1
EXHIBIT 99.1
MKS INSTRUMENTS, INC.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND FOR THE
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of MKS Instruments, Inc.:
In our opinion, based upon our audits and the report of other auditors, the
accompanying supplementary consolidated balance sheets and the related
supplementary consolidated statements of income, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of MKS
Instruments, Inc. and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the accompanying supplemental consolidated financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related supplemental consolidated financial statements.
These supplemental consolidated financial statements and the supplemental
consolidated financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
supplemental consolidated financial statements and the supplemental consolidated
financial statement schedule based on our audits. We did not audit the financial
statements of Applied Science and Technology, Inc., a wholly-owned subsidiary
acquired on January 26, 2001 through a pooling-of-interests, at July 1, 2000 and
June 26, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended July 1, 2000, which statements reflect total assets of 41 percent
and 32 percent of the related consolidated totals as of December 31, 2000 and
1999, respectively, and total revenues of 30 percent, 29 percent and 37 percent
of the related consolidated totals for each of the three years in the period
ended December 31, 2000. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Applied Science and
Technology, Inc., is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
As described in Note 2, on January 26, 2001, MKS Instruments, Inc. merged
with Applied Science and Technology, Inc. which was accounted for as a
pooling-of-interests. The accompanying supplemental consolidated financial
statements give retroactive effect to the merger of MKS Instruments, Inc. with
Applied Science and Technology, Inc. United States generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation of the Applied Science and Technology, Inc.
business combination; however, they will become the historical consolidated
financial statements of MKS Instruments, Inc. and its subsidiaries after
financial statements covering the date of consummation of the Applied Science
and Technology, Inc. business combination are issued.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 26, 2001
3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Applied Science and Technology, Inc.:
We have audited the consolidated balance sheets of Applied Science and
Technology, Inc. and subsidiaries as of July 1, 2000 and June 26, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended July 1, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Applied
Science and Technology, Inc. and subsidiaries as of July 1, 2000 and June 26,
1999, and the results of their operations and their cash flows for each of the
years in the three-year period ended July 1, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Boston, Massachusetts
July 31, 2000
4
MKS INSTRUMENTS, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $123,082 $ 67,489
Short-term investments.................................... 17,904 26,387
Trade accounts receivable, net of allowance for doubtful
accounts of $1,954 and $1,669 at December 31, 2000 and
1999, respectively...................................... 95,076 54,950
Inventories............................................... 69,165 40,069
Deferred tax asset........................................ 9,976 6,010
Other current assets...................................... 4,433 4,670
-------- --------
Total current assets............................... 319,636 199,575
Property, plant and equipment, net.......................... 64,133 40,974
Long-term investments....................................... 17,100 1,063
Goodwill and acquired intangible assets..................... 45,325 4,836
Other assets................................................ 8,209 7,324
-------- --------
Total assets....................................... $454,403 $253,772
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 15,741 $ 12,423
Current portion of long-term debt......................... 2,783 7,346
Current portion of capital lease obligations.............. 610 1,059
Accounts payable.......................................... 23,653 13,179
Accrued compensation...................................... 17,003 11,826
Other accrued expenses.................................... 14,588 10,401
Income taxes payable...................................... 7,937 1,992
Distribution payable...................................... -- 3,350
-------- --------
Total current liabilities.......................... 82,315 61,576
Long-term debt.............................................. 11,439 4,340
Long-term portion of capital lease obligations.............. 947 1,322
Deferred tax liability...................................... 1,663 359
Other liabilities........................................... 517 490
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none issued and outstanding................. -- --
Common Stock, no par value, 50,000,000 shares authorized;
36,645,665 and 33,388,671 shares issued and outstanding
at December 31, 2000 and 1999, respectively............. 113 113
Additional paid-in capital................................ 263,723 154,630
Retained earnings......................................... 93,235 31,042
Shareholder receivable.................................... -- (1,004)
Accumulated other comprehensive income.................... 451 904
-------- --------
Total stockholders' equity......................... 357,522 185,685
-------- --------
Total liabilities and stockholders' equity......... $454,403 $253,772
======== ========
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
3
5
MKS INSTRUMENTS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
-------- -------- --------
Net sales.................................................. $466,852 $265,292 $223,199
Cost of sales.............................................. 261,456 162,783 138,771
-------- -------- --------
Gross profit............................................... 205,396 102,509 84,428
Research and development................................... 37,323 22,975 23,390
Selling, general and administrative........................ 71,205 51,474 45,097
Amortization of goodwill and acquired intangible assets.... 5,023 763 685
Restructuring charge....................................... -- 2,260 --
Purchase of in-process technology.......................... 310 -- 212
-------- -------- --------
Income from operations..................................... 91,535 25,037 15,044
Interest expense........................................... 1,390 1,378 1,679
Interest income............................................ 6,208 2,803 810
Other income (expense), net................................ (243) 905 447
-------- -------- --------
Income before income taxes................................. 96,110 27,367 14,622
-------- -------- --------
Provision for income taxes (Note 9)........................ 35,850 4,581 3,415
-------- -------- --------
Net income................................................. $ 60,260 $ 22,786 $ 11,207
======== ======== ========
Historical net income per share:
Basic.................................................... $ 1.74 $ 0.76 $ 0.46
Diluted.................................................. $ 1.67 $ 0.72 $ 0.44
Historical weighted average common shares outstanding:
Basic.................................................... 34,596 29,991 24,229
Diluted.................................................. 36,170 31,439 25,261
Pro forma data (unaudited):
Historical income before income taxes.................... $ 27,367 $ 14,622
Pro forma provision for income taxes assuming C
corporation tax....................................... 10,206 5,557
-------- --------
Pro forma net income..................................... $ 17,161 $ 9,065
======== ========
Pro forma net income per share:
Basic.................................................... $ 0.57 $ 0.37
Diluted.................................................. $ 0.55 $ 0.36
Pro forma weighted average common shares outstanding:
Basic.................................................... 29,991 24,229
Diluted.................................................. 31,271 25,079
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
4
6
MKS INSTRUMENTS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net income................................................ $ 60,260 $ 22,786 $ 11,207
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 14,875 9,490 8,984
Deferred taxes.......................................... (2,828) (1,260) 5
Nonrecurring deferred tax credit........................ -- (3,770) --
Other................................................... 844 1,178 (890)
Changes in operating assets and liabilities, net of
effects of businesses acquired:
Trade accounts receivable............................. (37,593) (20,250) 12,952
Inventories........................................... (24,932) (1,272) 3,725
Other current assets.................................. 450 (1,569) 282
Accrued expenses...................................... 10,323 7,783 (4,476)
Accounts payable...................................... 7,503 5,970 (5,579)
Income taxes payable.................................. 11,106 1,307 (724)
-------- -------- --------
Net cash provided by operating activities................... 40,008 20,393 25,486
Cash flows from investing activities:
Purchases of short-term and long-term investments......... (46,598) (45,999) --
Maturities and sales of short-term and long-term
investments............................................. 39,044 18,654 1,800
Purchase of property, plant and equipment................. (32,168) (7,344) (6,136)
Business combinations, net of cash acquired............... (23,921) (23) (3,683)
Other..................................................... (1,171) (1,598) 976
