MKS Instruments Reports Fourth Quarter and Full Year 2017 Financial Results
2017 was a record year in revenue and GAAP and Non-GAAP EPS
•
Annual revenue increased 30% compared to pro-forma 2016 to a record $1.9 billion
•
Annual semiconductor revenue increased 45% on a pro-forma basis to a record $1.1 billion
•
Annual revenue in advanced markets increased 14% on a pro-forma basis to a record $820 million
•
Light and Motion set new quarterly and annual revenue records and in Q4’17 exceeded $200 million in revenue for the first time
Our 2018 January Operating Model shows a 33% increase in Non-GAAP EPS compared to the October 2017 Operating Model
Andover, Mass., January 31, 2018 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported fourth quarter and full year 2017 financial results.
GAAP Financial Results1
Q4
Full Year
2017
2016
2017
2016
Net revenues ($ millions)
$
512
$
405
$
1,916
$
1,295
Operating margin
23.4
%
15.4
%
21.2
%
12.1
%
Net income ($ millions)
$
77.6
$
45.5
$
339.1
$
104.8
Diluted EPS
$
1.41
$
0.83
$
6.16
$
1.94
Non-GAAP Financial Results1
Q4
Full Year
2017
2016
2017
2016
Net revenues ($ millions)
$
512
$
405
$
1,916
$
1,295
Operating margin
25.9
%
20.6
%
24.6
%
18.7
%
Net earnings ($ millions)
$
94.6
$
57.2
$
328.2
$
164.0
Diluted EPS
$
1.71
$
1.05
$
5.96
$
3.03
1
The full year 2016 results include the results of Newport Corporation (now the Light and Motion segment) since its acquisition on April 29, 2016.
1
Fourth Quarter Financial Results
Sales were $512 million, an increase of 5% from $486 million in the third quarter of 2017, and an increase of 26% from $405 million in the fourth quarter of 2016.
Fourth quarter net income was $77.6 million, or $1.41 per diluted share, compared to net income of $76.0 million, or $1.38 per diluted share in the third quarter of 2017, and $45.5 million, or $0.83 per diluted share in the fourth quarter of 2016.
Non-GAAP net earnings, which exclude special charges and credits, were $94.6 million, or $1.71 per diluted share, compared to $85.9 million, or $1.56 per diluted share in the third quarter of 2017, and $57.2 million, or $1.05 per diluted share in the fourth quarter of 2016.
Sales to semiconductor customers were $284 million, an increase of 1% compared to a strong third quarter of 2017, and sales to advanced markets were $228 million in the quarter, an increase of 11% sequentially driven largely by strong growth from our Light and Motion Division.
Sales in the Vacuum and Analysis segment, the historic MKS business, set a quarterly record of $311 million, driven by very strong sales to semiconductor customers. Sales in the Light and Motion segment, the historic Newport business, also set a quarterly record of $201 million.
Additional Financial Information
The Company had $543 million in cash and short-term investments as of December 31, 2017 and $398 million outstanding under its Term Loan. During the fourth quarter, the Company made another voluntary Term Loan repayment of $50 million and paid a dividend of $9.8 million or $0.18 per diluted share.
Full Year Results
Sales were a record $1.92 billion, an increase of 30% from $1.47 billion in 2016 on a pro-forma basis (assuming the acquisition of Newport Corporation had occurred as of the beginning of 2016), driven by strong sales to both semiconductor customers as well as customers in thin film manufacturing, industrial manufacturing, and health and life sciences. Sales to semiconductor customers were $1.1 billion, an increase of 45% compared to 2016, also on a pro-forma basis, while sales to advanced markets were $820 million, an increase of 14%.
Sales in the Vacuum and Analysis segment were $1.2 billion, an increase of 38% from $872 million in 2016, driven by very strong sales to semiconductor customers, which increased nearly 50% from 2016.
Sales in the Light and Motion segment were $709 million, an increase of 18% from $602 million in 2016, on a pro-forma basis driven by both sales to semiconductor customers as well as industrial manufacturing customers.
