—
Asset-backed securities		36,682		—		36,682		—
Commercial paper		12,134		—		12,134		—
Corporate obligations		51,393		—		51,393		—
Municipal bonds		251		—		251		—
Promissory note		675		—		675		—
U.S. treasury obligations		20,424		—		20,424		—
U.S. agency obligations		29,144		—		29,144		—
Group insurance contracts		5,633		—		5,633		—
Derivatives – currency forward contracts		664		—		664		—
Derivatives – options contracts		14		—		14		—
Funds in investments and other assets:
Israeli pension assets		14,024		—		14,024		—
Derivatives – interest rate hedge –non-current		5,428		—		5,428		—
Restricted cash –non-current		744		744		—		—

Total assets	$	203,479	$	7,281	$	196,198	$	—

Liabilities:

Derivatives – currency forward contracts	$	3,666	$	—	$	3,666	$	—


			Fair Value Measurements at Reporting Date Using
Description	December 31, 2016		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	$	10,155	$	10,155	$	—	$	—
Time deposits and certificates of deposit		4,900		—		4,900		—
Bankers acceptance drafts		448		—		448		—
Commercial paper		11,828		—		11,828		—
Corporate obligations		2,025		—		2,025		—
U.S. agency obligations		3,899		—		3,899		—
Restricted cash – money market funds		5,287		5,287		—		—
Available-for-sale securities:
Time deposits and certificates of deposit		23,818		—		23,818		—
Bankers acceptance drafts		1,439		—		1,439		—
Asset-backed securities		36,809		—		36,809		—
Commercial paper		24,381		—		24,381		—
Corporate obligations		46,707		—		46,707		—
Municipal bonds		591		—		591		—
Promissory note		675		—		675		—
U.S. treasury obligations		25,414		—		25,414		—
U.S. agency obligations		29,629		—		29,629		—
Group insurance contracts		5,558		—		5,558		—
Derivatives – currency forward contracts		2,985		—		2,985		—
Derivatives – options contracts		4		—		4		—
Funds in investments and other assets:
Israeli pension assets		13,910		—		13,910		—
Derivatives – interest rate hedge –non-current		4,900		—		4,900		—
Restricted cash –non-current		573		573		—		—

Total assets	$	255,935	$	16,015	$	239,920	$	—

Liabilities:
Derivatives – currency forward contracts	$	543	$	—	$	543	$	—
Derivatives – options contracts		16		—		16		—

Total liabilities	$	559	$	—	$	559	$	—

Assets:
Cash and cash equivalents⁽¹⁾	$	33,255	$	10,155	$	23,100	$	—
Restricted cash		5,287		5,287		—		—
Short-term investments		189,463		—		189,463		—
Other current assets		2,989		—		2,989		—

Total current assets	$	230,994	$	15,442	$	215,552	$	—

Long-term investments⁽²⁾	$	5,558	$	—	$	5,558	$	—
Other long-term assets		18,810		—		18,810		—
Restricted cash –non-current		573		573		—		—

Total long-term assets	$	24,941	$	573	$	24,368	$	—

Liabilities:
Other current liabilities	$	559	$	—	$	559	$	—


	Three Months Ended June 30,		Six Months Ended June 30,
	2016		2016
Total net revenues	$	358,483	$	687,650

Net income		14,158		31,730

Net income per share:
Basic	$	0.26	$	0.59

Diluted	$	0.26	$	0.59


As of December 31, 2016:	Gross		Impairment Charges		Accumulated Amortization			Foreign Currency Translation			Net
Completed technology⁽¹⁾	$	176,586	$	—	$	(97,707	)	$	(1,068	)	$	77,811
Customer relationships⁽¹⁾		285,044		—		(29,709	)		(3,404	)		251,931
Patents, trademarks, trade names and other⁽¹⁾		111,723		—		(33,397	)		(64	)		78,262

	$	573,353	$	—	$	(160,813	)	$	(4,536	)	$	408,004


	March 31, 2017		December 31, 2016
Short-term debt:
Japanese lines of credit	$	3,461	$	4,245
Japanese receivables financing facility		782		458
Other debt		98		8
Current portion of Term Loan Facility		6,282		6,282

	$	10,623	$	10,993


	March 31, 2017		December 31, 2016
Long-term debt:
Austrian loans due through March 2020	$	467	$	548
Term Loan Facility, net⁽¹⁾		551,765		600,681

	$	552,232	$	601,229


	Number of Shares		Weighted Average Base Value		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
SARs outstanding		469,565	$	28.74		3.9	$	18,787
SARs exercisable		398,868	$	28.32		3.7	$	16,127


	Number of Shares		Weighted Average Base Value		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
SARs outstanding		361,799	$	28.52		3.6	$	14,031
SARs exercisable		296,141	$	27.94		3.3	$	11,657


	June 30, 2017		December 31, 2016
Total segment assets:	$	573,251	$	524,626
Cash and cash equivalents, restricted cash and investments		587,457		433,231
Other current assets		51,721		50,770
Property, plant and equipment, net		167,212		174,559
Goodwill and intangible assets, net		972,940		996,589
Other assets		32,102		32,467

Consolidated total assets	$	2,384,683	$	2,212,242


	Three Months Ended March 31,
(dollars in millions	2017		2016
Research and development expenses	$	33.3	$	17.2


		MKS INSTRUMENTS, INC.

~~May 9,~~August 3, 2017	By:	/s/ Seth H. Bagshaw
		Seth H. Bagshaw
		Senior Vice President, Chief Financial Officer and Treasurer
		(Principal Financial Officer)


Exhibit No.		Exhibit Description

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

~~+3.2~~+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~~+3.3⁽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~~+3.4⁽⁴⁾		Amended and RestatedBy-Laws of the Registrant

31.1		Certification of Principal Executive Officer pursuant to Rule13a-14(a)/~~Rule15d-14(a)~~Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Principal Financial Officer pursuant to Rule13a-14(a)/~~Rule15d-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		XBRL Instance ~~Document.~~Document

101.SCH		XBRL Taxonomy Extension Schema ~~Document.~~Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase ~~Document.~~Document

101.LAB		XBRL Taxonomy ~~Labels~~Extension Label Linkbase ~~Document.~~Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase ~~Document.~~Document