-------- -------- --------
Net cash used in investing activities....................... (64,814) (36,310) (7,043)
-------- -------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings....................... 42,272 11,250 15,242
Payments on short-term borrowings......................... (37,226) (9,825) (17,569)
Proceeds from long term debt.............................. 9,639 -- --
Principal payments on long-term debt...................... (10,800) (3,110) (11,230)
Proceeds from issuance of common stock, net of issuance
costs................................................... 73,207 105,542 --
Proceeds from exercise of stock options, warrants, and
Employee Stock Purchase Plan............................ 6,477 2,219 16,098
Cash distributions to stockholders........................ (1,417) (40,000) (6,150)
Principal payments under capital lease obligations........ (1,064) (1,050) (1,257)
-------- -------- --------
Net cash provided by (used in) financing activities......... 81,088 65,026 (4,866)
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (689) (495) (459)
-------- -------- --------
Increase in cash and cash equivalents....................... 55,593 48,614 13,118
Cash and cash equivalents at beginning of year.............. 67,489 18,875 5,757
-------- -------- --------
Cash and cash equivalents at end of year.................... $123,082 $ 67,489 $ 18,875
======== ======== ========
Cash paid during the year for:
Interest.................................................. $ 1,416 $ 1,409 $ 1,775
Income taxes.............................................. 24,995 10,294 4,129
Noncash transactions during the year:
Equipment acquired under capital leases................... -- 762 1,138
Acquisitions:
Fair value of assets acquired............................. $ 58,164 $ 2,972 $ 7,091
Less: Liabilities assumed................................. (8,553) (2,825) (3,408)
Stock and options issued.............................. (24,136) -- --
Debt issued........................................... (752) -- --
Cash acquired......................................... (802) (124) --
-------- -------- --------
Acquisitions, net of cash acquired.......................... $ 23,921 $ 23 $ 3,683
======== ======== ========
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
5
7
MKS INSTRUMENTS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
------------------------------------------
CLASS A CLASS B COMMON STOCK
------------------- -------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ ----------- ------ ---------- ------
Balance at December 31, 1997................................ 7,766,910 $ 40 10,286,255 $ 73 5,198,439 $ --
Distribution to stockholders................................
Issuance of common stock and warrants....................... 2 1,401,857
Tax benefit of stock options exercised......................
Comprehensive income
Net income................................................
Other comprehensive income, net of taxes:
Foreign currency translation adjustment.................
Comprehensive income......................................
---------- ---- ----------- ---- ---------- ----
Balance at December 31, 1998................................ 7,766,910 40 10,286,257 73 6,600,296 --
Distributions to stockholders...............................
Distributions payable to stockholders.......................
Conversion to common stock.................................. (7,766,910) (40) (10,286,257) (73) 18,053,167 113
Issuance of common stock from MKS
Initial Public Offering..................................... 6,375,000
Common stock issued in ASTeX stock offering, net of issuance
costs..................................................... 1,763,870
Issuance of common stock from exercise of stock options and
warrants and Employee Stock Purchase Plan................. 374,961
Tax benefit from exercise of stock options..................
Retirement of common stock.................................. (16,825)
Stock option compensation...................................
Stock issued in pooling of interest acquisition............. 238,202
Shareholder receivable......................................
Comprehensive income:
Net income................................................
Other comprehensive income, net of taxes:
Nonrecurring deferred tax charge to comprehensive income
(Note 9)..............................................
Impact of adopting SFAS No. 133...........................
Changes in value of financial instruments designated as
cash flow hedges........................................
Foreign currency translation adjustment...................
Comprehensive income......................................
---------- ---- ----------- ---- ---------- ----
Balance at December 31, 1999................................ -- -- -- -- 33,388,671 113
Adjustment to Distributions payable to stockholders.........
Issuance of common stock.................................... 1,917,250
Issuance of common stock from exercise of stock options and
Employee Stock Purchase Plan.............................. 787,929
Tax benefit from exercise of stock options..................
Stock and stock options issued in acquisition of
businesses................................................ 551,815
Shareholder receivable......................................
Comprehensive income:
Net income................................................
Other comprehensive income, net of taxes:
Changes in value of financial instruments designated as
cash flow hedges........................................
Foreign currency translation adjustment...................
Comprehensive income......................................
---------- ---- ----------- ---- ---------- ----
Balance at December 31, 2000................................ -- $ -- -- $ -- 36,645,665 $113
========== ==== =========== ==== ========== ====
ACCUMULATED
ADDITIONAL OTHER
PAID-IN RETAINED SHAREHOLDER COMPREHENSIVE COMPREHENSIVE
CAPITAL EARNINGS RECEIVABLE INCOME INCOME
---------- -------- ----------- ------------- -------------
Balance at December 31, 1997................................ $ 27,711 $ 47,175 $ (148) $ 883
Distribution to stockholders................................ (6,150)
Issuance of common stock and warrants....................... 16,098
Tax benefit of stock options exercised...................... 276
Comprehensive income
Net income................................................ 11,207 $11,207
Other comprehensive income, net of taxes:
Foreign currency translation adjustment................. 909 909
-------
Comprehensive income...................................... $12,116
-------- -------- ------- ------- =======
Balance at December 31, 1998................................ 44,085 52,232 (148) 1,792
Distributions to stockholders............................... (40,000)
Distributions payable to stockholders....................... (3,350)
Conversion to common stock..................................
Issuance of common stock from MKS
Initial Public Offering..................................... 82,062
Common stock issued in ASTeX stock offering, net of issuance
costs..................................................... 23,805
Issuance of common stock from exercise of stock options and
warrants and Employee Stock Purchase Plan................. 2,219
Tax benefit from exercise of stock options.................. 1,556
Retirement of common stock.................................. (195)
Stock option compensation................................... 261
Stock issued in pooling of interest acquisition............. 837 (626)
Shareholder receivable...................................... (856)
Comprehensive income:
Net income................................................ 22,786 22,786
Other comprehensive income, net of taxes:
Nonrecurring deferred tax charge to comprehensive income
(Note 9).............................................. (497) (497)
Impact of adopting SFAS No. 133........................... (16) (16)
Changes in value of financial instruments designated as
cash flow hedges........................................ (212) (212)
Foreign currency translation adjustment................... (163) (163)
-------
Comprehensive income...................................... $21,898
-------- -------- ------- ------- =======
Balance at December 31, 1999................................ 154,630 31,042 (1,004) 904
Adjustment to Distributions payable to stockholders......... 1,933
Issuance of common stock.................................... 73,207
Issuance of common stock from exercise of stock options and
Employee Stock Purchase Plan.............................. 6,477
Tax benefit from exercise of stock options.................. 5,273
Stock and stock options issued in acquisition of
businesses................................................ 24,136
Shareholder receivable...................................... 1,004
Comprehensive income:
Net income................................................ 60,260 60,260
Other comprehensive income, net of taxes:
Changes in value of financial instruments designated as
cash flow hedges........................................ 603 603
Foreign currency translation adjustment................... (1,056) (1,056)
-------
Comprehensive income...................................... $59,807
-------- -------- ------- ------- =======
Balance at December 31, 2000................................ $263,723 $ 93,235 $ -- $ 451
======== ======== ======= =======
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance at December 31, 1997................................ $ 75,734
Distribution to stockholders................................ (6,150)
Issuance of common stock and warrants....................... 16,098
Tax benefit of stock options exercised...................... 276
Comprehensive income
Net income................................................ 11,207
Other comprehensive income, net of taxes:
Foreign currency translation adjustment................. 909
Comprehensive income......................................