“We are very pleased with our fourth quarter and full year 2017 results, which set new records for revenue and profitability, in both of our segments,” said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, “This strong performance reflects our focused strategy of achieving sustainable and profitable growth by providing customers with innovative technology solutions, continuing to streamline all aspects of our operations, and investing in high-growth solutions and markets. Moreover, our ability to successfully grow and integrate Newport into the existing MKS business helped us deliver these strong results and positions us for future success.”
“The acquisition of Newport Corporation coupled with our organic growth has enabled us to nearly double non-GAAP EPS in 2017 compared to 2016,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer. Mr. Bagshaw added “These achievements are reflected in our newly published January 2018 Operating Model, which demonstrates our continued and long standing efforts to drive improvements in our operating leverage. Furthermore, recently enacted U.S. Federal tax reform legislation is positive for MKS and is expected to result in a significant reduction in our effective tax rate while providing more long term flexibility in our use of cash.”
First Quarter 2018 Outlook
Based on current business levels, the Company expects that sales in the first quarter of 2018 may range from $510 to $550 million, and at these volumes, GAAP net income could range from $1.68 to $1.95 per diluted share and non-GAAP net earnings could range from $1.86 to $2.12 per diluted share. This financial guidance incorporates assumptions made based upon the Company’s current interpretation of the 2017 Tax Cut and Jobs Act, and may change as additional clarification and implementation guidance is issued.
January 2018 Operating Model
The Company also published an updated operating model, which reflects an illustrative revenue level of $2.2 billion, improvements in gross margin, lower interest expense, and the expected impact of the 2017 Tax Cut and Jobs Act. As a result of these improvements, non-GAAP EPS in the model increased by 33% to $8.55 compared to $6.42 in the prior operating model, published in October of 2017, and represents an improvement in non-GAAP EPS of more than 80% compared to the model entering 2017.
A conference call with management will be held on Thursday, February 1, 2018 at 8:30 a.m. (Eastern Time). To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you. Participants will need to provide the operator with the Conference ID of 5595206, which has been reserved for this call. A live and archived webcast of the call will be available on the Company’s website atwww.mksinst.com.
About MKS Instruments
MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor, and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. The Company’s products are derived from core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics. MKS’ primary markets include semiconductor capital equipment, general industrial, life sciences, and research. Additional information can be found at www.mksinst.com.
Use of Non-GAAP Financial Results
Non-GAAP amounts exclude amortization of acquired intangible assets, asset impairments, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of the Company’s term loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effects of the 2017 Tax Cut and Jobs Act, the tax effect of legal entity restructurings, other discrete tax benefits and charges, and the related tax effect of these adjustments. These non-GAAP measures are not in accordance with generally accepted accounting principles in the United States of America (GAAP). MKS’ management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results. Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44 million and included $5 million in debt issuance cost. Annualized GAAP interest expense based upon $398 million in principal currently outstanding and LIBOR plus 200 basis points would be $17.5 million and includes $4 million of debt issuance cost.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance, business prospects and growth of MKS as well as expected synergies and cost savings from the acquisition of Newport Corporation. These statements are only predictions based on current assumptions and expectations. Actual events or results may differ materially from those in the forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to major customers, the Company’s ability to successfully integrate Newport’s operations and employees, unexpected risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the term loan financing, fluctuations in interest rates, the impact of the 2017 Tax Cut and Jobs Act as additional clarification and implementation guidance is issued with respect thereto, the Company’s ability to successfully grow the business, potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and the other factors described in MKS’ most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.
