Business Segment, Geographic Area, Product and Significant Customer Information | 21) Business Segment, Geographic Area, Product and Significant Customer Information The Company develops, manufactures, sells and services products that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes. The Company’s Chief Operating Decision Maker (“CODM”) utilizes consolidated financial information to make decisions about allocating resources and assessing performance for the entire Company. In addition, certain disaggregated financial information is also provided to the CODM, 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 four reportable segments. Effective January 1, 2015, the Company changed the structure of its reportable segments based upon a change in the information that is provided to the Company’s CODM. The Company’s four reportable segments prior to the change in structure were: Advanced Manufacturing Capital Equipment, Analytical Solutions Group, Europe Region Sales & Service and Asia Region Sales & Service. The Company’s current structure still reflects four reportable segments, however, the composition of the segments has changed. The Company’s current reportable segments are Advanced Manufacturing Capital Equipment, Global Service, Asia Region Sales and Other. The primary change to the segment structure was to separate worldwide service from product sales and create a separate reportable segment known as Global Service. Product sales in the Advanced Manufacturing Capital Equipment segment remained with that segment. Asia product sales became a separate reportable segment. The product sales from the operating segments that made up the Analytical Solutions Group and Europe Region were included in the Other segment and are not reported separately as they are individually immaterial and collectively below the separate segment reporting guidelines. The Company has reported corporate expenses and certain intercompany pricing transactions in a Corporate and Eliminations reconciling column. Due to these changes, the results presented under segment reporting for the twelve months ended December 31, 2014 and 2013 reflect the current segments to conform to the current period segment reporting presentation with no impact to the consolidated results of operations. The Advanced Manufacturing Capital Equipment segment includes the development, manufacturing and sales of instruments, control and vacuum products, power and reactive gas products, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes. Sales in this segment include both external sales and intercompany product sales, which are recorded at transfer prices in accordance with applicable tax requirements. The Global Service segment includes the worldwide servicing of instruments, control and vacuum products, power and reactive gas products, and certain other product groups, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes. The Asia Region Sales segment mainly resells products from the Advanced Manufacturing Capital Equipment and Other segments into Asia regions. The Other segment includes operating segments that are not required to be reported separately as a reportable segment and includes sales of products that are re-sold from the Advanced Manufacturing Capital Equipment into Europe regions as well as sales from other operating segments. MKS derives the segment results directly from the manner in which results are reported in its management reporting system. The accounting policies MKS uses to derive reportable segment results are substantially the same as those used for external reporting purposes except that a substantial portion of the sales of the Advanced Manufacturing Capital Equipment and Other segments are intercompany sales to the regions at tax-based transfer prices and certain significant costs, including stock-based compensation and management incentive compensation, are not allocated to the segments and are included in Corporate and Eliminations. The CODM reviews several metrics of each operating segment, including net revenues and gross profit (loss). The Company does not maintain balance sheets for the majority of its operating segments and, as such, amounts have not been allocated to the reportable segments. 