--------
Balance at December 31, 1998................................ 98,074
Distributions to stockholders............................... (40,000)
Distributions payable to stockholders....................... (3,350)
Conversion to common stock..................................
Issuance of common stock from MKS
Initial Public Offering..................................... 82,062
Common stock issued in ASTeX stock offering, net of issuance
costs..................................................... 23,805
Issuance of common stock from exercise of stock options and
warrants and Employee Stock Purchase Plan................. 2,219
Tax benefit from exercise of stock options.................. 1,556
Retirement of common stock.................................. (195)
Stock option compensation................................... 261
Stock issued in pooling of interest acquisition............. 211
Shareholder receivable...................................... (856)
Comprehensive income:
Net income................................................ 22,786
Other comprehensive income, net of taxes:
Nonrecurring deferred tax charge to comprehensive income
(Note 9).............................................. (497)
Impact of adopting SFAS No. 133........................... (16)
Changes in value of financial instruments designated as
cash flow hedges........................................ (212)
Foreign currency translation adjustment................... (163)
Comprehensive income......................................
--------
Balance at December 31, 1999................................ 185,685
Adjustment to Distributions payable to stockholders......... 1,933
Issuance of common stock.................................... 73,207
Issuance of common stock from exercise of stock options and
Employee Stock Purchase Plan.............................. 6,477
Tax benefit from exercise of stock options.................. 5,273
Stock and stock options issued in acquisition of
businesses................................................ 24,136
Shareholder receivable...................................... 1,004
Comprehensive income:
Net income................................................ 60,260
Other comprehensive income, net of taxes:
Changes in value of financial instruments designated as
cash flow hedges........................................ 603
Foreign currency translation adjustment................... (1,056)
Comprehensive income......................................
--------
Balance at December 31, 2000................................ $357,522
========
The accompanying notes are an integral part of the supplemental consolidated
financial statements.
6
8
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
MKS Instruments, Inc. ("MKS") is a worldwide developer, manufacturer, and
supplier of instruments and components that are used to measure, control and
analyze gases in semiconductor manufacturing and similar industrial
manufacturing processes. MKS's products include pressure and flow measurement
and control instruments; vacuum gauges, valves and components; and gas analysis
instruments. MKS is subject to risks common to companies in the semiconductor
industry including, but not limited to, the highly cyclical nature of the
semiconductor industry leading to recurring periods of over supply, development
by MKS or its competitors of new technological innovations, dependence on key
personnel and the protection of proprietary technology. On January 26, 2001 MKS
completed its acquisition of Applied Science and Technology, Inc. ("ASTeX") in a
transaction accounted for under the pooling of interests method of accounting.
ASTeX develops and manufactures components and sub-systems using reactive gas
and power source technologies for semiconductor, medical, and industrial
applications and complete process systems for electronic applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The supplemental consolidated financial statements include the accounts of
MKS, ASTeX, and their subsidiaries (together, the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
These supplemental consolidated financial statements combine the historical
consolidated financial statements of the Company for all periods presented and
the ASTeX share information has been converted to the MKS share equivalent.
These supplemental consolidated financial statements combine the historical
financial statements of MKS for the years ended December 31, 2000, 1999 and 1998
with the historical financial statements of ASTeX for the fiscal years ended
July 1, 2000, June 26, 1999 and June 27, 1998, respectively. Upon publication of
the Company's consolidated financial statements for a period which includes
January 26, 2001, the date of the ASTeX merger, these supplemental consolidated
financial statements become the historical consolidated financial statements of
the Company. The following table presents details of the results of operations
for the separate companies for the fiscal years ended 2000, 1999 and 1998,
preceding the merger:
FISCAL YEAR ENDED
--------------------------------
2000 1999 1998
-------- -------- --------
Net sales:
MKS.............................................. $326,955 $187,083 $139,763
ASTeX............................................ 139,897 78,209 83,436
-------- -------- --------
$466,852 $265,292 $223,199
======== ======== ========
Net income (loss):
MKS.............................................. $ 46,234 $ 24,037 $ 7,186
ASTeX............................................ 14,026 (1,251) 4,021
-------- -------- --------
$ 60,260 $ 22,786 $ 11,207
======== ======== ========
As a result of conforming dissimilar fiscal year-ends, the ASTeX results of
operations for the six-month period ended December 31, 2000 are excluded from
these supplemental consolidated financial statements. The
7
9
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
following is information related to the ASTeX financial results for the
six-month period ended December 31, 2000:
Net sales.................................................. $89,193
Net income................................................. 5,968
Net cash used by operating activities...................... (3,500)
Net cash provided by investing activities.................. 245
Net cash provided by financing activities.................. 43
All fees and expenses related to the merger and the integration of the
combined companies will be expensed as required under the pooling of interests
accounting method. These expenses have not been reflected in the accompanying
supplemental consolidated statement of income, but will be reflected in the
consolidated statement of income for the year ended December 31, 2001.
HISTORICAL AND PRO FORMA (UNAUDITED) NET INCOME PER SHARE
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings
per Share." SFAS 128 requires both basic earnings per share, which is based on
the weighted average number of common shares outstanding, and diluted earnings
per share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares outstanding. The
dilutive effect of options is determined under the treasury stock method using
the average market price for the period. Common equivalent shares are included
in the per share calculations where the effect of their inclusion would be
dilutive.
Historical net income per share is not meaningful because of MKS's
conversion from an S corporation to a C corporation upon the closing of its
initial public offering in 1999. Historical net income has been adjusted for the
pro forma provision for income taxes calculated assuming the Company was subject
to income taxation as a C corporation, at a pro forma tax rate of 38.0% in 1998
and 37.3% in 1999.
The following is a reconciliation of basic to diluted pro forma and
historical net income per share:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2000 1999 1998
---------- ----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- --------- ---------- --------- ----------
Net income............................ $60,260 $17,161 $22,786 $ 9,065 $11,207
Shares used in net income per common
share -- basic...................... 34,596 29,991 29,991 24,229 24,229
Effect of dilutive securities:
Employee and director stock
options.......................... 1,574 1,280 1,448 850 1,032
======= ======= ======= ======= =======
Shares used in net income per common
share -- diluted................. 36,170 31,271 31,439 25,079 25,261
======= ======= ======= ======= =======
Net income per common share --basic... $ 1.74 $ 0.57 $ 0.76 $ 0.37 $ 0.46
Net income per common
share -- diluted.................... $ 1.67 $ 0.55 $ 0.72 $ 0.36 $ 0.44
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise price
greater than the average market price of the common shares during the period.
Options to purchase approximately 474,000, 374,000, and 61,000 shares of common
stock were outstanding during 2000, 1999 and 1998, respectively, but were not
included in the calculation of diluted net income per common share because the
option price was greater than the average market price of the common shares
during the period.