###
Company Contact: Seth H. Bagshaw Senior Vice President, Chief Financial Officer and Treasurer Telephone: 978.645.5578
Investor Relations Contacts: Monica Gould The Blueshirt Group Telephone: 212.871.3927 Email:monica@blueshirtgroup.com
Lindsay Grant Savarese The Blueshirt Group Telephone: 212.331.8417 Email:lindsay@blueshirtgroup.com
2
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Three Months Ended
December 31, 2017
December 31, 2016
September 30, 2017
Net revenues:
Products
$
463,851
$
359,765
$
434,710
Services
47,949
45,375
51,557
Total net revenues
511,800
405,140
486,267
Cost of revenues:
Products
242,008
194,716
225,174
Services
31,466
27,016
33,098
Total cost of revenues
273,474
221,732
258,272
Gross profit
238,326
183,408
227,995
Research and development
33,045
32,870
32,548
Selling, general and administrative
72,510
67,626
71,839
Acquisition and integration costs
634
2,089
2,466
Restructuring
1,324
618
10
Asset impairment
—
5,000
—
Amortization of intangible assets
10,797
12,691
10,977
Income from operations
120,016
62,514
110,155
Interest income
1,125
702
873
Interest expense
7,989
10,085
7,172
Other expense, net
2,155
3,575
2,485
Income from operations before income taxes
110,997
49,556
101,371
Provision for income taxes
33,359
4,069
25,377
Net income
$
77,638
$
45,487
$
75,994
Net income per share:
Basic
$
1.43
$
0.85
$
1.40
Diluted
$
1.41
$
0.83
$
1.38
Cash dividends per common share
$
0.18
$
0.17
$
0.175
Weighted average shares outstanding:
Basic
54,318
53,617
54,282
Diluted
55,236
54,518
55,101
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
77,638
$
45,487
$
75,994
Adjustments:
Acquisition and integration costs (Note 1)
634
2,089
2,466
Fees and expenses relating to re-pricing of term loan (Note 2)
—
526
492
Amortization of debt issuance costs (Note 3)
3,983
2,430
2,314
Restructuring (Note 4)
1,324
618
10
Asset impairment (Note 5)
—
5,000
—
Amortization of intangible assets
10,797
12,691
10,977
Windfall tax benefit on stock-based compensation (Note 6)
(658
)
—
(594
)
Withholding tax on dividends (Note 7)
—
1,362
—
Tax benefit from a legal entity restructuring (Note 8)
—
(6,570
)
—
Deferred tax adjustment (Note 9)
(24,546
)
—
—
Transition tax on accumulated foreign earnings (Note 10)
28,658
—
—
Tax adjustment related to the sale of a business (Note 11)
(12,131
)
—
—
Accrued tax on MKS subsidiary distribution (Note 12)
14,000
—
—
Pro-forma tax adjustments
(5,083
)
(6,437
)
(5,789
)
Non-GAAP net earnings
$
94,616
$
57,196
$
85,870
Non-GAAP net earnings per share
$
1.71
$
1.05
$
1.56
Weighted average shares outstanding
55,236
54,518
55,101
Income from operations
$
120,016
$
62,514
$
110,155
Adjustments:
Acquisition and integration costs (Note 1)
634
2,089
2,466
Fees and expenses relating to re-pricing of term loan (Note 2)
—
526
492
Restructuring (Note 4)
1,324
618
10
Asset impairment (Note 5)
—
5,000
—
Amortization of intangible assets
10,797
12,691
10,977
Non-GAAP income from operations
$
132,771
$
83,438
$
124,100
Non-GAAP operating margin percentage
25.9
%
20.6
%
25.5
%
Interest expense
$
7,989
$
10,085
$
7,172
Amortization of debt issuance costs (Note 3)
3,983
2,430
2,314
Non-GAAP interest expense
$
4,006
$
7,655
$
4,858
Net income
$
77,638
$
45,487
$
75,994
Interest expense, net
6,864
9,383
6,299
Provision for income taxes
33,359
4,069
25,377
Depreciation
9,208
9,478
9,153
Amortization
10,797
12,691
10,977
EBITDA
$
137,866
$
81,108
$
127,800
Stock-based compensation
4,544
5,402
4,846
Acquisition and integration costs (Note 1)
634
2,089
2,466
Fees and expenses relating to re-pricing of term loan (Note 2)
—
526
492
Restructuring (Note 4)
1,324
618
10
Asset impairment (Note 5)
—
5,000
—
Other adjustments
839
817
836
Adjusted EBITDA
$
145,207
$
95,560
$
136,450
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
Note 2: We recorded fees and expenses related to the re-pricing of our Term Loan Credit Agreement during the three month periods ended September 30, 2017 and December 31, 2016.