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. The following is net revenues by reportable segment: Years Ended December 31, 2015 2014 2013 Advanced Manufacturing Capital Equipment $ 662,911 $ 620,303 $ 509,008 Global Service 116,420 107,050 101,103 Asia Region Sales(1) 203,231 183,056 159,781 Other 79,523 82,709 73,235 Corporate, Eliminations (248,561 ) (212,249 ) (173,707 ) $ 813,524 $ 780,869 $ 669,420 The following is a reconciliation of segment gross profit to consolidated net income: Years Ended December 31, 2015 2014 2013 Gross profit by reportable segment: Advanced Manufacturing Capital Equipment $ 286,149 $ 254,292 $ 185,105 Global Service 39,532 38,147 35,721 Asia Region Sales(1) 27,494 27,184 26,874 Other 23,869 27,896 25,894 Corporate and Eliminations (14,172 ) (9,753 ) (7,020 ) Total gross profit by reportable segment 362,872 337,766 266,574 Operating expenses: Research and development 68,305 62,888 63,570 Selling, general and administrative 129,087 131,828 142,014 Insurance reimbursement — — (1,071 ) Acquisition costs 30 499 171 Restructuring 2,074 2,464 1,364 Amortization of intangible assets 6,764 4,945 2,139 Income from operations 156,612 135,142 58,387 Net interest income 2,856 1,251 914 Income before income taxes 159,468 136,393 59,301 Provision for income taxes 37,171 20,615 23,525 Net income $ 122,297 $ 115,778 $ 35,776 (1) The Asia Region Sales segment does not represent total geographical Asia financial information. This sales operation only represents the sales from the resale of Advanced Manufacturing Capital Equipment and Other segment products in its respective region. The Advanced Manufacturing Capital Equipment and Other segments both have sales in this region as well. Accordingly, total geographical sales include sales from multiple reportable segments. The following is capital expenditures by reportable segment for the years ended December 31, 2015, 2014 and 2013: Advanced Global Asia Region Sales Other Corporate and Total December 31, 2015: Capital expenditures $ 7,958 $ 839 $ 451 $ 526 $ 2,640 $ 12,414 December 31, 2014: Capital expenditures $ 8,081 $ 1,032 $ 525 $ 1,632 $ 1,913 $ 13,183 December 31, 2013: Capital expenditures $ 8,139 $ 955 $ 628 $ 627 $ 2,061 $ 12,410 The following is depreciation and amortization expense by reportable segment for the years ended December 31, 2015, 2014 and 2013: Advanced Global Asia Region Sales Other Corporate and Total December 31, 2015: Depreciation and amortization $ 17,009 $ 1,005 $ 353 $ 1,114 $ 2,622 $ 22,103 December 31, 2014: Depreciation and amortization $ 15,171 $ 1,097 $ 477 $ 1,204 $ 2,565 $ 20,514 December 31, 2013: Depreciation and amortization $ 11,848 $ 1,103 $ 398 $ 1,265 $ 2,488 $ 17,102 Total income tax expense is impracticable to present by reportable segment because the necessary information is not available or used by the CODM. 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. Years Ended December 31, Net revenues: 2015 2014 2013 United States $ 458,313 $ 448,452 $ 363,948 Korea 106,909 97,323 75,401 Japan 62,879 61,092 56,978 Europe 79,927 80,659 77,910 Asia (excluding Korea and Japan) 105,496 93,343 95,183 $ 813,524 $ 780,869 $ 669,420 Years Ended December 31, Long-lived assets:(1) 2015 2014 United States $ 56,594 $ 57,701 Europe 5,783 6,099 Asia 8,952 10,887 $ 71,329 $ 74,687 (1) Long-lived assets include property, plant and equipment, net and certain other assets, excluding long-term tax-related accounts. Goodwill associated with each of our reportable segments is as follows: December 31, 2015 December 31, 2014 Reportable segment: Advanced Manufacturing Capital Equipment $ 174,344 $ 166,946 Global Service 19,826 19,728 Asia Region Sales — — Other 6,228 6,228 Foreign currency translation (695 ) (521 ) Total goodwill $ 199,703 $ 192,381 Worldwide Product Information Because the reportable segment information above does not reflect worldwide sales of the Company’s products, the Company groups its products into three groups of similar products based upon the similarity of product function. Worldwide net revenue for each group of products is as follows: Years Ended December 31, 2015 2014 2013 Instruments, Control and Vacuum Products $ 402,345 $ 383,863 $ 341,375 Power and Reactive Gas Products 350,469 335,271 273,357 Analytical Solutions Products 60,710 61,735 54,688 $ 813,524 $ 780,869 $ 669,420 Sales of Instruments, Control and Vacuum Products and Power and Reactive Gas Products are included in the Company’s Advanced Manufacturing Capital Equipment, Asia Region Sales, Global Service and Other segments because the products are sold through these segments. Sales of the Analytical Solutions Products are included in the Asia Region Sales, Global Service and Other segments because the products are sold through these segments. Major Customers The Company had two customers with net revenues greater than 10% of total net revenues in the periods shown as follows: Years Ended December 31, 2015 2014 2013 Applied Materials, Inc. 17.8 % 19.1 % 17.0 % Lam Research Corporation 13.4 % 12.9 % 12.3 % Net revenues for each of our reportable segments include revenues from each of the two customers, which represent net revenues greater than 10% of total net revenues. |