8
10
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
FOREIGN EXCHANGE
The functional currency of the Company's foreign subsidiaries is the
applicable local currency. For those subsidiaries, assets and liabilities are
translated to U.S. dollars at year-end exchange rates. Income and expense
accounts are translated at the average exchange rates prevailing for the year.
The resulting translation adjustments are included in accumulated other
comprehensive income in consolidated stockholders' equity.
REVENUE RECOGNITION
Revenue from product sales is generally recognized upon shipment provided
that persuasive evidence of an arrangement exists, the sales price is fixed or
determinable, collectibility is reasonably assured and title and risk of loss
have passed to the customer. The Company has no obligations to customers after
the date products are shipped other than pursuant to warranty obligations. The
Company provides for the estimated costs to fulfill customer warranty and other
contractual obligations upon the recognition of the related revenue. Shipping
and handling fees, if any, billed to customers are recognized as revenue. The
related costs are recognized in cost of sales.
CASH AND CASH EQUIVALENTS AND INVESTMENTS
All highly liquid investments with an original maturity of three months or
less at the date of purchase are considered to be cash equivalents.
Cash equivalents consist of the following at December 31:
2000 1999
-------- -------
Cash and money market instruments....................... $ 36,687 $28,176
Commercial paper........................................ 74,895 31,313
Federal government and government agency obligations.... 1,000 6,000
State and municipal government obligations.............. 2,000 --
Corporate obligations................................... 8,500 2,000
-------- -------
$123,082 $67,489
======== =======
Short-term available-for-sale investments maturing within one year consist
of the following at December 31:
2000 1999
------- -------
Federal government and government agency obligations..... $10,101 $16,245
Corporate obligations.................................... 1,000 5,501
Commercial paper......................................... 6,803 4,641
------- -------
$17,904 $26,387
======= =======
Long-term available-for-sale investments maturing within two years consist
of the following at December 31:
2000 1999
------- ------
Federal government and government agency obligations...... $ 4,000 $1,063
State and municipal government obligations................ 13,100 --
------- ------
$17,100 $1,063
======= ======
9
11
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
The appropriate classification of investments in debt and equity securities
is determined at the time of purchase. Debt securities that the Company has both
the intent and ability to hold to maturity are carried at amortized cost. Debt
securities that the Company does not have the intent and ability to hold to
maturity or equity securities are classified as "available-for-sale" and are
carried at fair value. Marketable equity securities are carried at fair value
and classified as available-for-sale. Unrealized gains and losses on securities
classified as available-for-sale are included in accumulated other comprehensive
income in consolidated stockholders' equity and were not material as of December
31, 2000 and 1999. The cost of securities sold is based on the specific
identification method.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Equipment acquired under
capital leases is recorded at the present value of the minimum lease payments
required during the lease period. Expenditures for major renewals and
betterments that extend the useful lives of property, plant and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recognized in earnings.
Depreciation is provided on the straight-line method over the estimated
useful lives of 20 to 31 1/2 years for buildings and three to seven years for
machinery and equipment. Leasehold improvements are amortized over the shorter
of the lease term or the estimated useful life of the leased asset.
INTANGIBLE ASSETS
Intangible assets resulting from the acquisitions of entities accounted for
using the purchase method of accounting are estimated by management based on the
fair value of assets received. These include acquired customer lists, workforce,
technology, patents, trade name, covenants not to compete and goodwill.
Intangible assets are amortized from three to ten years on a straight-line basis
which represents the estimated periods of benefit.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards "SFAS" No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
PATENTS
Patent costs are amortized over their estimated useful life of five years.
10
12
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition." SAB 101
summarizes the staff's view in applying generally accepted accounting principles
to revenue recognition. The Company adopted SAB 101 in fiscal year 2000. The
adoption did not have a material affect on its financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FOREIGN EXCHANGE RISK MANAGEMENT
The Company adopted the provisions of SFAS No. 133 effective April 1, 1999.
The impact of adopting SFAS No. 133 was the recording of an unrealized loss of
$16,000, net of taxes, in other comprehensive income. The Company hedges a
portion of its forecasted foreign currency denominated intercompany sales of
inventory, over a maximum period of fifteen months, using forward exchange
contracts and currency options primarily related to Japanese and European
currencies. These derivatives are designated as cash-flow hedges, and changes in
their fair value are carried in accumulated other comprehensive income until the
underlying forecasted transaction occurs. Once the underlying forecasted
transaction is realized, the appropriate gain or loss from the derivative
designated as a hedge of the transaction is reclassified from accumulated other
comprehensive income to cost of sales. The Company utilizes an interest rate
swap to fix the interest rate on certain variable term loans in order to
minimize the effect of changes in interest rates on earnings. During 2000 and
1999, net realized gains of $6,000 and net realized losses of $104,000,
respectively, were recorded in earnings. As of December 31, 2000, the amount
that will be reclassified from accumulated other comprehensive income to
earnings over the next twelve months is an unrealized gain of $375,000 net of
taxes. The ineffective portion of the derivatives is primarily related to option
premiums, is recorded in cost of sales, and was $304,000 in 2000.
Prior to the adoption of SFAS No. 133, the Company entered into forward
exchange contracts and local currency purchased options to hedge a portion of
its probable anticipated, but not firmly committed transactions. The anticipated
transactions whose risks were being hedged were the intercompany sales of
inventory by the U.S. parent to the foreign subsidiary payable in the foreign
subsidiary's local currency. The time period of the anticipated transactions
that were hedged generally approximated one year. The Company also used forward
exchange contracts to hedge firm commitments. Market value gains and losses on
forward exchange contracts were recognized immediately in earnings unless a firm
commitment existed. Market value gains and premiums on local currency purchased
options on probable anticipated transactions and market value gains and losses
on forward exchange contracts hedging firm commitments were recognized when the
hedged transactions occurred. These contracts, which related primarily to
Japanese and European currencies generally had terms of twelve months or less.
Forward exchange contracts received hedge accounting on firmly committed
transactions when they were designated as a hedge of the designated currency
exposure and were effective in minimizing such exposure. Options received hedge
accounting on probable anticipated transactions when they were designated as a
hedge of the currency exposure and were effective in minimizing such exposure.
11
13
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
Realized and unrealized gains and losses on forward exchange contracts and
local currency purchased option contracts that do not qualify for hedge
accounting are recognized immediately in earnings. The cash flows resulting from
forward exchange contracts and local currency purchased options that qualify for
hedge accounting are classified in the statement of cash flows as part of cash
flows from operating activities. Cash flows resulting from forward exchange
contracts and local currency purchased options that do not qualify for hedge
accounting are classified in the statement of cash flows as investing
activities. The Company does not hold or issue derivative financial instruments
for trading purposes.
Forward exchange contracts with notional amounts totaling $1,500,000,
$4,000,000 and $8,000,000 to exchange foreign currencies for U.S. dollars were
outstanding at December 31, 2000, 1999 and 1998, respectively. Of such forward
exchange contracts, $1,500,000, $4,000,000 and $7,800,000 to exchange Japanese
yen for U.S. dollars, were outstanding at December 31, 2000, 1999, and 1998,
respectively. Local currency purchased options with notional amounts totaling
$25,390,000, $11,800,000 and $10,221,000 to exchange foreign currencies for U.S.
dollars were outstanding at December 31, 2000, 1999 and 1998, respectively.