Note 3: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
Note 4: We recorded restructuring costs, primarily related to the consolidation of two manufacturing plants during the three months ended December 31, 2017. We recorded restructuring costs related to one of our international facilities during the three months ended December 31, 2016.
Note 5: We recorded an asset impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016.
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation during the three months ended December 31, 2017 and September 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
Note 7: We recorded withholding tax on intercompany dividends during the three months ended December 31, 2016.
Note 8: We recorded a tax benefit related to a legal entity restructuring during the three months ended December 31, 2016.
Note 9: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the three months ended December 31, 2017.
Note 10*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended December 31, 2017.
Note 11*: We recorded a tax adjustment resulting from the 2017 Tax Cut and Jobs Act, related to the sale of our Data Analytics Solutions business during the three months ended December 31, 2017.
Note 12*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the three months ended December 31, 2017.
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the “Tax Act”) as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.
3
MKS Instruments, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data)
Twelve Months Ended December 31,
2017
2016
Net revenues:
Products
$
1,723,433
$
1,134,013
Services
192,544
161,329
Total net revenues
1,915,977
1,295,342
Cost of revenues:
Products
901,546
627,850
Services
122,980
101,873
Total cost of revenues
1,024,526
729,723
Gross profit
891,451
565,619
Research and development
132,555
110,579
Selling, general and administrative
290,548
229,171
Acquisition and integration costs
5,332
27,279
Restructuring
3,920
642
Asset impairment
6,719
5,000
Amortization of intangible assets
45,743
35,681
Income from operations
406,634
157,267
Interest income
3,021
2,560
Interest expense
30,990
30,611
Gain on sale of business
74,856
—
Other expense, net
5,896
1,239
Income from continuing operations before income taxes
447,625
127,977
Provision for income taxes
108,493
23,168
Net income
$
339,132
$
104,809
Net income per share:
Basic
$
6.26
$
1.96
Diluted
$
6.16
$
1.94
Cash dividends per common share
$
0.71
$
0.68
Weighted average shares outstanding:
Basic
54,137
53,472
Diluted
55,074
54,051
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
Net income
$
339,132
$
104,809
Adjustments:
Acquisition and integration costs (Note 1)
5,332
27,279
Acquisition inventory step-up (Note 2)
—
15,090
Expenses related to sale of a business (Note 3)
859
—
Excess and obsolete inventory charge (Note 4)
1,160
—
Fees and expenses relating to re-pricing of term loan (Note 5)
492
1,239
Amortization of debt issuance costs (Note 6)
9,405
6,897
Restructuring (Note 7)
3,920
642
Asset impairment (Note 8)
6,719
5,000
Gain on sale of business (Note 9)
(74,856
)
—
Net proceeds from an insurance policy (Note 10)
—
(1,323
)
Amortization of intangible assets
45,743
35,681
Taxes related to the sale of a business (Note 11)
2,876
—
Windfall tax benefit on stock-based compensation (Note 12)
(11,071
)
—
Withholding tax on dividends (Note 13)
—
1,362
Tax benefit from a legal entity restructuring (Note 14)
—
(5,038
)
Deferred tax adjustment (Note 15)
(24,546
)
—
Transition tax on accumulated foreign earnings (Note 16)
28,658
—
Accrued tax on MKS subsidiary distribution (Note 17)
14,000
—
Pro-forma tax adjustments
(19,639
)
(27,617
)
Non-GAAP net earnings
$
328,184
$
164,021
Non-GAAP net earnings per share
$
5.96
$
3.03
Weighted average shares outstanding
55,074
54,051
Income from operations
$
406,634
$
157,267
Adjustments:
Acquisition and integration costs (Note 1)
5,332
27,279
Acquisition inventory step-up (Note 2)
—
15,090
Expenses related to the sale of a business (Note 3)
859
—
Excess and obsolete inventory charge (Note 4)
1,160
—
Fees and expenses relating to re-pricing of term loan (Note 5)
492
1,239
Restructuring (Note 7)
3,920
642
Asset impairment (Note 8)
6,719
5,000
Amortization of intangible assets
45,743
35,681
Non-GAAP income from operations
$
470,859
$
242,198
Non-GAAP operating margin percentage
24.6
%
18.7
%
Gross profit
$
891,451
$
565,619
Acquisition inventory step-up (Note 2)
—
15,090
Excess and obsolete inventory charge (Note 4)
1,160
—
Non-GAAP gross profit
$
892,611
$
580,709
Non-GAAP gross profit percentage
46.6
%
44.8
%
Interest expense
$
30,990
$
30,611
Amortization of debt issuance costs (Note 6)
9,405
6,897
Non-GAAP interest expense
$
21,585
$
23,714
Net income
$
339,132
$
104,809
Interest expense, net
27,969
28,051
Provision for income taxes
108,493
23,168
Depreciation
36,813
30,245
Amortization
45,743
35,681
EBITDA
$
558,150
$
221,954
Stock-based compensation
24,378
25,228
Acquisition and integration costs (Note 1)
5,332
27,279
Acquisition inventory step-up (Note 2)
—
15,090
Expenses related to the sale of a business (Note 3)
859
—
Excess and obsolete inventory charge (Note 4)
1,160
—
Fees and expenses relating to re-pricing of term loan (Note 5)
492
1,239
Restructuring (Note 7)
3,920
642
Asset impairment (Note 8)
6,719
5,000
Gain on sale of business (Note 9)
(74,856
)
—
Net proceeds from an insurance policy (Note 10)
—
(1,323
)
Other adjustments
3,244
2,312
Adjusted EBITDA
$
529,398
$
297,421
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
Note 2: We recorded a charge in cost of sales related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition during the twelve months ended December 31, 2016.
Note 3: We recorded legal, consulting and compensation related expenses related to the sale of a business, which was completed in April of 2017, during the twelve months ended December 31, 2017.
Note 4: We recorded excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants during the twelve months ended December 31, 2017.
Note 5: We recorded fees and expenses related to re-pricings of our Term Loan Credit Agreement.
Note 6: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
Note 7: We recorded restructuring costs related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices during the twelve months ended December 31, 2017. We recorded restructuring costs related to one of our international facilities during the twelve months ended December 31, 2016.
Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants during the twelve months ended December 31, 2017. We recorded an impairment charge related to a minority interest investment in a privately held company during the twelve months ended December 31, 2016.
Note 9: We recorded a gain on the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.
Note 10: We recorded net proceeds from a Company owned life insurance policy during the twelve months ended December 31, 2016.
Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.
Note 12: We recorded a windfall tax benefit on the vesting of stock-based compensation relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09) during the twelve months ended December 31, 2017.
Note 13: We recorded a withholding tax on intercompany dividends during the twelve months ended December 31, 2016.
Note 14: We recorded a tax benefit related to a legal entity restructuring during the twelve months ended December 31, 2016.
Note 15*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017.
Note 16*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017.
Note 17*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017.
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the “Tax Act”) as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.