Foreign exchange gains of $37,000 and $415,000 and foreign exchange losses
of $168,000 on forward exchange contracts which did not qualify for hedge
accounting were recognized in earnings during 2000, 1999 and 1998, respectively,
and are classified in Other income, net. Gains and losses on forward exchange
contracts and local currency purchased options that qualify for hedge accounting
are classified in cost of goods sold and totaled a gain of $6,000, a loss of
$104,000 and a gain of $310,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
The fair values of forward exchange contracts at December 31, 2000 and
1999, determined by applying period end currency exchange rates to the notional
contract amounts, amounted to an unrealized gain of $164,000 and an unrealized
loss of $547,000, respectively. The fair value of local currency purchased
options at December 31, 2000 and 1999, which were obtained through dealer quotes
were immaterial.
The Company recorded a foreign exchange remeasurement gain on intercompany
payables of $1,000,000 in other income, net in 1998. The Company has hedged
certain intercompany payables with currency options. Since these derivatives
hedge existing amounts that are denominated in foreign currencies, the options
do not qualify for hedge accounting under SFAS No. 133.
INTEREST RATE RISK MANAGEMENT
The Company utilizes an interest rate swap to fix the interest rate on
certain variable rate term loans in order to minimize the effect of changes in
interest rates on earnings. In 1998, the Company entered into a four-year
interest rate swap agreement on a declining notional amount basis which matches
with the scheduled principal payments with a major financial institution for the
notional amount of $10,528,000 equal to the term loans described in Note 6.
Under the agreement, the Company pays a fixed rate of 5.85% on the notional
amount and receives LIBOR. The interest differential payable or accruable on the
swap agreement is recognized on an accrual basis as an adjustment to interest
expense. The criteria used to apply hedge accounting for this interest rate swap
is based upon management designating the swap as a hedge against the variable
rate debt combined with the terms of the swap matching the underlying debt
including the notional amount, the timing of the interest reset dates, the
indices used and the paydates. At December 31, 2000, the fair value of this
interest rate swap, which represents the amount the Company would receive or pay
to terminate the agreement, is not material, based on dealer quotes. The
variable rate received on the swap at December 31, 2000 was 6.82%.
The market risk exposure from the interest rate swap is assessed in light
of the underlying interest rate exposures. Credit risk exposure from the swap is
minimized as the agreement is with a major financial
12
14
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
institution. The Company monitors the creditworthiness of this financial
institution and full performance is anticipated.
CONCENTRATIONS OF CREDIT RISK
The Company's significant concentrations of credit risk consist principally
of cash and cash equivalents, investments, forward exchange contracts, and trade
accounts receivable. The Company maintains cash and cash equivalents with
financial institutions including the bank it has borrowings with. The Company
maintains investments primarily in U.S. Treasury and government agency
securities and corporate debt securities, rated AA or higher, which have minimal
credit risk. The Company places forward currency contracts with high
credit-quality financial institutions in order to minimize credit risk exposure.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of diverse and geographically dispersed customers.
Credit is extended for all customers based on financial condition and collateral
is not required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the term loans, including the current portion,
approximates its carrying value given its variable rate interest provisions. The
fair value of marketable securities is based on quoted market prices. The fair
value of mortgage notes is based on borrowing rates for similar instruments and
approximates its carrying value. For all other balance sheet financial
instruments, the carrying amount approximates fair value because of the short
period to maturity of these instruments.
4. INVENTORIES
Inventories consist of the following at December 31:
2000 1999
------- -------
Raw material............................................. $23,765 $14,550
Work-in-process.......................................... 20,856 10,484
Finished goods........................................... 24,544 15,035
------- -------
$69,165 $40,069
======= =======
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
2000 1999
-------- -------
Land.................................................... $ 10,936 $ 9,573
Buildings............................................... 35,892 27,733
Machinery and equipment................................. 46,402 41,356
Furniture and fixtures.................................. 16,789 14,011
Leasehold improvements.................................. 3,775 4,159
Construction in progress................................ 5,956 --
-------- -------
119,750 96,832
Less: accumulated depreciation and amortization......... 55,617 55,858
-------- -------
$ 64,133 $40,974
======== =======
13
15
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
Depreciation and amortization of property, plant and equipment totaled
$9,785,000, $8,727,000 and $8,299,000 for the years ended December 31, 2000,
1999 and 1998, respectively. During the year ended December 31, 2000, the
Company retired $6,727,000 of fully depreciated property, plant and equipment.
6. DEBT
CREDIT AGREEMENTS AND SHORT-TERM BORROWINGS
In February 1996, the Company entered into loan agreements with two banks,
which provided access to a revolving credit facility. The revolving credit
facility provided for uncollateralized borrowings up to $30,000,000, and expired
on December 31, 1999. Interest on borrowings was payable quarterly at either the
banks' base rate or the LIBOR Rate, as defined in the agreement, at the
Company's option. At December 31, 1999, the Company had no borrowings under this
revolving credit facility.
Effective January 1, 2000, the Company entered into a loan agreement with
the same two banks, which provides access to a revolving credit facility. The
revolving credit facility provides for uncollateralized borrowings up to
$40,000,000, and expires April 30, 2001. The Company is currently in
negotiations to extend this credit line. Interest on borrowings is payable
quarterly at either the banks' base rate, or the LIBOR Rate, as defined in the
agreement. At December 31, 2000, the Company had no borrowings under this
revolving credit facility.
The Company may borrow up to $8,000,000 from a bank under an unsecured
demand line of credit with interest at the bank's prime rate. Borrowings under
the line are limited to 100% of the Company's cash balance plus 80% of domestic
accounts receivable outstanding less than 90 days. The Company may fix a portion
or all of the outstanding balances under the line for periods up to the
remaining term of the line. The line may be used for standby letters of credit.
There are fees of 1.5% for any standby letters of credit and 0.25% on the
unused portion of the line. There were no outstanding borrowings at the end of
2000. The line of credit expires in April 2003. No security pledges of assets
can be granted nor dividends paid without the approval of the bank that issued
the unsecured line of credit.
Additionally, certain of the Company's foreign subsidiaries have lines of
credit and short-term borrowing arrangements with various financial institutions
which provide for aggregate borrowings as of December 31, 2000 of up to
$17,533,000, which generally expire and are renewed at six month intervals. At
December 31, 2000 and 1999, total borrowings outstanding under these
arrangements were $15,719,000 and $12,423,000, respectively, at interest rates
ranging from 1.35% to 1.875% and 1.2% to 1.7%, respectively. A portion of the
foreign short-term borrowings are guaranteed by a domestic bank.