4
MKS Instruments, Inc. Unaudited Consolidated Statements of Cash Flows (In thousands, except per share data)
Three Months Ended
December 31, 2017
December 31, 2016
September 30, 2017
Cash flows from operating activities:
Net income
$
77,638
$
45,487
$
75,994
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
20,006
22,169
20,130
Amortization of debt issuance costs and original issue discount
4,314
2,812
2,643
Stock-based compensation
4,544
5,402
4,845
Provision for excess and obsolete inventory
4,864
4,994
4,347
Provision for doubtful accounts
175
943
139
Deferred income taxes
(16,528
)
(29,255
)
(1,157
)
Excess tax benefit from stock-based compensation
—
(790
)
—
Asset impairment
—
5,000
—
Other
(7
)
131
36
Changes in operating assets and liabilities
(14,220
)
(4,172
)
(8,014
)
Net cash provided by operating activities
80,786
52,721
98,963
Cash flows from investing activities:
Purchases of investments
(30,545
)
(152,383
)
(129,430
)
Sales of investments
9,993
1,404
18,252
Maturities of investments
40,563
12,311
31,545
Purchases of property, plant and equipment
(13,431
)
(7,164
)
(8,118
)
Other
66
232
—
Net cash provided by (used in) investing activities
6,646
(145,600
)
(87,751
)
Cash flows from financing activities:
Restricted cash
(177
)
316
5,163
Payments of short-term borrowings
(16,435
)
(3,453
)
(4,020
)
Proceeds from short and long-term borrowings
15,394
4,438
4,522
Payments of long-term borrowings
(50,000
)
(41,570
)
(125,000
)
Dividend payments
(9,775
)
(9,112
)
(9,500
)
Excess tax benefit from stock-based compensation
—
790
—
Net proceeds related to employee stock awards
2,504
1,186
(1,306
)
Net cash used in financing activities
(58,489
)
(47,405
)
(103,141
)
Effect of exchange rate changes on cash and cash equivalents
(1,152
)
2,033
2,076
Increase (decrease) in cash and cash equivalents
27,791
(138,251
)
(116,853
)
Cash and cash equivalents at beginning of period
305,977
366,874
422,830
Cash and cash equivalents at end of period
$
333,768
$
228,623
$
305,977
5
MKS Instruments, Inc. Unaudited Consolidated Statements of Cash Flows (In thousands, except per share data)
Twelve Months Ended
December 31, 2017
December 31, 2016
Cash flows from operating activities:
Net income
$
339,132
$
104,809
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
82,556
65,926
Amortization of inventory step-up adjustment to fair value
—
15,090
Amortization of debt issuance costs and original issue discount
10,699
9,265
Stock-based compensation
24,378
25,228
Provision for excess and obsolete inventory
20,213
16,039
Provision for doubtful accounts
825
1,109
Deferred income taxes
(9,886
)
(38,822
)
Excess tax benefit from stock-based compensation
—
(1,468
)
Asset impairment
6,719
5,000
Gain on sale of business
(74,856
)
—
Other
824
256
Changes in operating assets and liabilities
(45,382
)
(22,334
)
Net cash provided by operating activities
355,222
180,098
Cash flows from investing activities:
Net proceeds from the sale of business
72,509
—
Acquisition of businesses, net of cash acquired
—
(939,591
)
Purchases of investments
(229,557
)
(268,458
)
Sales of investments
53,564
338,996
Maturities of investments
157,342
160,917
Purchases of property, plant and equipment
(31,287
)
(19,123
)
Other
66
273
Net cash provided by (used in) investing activities
22,637
(726,986
)
Cash flows from financing activities:
Restricted cash
4,835
(5,860
)
Payments of short-term borrowings
(29,711
)
(11,742
)
Proceeds from short-term borrowings
28,360
18,964
Payments of long-term borrowings
(228,141
)
(153,395
)
Proceeds from long-term borrowings
191
744,653
Repurchases of common stock
—
(1,545
)
Dividend payments
(38,178
)
(36,361
)
Excess tax benefit from stock-based compensation
—
1,468
Net proceeds related to employee stock awards
(12,215
)