LONG-TERM DEBT
Long-term debt consists of the following at December 31:
2000 1999
------- -------
Term loans............................................... $ 2,620 $ 8,862
Mortgage notes........................................... 11,602 2,824
------- -------
Total long-term debt..................................... 14,222 11,686
Less: current portion.................................... 2,783 7,346
------- -------
Long-term debt less current portion...................... $11,439 $ 4,340
======= =======
14
16
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
On November 1, 1993, the Company entered into a term loan agreement with a
bank, which provided for borrowings of $10,000,000. Principal payments were paid
in equal monthly installments of $56,000 through October 1, 2000, with the
remaining principal payment paid on November 1, 2000. The loan was
collateralized by certain land, buildings, and equipment. Interest was payable
monthly at either the bank's base rate, at a rate based on the long-term funds
rate, or at the LIBOR Rate, as defined in the agreement, at the Company's
option.
On October 31, 1995, the Company also entered into a term loan agreement
with the same bank, which provided additional uncollateralized borrowings of
$7,000,000. Principal payments are payable in equal monthly installments of
$83,000 through June 1, 2002, with the remaining principal payment due on June
30, 2002. Interest is payable monthly at either the bank's base rate or at the
LIBOR Rate, as defined in the agreement, at the Company's option.
On March 6, 2000, the Company entered into a mortgage note payable with a
bank to borrow $10,000,000 to finance the purchase of land and a building.
Principal and interest is being paid in monthly installments of $119,000 with
the final payments due in March 2007.
In connection with the purchase of Telvac Engineering, Ltd., the Company
issued term loans of $752,000. Principal payments of $51,000 are due on an
annual basis through December 1, 2004 with the remaining principal due on May 1,
2005. Interest is payable semi-annually at the UK base rate.
At December 31, 2000, the interest rates in effect for the outstanding term
loan and mortgage note borrowings ranged from 6.0% to 9.5% and was 7.4% at
December 31, 1999.
The terms of the revolving credit facility and term loan agreements, as
amended, contain, among other provisions, requirements for maintaining certain
levels of tangible net worth and other financial ratios. The agreement also
contains restrictions with respect to acquisitions. Under the most restrictive
covenant, the operating cash flow to debt service ratio for a fiscal quarter
shall not be less than 1.25 to 1.0. In the event of default of these covenants
or restrictions, any obligation then outstanding under the loan agreement shall
become payable upon demand by the bank.
The Company has loans outstanding from various foreign banks in the form of
mortgage notes at interest rates ranging from 2.0% to 6.1%. Principal and
interest are payable in monthly installments through 2010. The loans are
collateralized by mortgages on certain of the Company's foreign properties.
Aggregate maturities of long-term debt over the next five years are as
follows:
YEAR ENDING DECEMBER 31,
2001...................................................... $ 2,783
2002...................................................... 2,753
2003...................................................... 1,839
2004...................................................... 1,843
2005...................................................... 2,142
Thereafter................................................ 2,862
-------
$14,222
=======
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and machinery and equipment
under capital and operating leases expiring in various years through 2002 and
thereafter. Generally, the facility leases require the Company
15
17
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
to pay maintenance, insurance and real estate taxes. Rental expense under
operating leases totaled $4,623,000, $4,289,000 and $3,304,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Minimum lease payments under operating and capital leases are as follows:
OPERATING CAPITAL
LEASES LEASES
--------- -------
YEAR ENDING DECEMBER 31,
2001................................................... $ 3,692 $ 675
2002................................................... 2,189 614
2003................................................... 1,565 291
2004................................................... 1,392 106
2005................................................... 1,138 --
Thereafter............................................. 1,848 --
------- ------
Total minimum lease payments............................. $11,824 1,686
======= ------
Less: amounts representing interest...................... 129
------
Present value of minimum lease payments.................. 1,557
Less: current portion.................................... 610
------
Long-term portion........................................ $ 947
======
Prior to its initial public offering, the Company entered into a Tax
Indemnification and S Corporation Distribution Agreement with its then existing
stockholders (the "Pre-IPO stockholders"). The agreement includes provisions for
the payment, with interest, by the Pre-IPO stockholders or MKS, as the case may
be, for the difference between the $40,000,000 distributed as an estimate of the
amount of the accumulated adjustments account as of April 4, 1999, which is the
date the Company's S Corporation status was terminated, and the actual amount of
the accumulated adjustments account on that day. The actual amount of the
accumulated adjustments account was $41,416,619. Accordingly, the Company made
an additional distribution of $1,416,619, plus interest of $177,524, to the
Pre-IPO stockholders during the three months ended September 30, 2000. The
amount of the additional distribution payable had been estimated to be
$3,350,000. This estimated amount was charged directly to retained earnings
during 1999 and had no impact on net income or earnings per share. The
difference between the actual additional distribution and the estimated
additional distribution was credited directly to retained earnings during the
three months ended September 30, 2000 and had no impact on net income or
earnings per share. The amount of the accumulated adjustments account can be
affected by future income tax audits of MKS. If any audit increases or decreases
the accumulated adjustments account, MKS or the Pre-IPO stockholders, as the
case may be, will also be required to make a payment, with interest, of such
differences to the other party. No shareholders, other than the Pre-IPO
stockholders, are parties to the Tax Indemnification and S Corporation
Distribution Agreement.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
In March 1999, the Company amended its Articles of Organization to: i)
eliminate the authorized shares of Class A Common Stock and Class B Common
Stock; ii) increase the authorized number of shares of Common Stock to
50,000,000 shares; iii) authorize 2,000,000 shares of Preferred Stock, $0.01 par
value per share; and iv) provide that each outstanding share of Class A Common
Stock and Class B Common Stock be converted into one share of Common Stock.
16
18
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
On March 30, 2000, ASTeX completed the registration and sale of 1,917,250
shares of common stock at $40.42 per share. The net proceeds from the offering
were approximately $73,200,000.
On April 5, 1999 MKS closed the initial public offering of its Common
Stock. In connection with this offering and the exercise of an over-allotment
option by the underwriters, MKS sold 6,375,000 shares of Common Stock at a price
of $14.00 per share. The net proceeds to MKS were approximately $82,000,000.
Underwriting discounts and commissions were approximately $6,200,000 and other
offering costs were approximately $1,000,000.
On April 5, 1999 MKS distributed $40,000,000, which was the estimated
amount of the MKS undistributed S corporation earnings as of the day prior to
the closing of the offering.
On March 5, 1999, ASTeX completed the registration and sale of 1,533,800
shares of common stock at $14.34 per share. On April 6, 1999, the underwriters
exercised their over-allotment option to purchase an additional 230,070 shares
of common stock. The net proceeds from the offering were approximately $23.8
million.
In 1998, ASTeX announced that it had met the requirements for the
redemption of redeemable warrants issued in connection with the ASTeX initial
public offering and called the warrants for redemption. 2,082,451 redeemable
warrants and 133,088 underwriter warrants were converted into 1,297,147 shares
of common stock. The net proceeds were $15,234,000.