(1,922
)
Net cash (used in) provided by financing activities
(274,859
)
554,260
Effect of exchange rate changes on cash and cash equivalents
2,145
(6,323
)
Increase in cash and cash equivalents
105,145
1,049
Cash and cash equivalents at beginning of year
228,623
227,574
Cash and cash equivalents at end of year
$
333,768
$
228,623
6
MKS Instruments, Inc. Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate (In thousands)
Three Months Ended December 31, 2017
Three Months Ended September 30, 2017
Provision (benefit)
Provision
Income Before
for
Effective
Income Before
(benefit) for
Effective
Income Taxes
Income Taxes
Tax Rate
Income Taxes
Income Taxes
Tax Rate
GAAP
$
110,997
$
33,359
30.1%
$
101,371
$
25,377
25.0%
Adjustments:
Acquisition and integration costs
634
—
2,466
—
(Note 1)
��
Fees and expenses relating to
—
—
492
—
re-pricing of term loan (Note 5)
Amortization of debt issuance
3,983
—
2,314
—
costs (Note 6)
Restructuring (Note 7)
1,324
—
10
—
Amortization of intangible assets
10,797
—
10,977
—
Windfall tax benefit on
—
658
—
594
stock-based compensation (Note 10)
Deferred tax adjustment (Note 15)
—
24,546
—
—
Transition tax on accumulated
—
(28,658
)
—
—
foreign earnings (Note 16)
Accrued tax on MKS subsidiary
—
(14,000
)
—
—
distribution (Note 17)
Tax adjustment related to the sale
—
12,131
—
—
of a business (Note 11)
Tax effect of pro-forma adjustments
—
5,083
—
5,789
Non-GAAP
$
127,735
$
33,119
25.9%
$
117,630
$
31,760
27.0%
Three Months Ended December 31, 2016
Provision
Income Before
(benefit) for
Effective
Income Taxes
Income Taxes
Tax Rate
GAAP
$
49,556
$
4,069
8.2%
Adjustments:
Acquisition and integration costs (Note 1)
2,089
—
Fees and expenses relating to re-pricing of term loan (Note 5)
526
—
Amortization of debt issuance costs (Note 6)
2,430
—
Restructuring (Note 7)
618
—
Asset impairment (Note 8)
5,000
—
Amortization of intangible assets
12,691
—
Taxes related to a legal entity restructuring (Note 13)
—
6,570
Withholding tax on dividends (Note 14)
—
(1,362
)
Tax effect of pro-forma adjustments
—
6,437
Non-GAAP
$
72,910
$
15,714
21.6%
Twelve Months Ended December 31, 2017
Twelve Months Ended December 31, 2016
Provision (benefit)
Provision
Income Before
for
Effective
Income Before
(benefit) for
Effective
Income Taxes
Income Taxes
Tax Rate
Income Taxes
Income Taxes
Tax Rate
GAAP
$
447,625
$
108,493
24.2%
$
127,977
$
23,168
18.1%
Adjustments:
Acquisition and integration costs
5,332
—
27,279
—
(Note 1)
Acquisition inventory step-up (Note 2)
—
—
15,090
—
Expenses related to the sale of a
859
—
—
—
business (Note 3)
Excess and obsolete inventory charge
1,160
—
—
—
(Note 4)
Fees and expenses relating to
492
—
1,239
—
re-pricing of term loan (Note 5)
Amortization of debt issuance costs
9,405
—
6,897
—
(Note 6)
Restructuring (Note 7)
3,920
—
642
—
Asset impairment (Note 8)
6,719
—
5,000
—
Gain on sale of business (Note 9)
(74,856
)
—
—
—
Amortization of intangible assets
45,743
—
35,681
—
Windfall tax benefit on stock-based
—
11,071
—
—
compensation (Note 10)
Taxes related to the sale of a
—
(2,876
)
—
—
business (Note 11)
Net proceeds from an insurance policy
—
—
(1,323
)
—
(Note 12)
Taxes related to a legal entity
—
—
—
5,038
restructuring (Note 13)
Withholding tax on dividends (Note 14)
—
—
—
(1,362
)
Deferred tax adjustment (Note 15)
—
24,546
—
—
Transition tax on accumulated foreign
—
(28,658
)
—
—
earnings (Note 16)
Accrued tax on MKS subsidiary
—
(14,000
)
—
—
distribution (Note 17)
Tax effect of pro-forma adjustments
—
19,639
—
27,617
Non-GAAP
$
446,399
$
118,215
26.5%
$
218,482
$
54,461
24.9%
Note 1: Acquisition and integration costs during the three and twelve months ended December 31, 2017 and 2016 relate to the Newport Corporation acquisition, which closed during the second quarter of 2016.
Note 2: We recorded a charge in cost of sales related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition, during the twelve months ended December 31, 2016.
Note 3: We recorded expenses related to the sale of a business, which was completed in April of 2017, during the twelve months ended December 31, 2017.
Note 4: We recorded excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants, during the twelve months ended December 31, 2017.
Note 5: We recorded fees and expenses related to the re-pricing of our Term Loan Credit Agreement, during the three months ended September 30, 2017 and December 31, 2016 and the twelve months ended December 31, 2017 and 2016.
Note 6: Amortization of debt issuance costs are affiliated with our Term Loan Credit Agreement and ABL Facility.
Note 7: We recorded restructuring costs primarily related to the consolidation of two manufacturing plants and costs related to a restructuring of one of our international facilities and the consolidation of sales offices during the three and twelve months ended December 31, 2017. We recorded restructuring costs related to the restructuring of one of our international facilities during the twelve months ended December 31, 2016.
Note 8: We recorded an asset impairment charge, during the twelve months ended December 31, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants. We recorded an impairment charge during the three and twelve months ended December 31, 2016, related to a minority interest investment in a privately held company.
Note 9: We recorded a gain on the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017. The three months ended December 31, 2017 includes a tax adjustment related to the sale of our Data Analytics Solutions business resulting from U.S. tax reform legislation.
Note 12: We recorded net proceeds from a Company owned life insurance policy during the twelve months ended December 31, 2016.
Note 13: We recorded a tax expense related to a legal entity restructuring during the twelve months ended December 31, 2016.
Note 14: We recorded withholding tax on intercompany dividends during the three and twelve months ended December 31, 2016.
Note 15*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.
Note 16*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.
Note 17*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the “Tax Act”) as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.
MKS Instruments, Inc. Reconciliation of Q1-18 Guidance — GAAP Net Income to Non-GAAP Net Earnings (In thousands, except per share data)
Three Months Ended March 31, 2018
Low Guidance
High Guidance
$ Amount
$ Per Share
$ Amount
$ Per Share
GAAP net income
$
93,200
$
1.68
$
108,100
$
1.95
Amortization
11,000
0.20
11,000
0.20
Deferred financing costs
900
0.02
900
0.02
Tax effect of adjustments (Note 1)
(2,200
)
(0.04
)
(2,300
)
(0.04
)
Non-GAAP net earnings
$
102,900
$
1.86
$
117,700
$
2.12
Q1 – 18 forecasted shares
55,400
55,400
Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates.
7
MKS Instruments, Inc. Unaudited Consolidated Balance Sheet (In thousands)
December 31, 2017
December 31, 2016
ASSETS
Cash and cash equivalents
$
333,768
$
228,623
Restricted cash
119
5,287
Short-term investments
209,434
189,463
Trade accounts receivable, net
300,308
248,757
Inventories
339,081
275,869
Other current assets
53,543
50,770
Total current assets
1,236,253
998,769
Property, plant and equipment, net
171,782
174,559
Goodwill
591,047
588,585
Intangible assets, net
366,398
408,004
Long-term investments
10,655
9,858
Other assets
37,883
32,467
Total assets
$
2,414,018
$
2,212,242
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt
$
2,972
$
10,993
Accounts payable
82,518
69,337
Accrued compensation
96,147
67,728
Income taxes payable
25,106
22,794
Deferred revenue
12,842
14,463
Other current liabilities
73,945
51,985
Total current liabilities
293,530
237,300
Long-term debt, net
389,993
601,229
Non-current deferred taxes
56,516
66,446
Non-current accrued compensation
51,700
44,714
Other liabilities
33,372
20,761
Total liabilities
825,111
970,450
Stockholders’ equity:
Common stock
113
113
Additional paid-in capital
789,644
777,482
Retained earnings
795,698
494,744
Accumulated other comprehensive loss
3,452
(30,547
)
Total stockholders’ equity
1,588,907
1,241,792
Total liabilities and stockholders’ equity
$
2,414,018
$
2,212,242
8
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