STOCK PURCHASE PLAN
The Company's 1999 Employee Stock Purchase Plan (the "Purchase Plan")
authorizes the issuance of up to an aggregate of 450,000 shares of Common Stock
to participating employees. Offerings under the Purchase Plan commence on June 1
and December 1 and terminate, respectively, on November 30 and May 31. Under the
Purchase Plan, eligible employees may purchase shares of Common Stock through
payroll deductions of up to 10% of their compensation. The price at which an
employee's option is exercised is the lower of (1) 85% of the closing price of
the Common Stock on the NASDAQ National Market on the day that each offering
commences or (2) 85% of the closing price on the day that each offering
terminates. During 2000 and 1999, the Company issued 83,118 and 36,520 shares,
respectively, of Common Stock to employees who participated in the Purchase Plan
at exercise prices of $21.04 and $12.86 in 2000 and at an exercise price of
$12.94 per share in 1999. As of December 31, 2000, there were 330,362 shares
reserved for issuance.
The Company's Amended and Restated 1999 Foreign Employee Stock Purchase
Plan (the "Foreign Purchase Plan") authorizes the issuance of up to an aggregate
of 50,000 shares of Common Stock to participating employees. The initial
offering under the Foreign Purchase Plan commenced on March 1, 2000 and
terminated May 31, 2000. Additional offerings under the Foreign Purchase Plan
commence on June 1 and December 1 and terminate, respectively, on November 30
and May 31. Under the Foreign Purchase Plan, eligible employees may purchase
shares of Common Stock through payroll deductions of up to 10% of their
compensation. The price at which an employee's option is exercised is the lower
of (1) 85% of the closing price of the Common Stock on the NASDAQ National
Market on the day that each offering commences or (2) 85% of the closing price
on the day that each offering terminates. During 2000, the Company issued 7,248
shares of Common Stock to employees who participated in the Foreign Purchase
Plan at exercise prices of $33.47 and $12.86 per share. As of December 31, 2000,
there were 42,752 shares reserved for issuance.
STOCK OPTION PLANS
On January 9, 1998, the stockholders of MKS approved the following: (1) an
increase in the number of shares that may be granted under the 1995 Stock
Incentive Plan to 3,750,000 shares of common stock; (2) the adoption of the 1997
Director Stock Option Plan pursuant to which options may be granted to purchase
up to
17
19
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
an aggregate of 300,000 shares of common stock; (3) the adoption of the 1997
Employee Stock Purchase Plan pursuant to which MKS may issue up to an aggregate
of 450,000 shares of common stock; and (4) that 3,750,000 shares, 300,000
shares, and 450,000 shares of common stock be reserved for issuance under the
1995 Stock Incentive Plan, the 1997 Director Stock Option Plan, and the 1997
Employee Stock Purchase Plan, respectively. The 1997 Employee Stock Purchase
Plan was amended and restated on April 22, 1999, and the Plan's name was changed
to the Amended and Restated 1999 Employee Stock Purchase Plan.
In May 2000, the stockholders of the Company approved an annual increase in
the number of shares that may be granted under the 1995 Stock Incentive Plan of
4% of the total shares of the Company's stock on July 1 of each year. The annual
increase will occur until such time as the aggregate number of shares which may
be issued under the Plan is 9,750,000 shares, subject to adjustment for certain
changes in MKS' capitalization.
MKS grants options to employees under the 1995 Stock Incentive Plan (the
"Plan") and to directors under the 1996 Director Stock Option Plan and the 1997
Director Stock Option Plan (the "Director Plans").
ASTeX adopted the 1993 Stock Option Plan in fiscal 1994 and in fiscal 1995,
adopted the 1994 Formula Stock Option Plan to award stock options to nonemployee
directors of the Company (the "ASTeX Plans"). The ASTeX Plans are administered
by the Company's board of directors and the ASTeX options are exercisable for
Company stock. At the end of 2000, 1,322,041 options to purchase Company common
stock were reserved for issuance under the ASTeX Plans.
Effective August 26, 1998, ASTeX repriced all of its stock options which
had been granted since June 29, 1997 to the closing market price on that date,
which was $7.82 per share. Options which had been granted to directors of the
Company during the same period were not repriced.
At December 31, 2000, 1,428,846 options to purchase shares of Company
common stock were reserved for issuance under the Plan. At December 31, 2000,
under the Director Plans, options to purchase 210,000 shares of common stock
were reserved for issuance. Stock options are granted at 100% of the fair value
of the Company's common stock. Generally, stock options granted under the Plan
prior to 2000 vest 20% after one year and 5% per quarter thereafter, and expire
10 years after the grant date. Generally, stock options granted under the Plan
in 2000 vest 25% after one year and 6.25% per quarter thereafter, and expire 10
years after the grant date. Under the Director Plans, certain options granted in
1999 vest immediately. The remainder of the options granted in 1997 and later
vest at the earlier of (1) the next annual meeting, (2) 13 months from date of
grant, or (3) the effective date of an acquisition as defined in the Director
Plans.
The following table presents the activity for options under the Plan and
the ASTeX Plans:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
Outstanding -- beginning of
period............................ 3,603,131 $ 8.56 3,011,329 $ 7.11 2,303,299 $6.06
Granted............................. 1,134,384 29.66 1,358,977 12.49 987,022 9.82
Exercised........................... (672,472) 7.93 (338,441) 6.70 (104,713) 7.93
Forfeited or expired................ (140,945) 14.86 (428,734) 12.30 (174,279) 8.06
--------- ------ --------- ------ --------- -----
Outstanding -- end of period........ 3,924,098 $14.54 3,603,131 $ 8.56 3,011,329 $7.11
========= ====== ========= ====== ========= =====
Exercisable at end of period........ 1,852,368 $ 8.56 1,509,406 $ 6.40 1,191,186 $6.64
========= ====== ========= ====== ========= =====
18
20
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information with respect to options
outstanding and exercisable under the Plan and the ASTeX Plans at December 31,
2000:
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OF EXERCISE PRICE OF SHARES PRICE LIFE (IN YEARS) OF SHARES PRICE
- ----------------------- --------- -------- --------------- --------- --------
$ 4.43 - $11.74 2,109,685 $ 5.93 5.82 1,434,947 $ 5.56
$11.98 - $18.83 728,145 $14.54 7.91 290,669 $13.95
$19.00 - $29.50 502,127 $27.01 6.48 85,362 $26.42
$30.24 - $61.50 584,141 $34.95 8.13 41,390 $37.98
--------- ------ ---- --------- ------
3,924,098 $14.54 6.64 1,852,368 $ 8.56
The following table presents activity for options under the MKS Director
Plans:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
Outstanding -- beginning of period........ 100,368 $10.95 34,368 $ 4.81 30,748 $4.43
Granted................................... 24,000 44.88 66,000 14.15 3,620 8.00
Exercised................................. (25,092) 10.95 -- -- -- --
------- ------ ------- ------ ------ -----
Outstanding -- end of period.............. 99,276 $19.15 100,368 $10.95 34,368 $4.81
======= ====== ======= ====== ====== =====
Exercisable at end of period.............. 75,276 $10.95 76,368 $ 9.86 26,228 $4.43
======= ====== ======= ====== ====== =====
The following table summarizes information with respect to options
outstanding and exercisable under the MKS Director Plans at December 31, 2000:
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OF EXERCISE PRICE OF SHARES PRICE LIFE (IN YEARS) OF SHARES PRICE
- ----------------------- --------- -------- --------------- --------- --------
$ 4.43 - $ 8.00 25,776 $ 4.87 5.85 25,776 $ 4.81
$14.00 - $14.40 49,500 $14.15 8.20 49,500 $14.15
$44.875 24,000 $44.88 9.38 -- $ --
------ ------ ---- ------ ------
99,276 $19.15 7.87 75,276 $10.95
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. The Company is required to disclose pro
forma net income and net income per common share amounts had compensation cost
for the Company's stock based compensation plans been determined based on the
fair value at the grant date for awards under the plans. Had compensation
expense for the stock based
19
21
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
compensation plans been consistent with the method of SFAS No. 123, the amounts
reported for 2000, 1999 and 1998 would have been:
2000 1999 1998
------- ------- -------
Net income as reported................................ $60,260 $22,786 $11,207
Pro forma net income for SFAS No. 123................. $53,320 $19,920 $ 9,304
Pro forma net income per share for SFAS
No. 123:
Basic............................................... $ 1.54 $ 0.66 $ 0.38
Diluted............................................. $ 1.47 $ 0.63 $ 0.37
The weighted average fair value of options at the date of grant was
estimated using the Black-Scholes model and was $22.74 with the following
assumptions in 2000: expected life of 5 years, weighted average interest rate of
6.37%, expected volatility of 88%, and no dividend yield. In 1999, the weighted
average fair value of MKS options at the date of grant was $9.54 with the
following assumptions in 1999: expected life of 5 years, weighted average
interest rate of 5.49%, expected volatility of 64%, and no dividend yield. Had
the fair value based method prescribed in SFAS No. 123 been used to account for
stock-based compensation cost in 1998, for MKS options there would have been no
change in net income and net income per share from that reported based on the
following assumptions: dividend yield of 8%, interest rate of 5.44% and an
expected life of 8 years.
The fair value of purchase rights granted in 2000 and 1999 under the
Purchase Plan was $7.64 and $5.11, respectively. The fair value of the
employees' purchase rights was estimated using the Black-Scholes model with the
following assumptions in 2000: expected life of 6 months, interest rate of
5.57%, expected volatility of 88%, and no dividend yield, and the following
assumptions in 1999: expected life of 6 months, interest rate of 4.87%, expected
volatility of 64%, and no dividend yield.
The weighted average fair value of ASTeX options granted during fiscal
2000, 1999 and 1998 was $18.53, $4.08 and $9.10, respectively.
The fair value of each ASTeX option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants issued in fiscal 2000, 1999 and 1998: no divided
yield for all years; expected volatility of 72%, 82% and 76% for 2000, 1999 and
1998, respectively; risk-free interest rates of 5.92% for 2000 grants, 4.72% for
1999 grants and 5.8% for 1998 grants; and expected lives of 4 years for 2000
grants, 4 years for 1999 grants and 4 years for 1998 grants.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The balance of accumulated other comprehensive income was comprised of the
following:
FINANCIAL
INSTRUMENTS ACCUMULATED
CUMULATIVE DESIGNATED OTHER
TRANSLATION AS CASH FLOW COMPREHENSIVE
ADJUSTMENTS HEDGES INCOME
----------- ------------ -------------
Balance at December 31, 1999................... $ 1,132 $(228) $ 904
Foreign currency translation adjustment, net of
taxes of $628................................ (1,056) -- (1,056)
Changes in value of financial instruments
designated as cash flow hedges, net of taxes
of $(359).................................... -- 603 603
------- ----- -------
Balance at December 31, 2000................... $ 76 $ 375 $ 451
======= ===== =======
20
22
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
9. INCOME TAXES
Prior to its initial public offering, MKS was treated as an S corporation
for federal income tax purposes. As an S corporation, the Company was not
subject to federal, and certain state, income taxes. MKS terminated its S
corporation status upon the closing of its initial public offering in 1999 and
became subject to taxes at C corporation tax rates. This change in tax status
and tax rates resulted in a non-recurring, non-cash deferred tax credit to net
income of $3,770,000 and a deferred tax charge to other comprehensive income of
$497,000 in 1999.
The Pre-IPO stockholders are liable for individual Federal, and certain
state, income taxes on their allocated portions of the MKS taxable income as an
S corporation. For the tax year ending December 31, 1999, the Pre-IPO
stockholders were allocated a portion of the MKS 1999 taxable income. A
reconciliation of the Company's 2000 and 1999 effective tax rate to the U.S.
federal statutory rate follows:
2000 1999
----- ------
U.S. Federal income tax statutory rate...................... 35.0% 35.0%
Nonrecurring deferred tax credit............................ -- (13.7)
Pre-IPO stockholder 1999 allocated taxable income........... -- (7.3)
State income taxes, net of federal benefit.................. 3.3 2.4
Effect of foreign operations taxed at various rates......... 0.7 2.3
Foreign sales corporation tax benefit....................... (1.2) (1.7)
Other....................................................... (0.5) (.3)
----- ------
37.3% 16.7%
===== ======
As MKS was not subject to Federal income taxes in 1998, a reconciliation of
the effective tax rate to the Federal statutory rate is not meaningful for that
year.
The components of income before income taxes and the historical related
provision for income taxes consist of the following:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Income before income taxes:
United States....................................... $87,654 $23,689 $12,656
Foreign............................................. 8,456 3,678 1,966
------- ------- -------
96,110 27,367 14,622
Current taxes:
United States Federal............................... 29,778 6,514 2,141
State............................................... 5,203 1,291 485
Foreign............................................. 3,697 1,806 784
------- ------- -------
38,678 9,611 3,410
Deferred taxes:
United States Federal............................... (2,593) (4,804) (267)
State............................................... (235) (242) 265
Foreign............................................. -- 16 7
------- ------- -------
(2,828) (5,030) 5
------- ------- -------
Provision for income taxes............................ $35,850 $ 4,581 $ 3,415
======= ======= =======
21
23
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
At December 31, 2000 and 1999, the components of the deferred tax asset and
deferred tax liability were as follows:
2000 1999
------ ------
Deferred tax assets (liabilities):
Inventories.............................................. $4,086 $2,599
Intercompany profits..................................... 2,572 1,362
Net operating loss carryforwards......................... 45 1,415
Depreciable assets....................................... 1,457 426
Compensation and accrued liabilities..................... 1,236 1,301
Investment booked under the equity method................ (753) (557)
Other.................................................... 328 1,041
------ ------
Total...................................................... $8,971 $7,587
====== ======
10. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit-sharing plan for U.S. employees meeting
certain requirements in which eligible employees may contribute from 1% up to
12% of their compensation. The Company, at its discretion, may provide a
matching contribution which will generally match up to the first 2% of each
participant's compensation, plus 25% of the next 4% of compensation. At the
discretion of the Board of Directors, the Company may also make additional
contributions for the benefit of all eligible employees. The Company's
contributions are generally paid annually, and were $2,371,000 and $1,506,000
for the years ended December 31, 1999 and 1998. Approximately $3,372,000 has
been expensed as the estimated Company contribution for the year ended December
31, 2000 and is included in accrued compensation.
The Company maintains a bonus plan which provides cash awards to key
employees, at the discretion of the Compensation Committee of the Board of
Directors, based upon operating results and employee performance. Bonus expense
to key employees was $7,579,000, $3,900,000 and $577,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
11. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMER
See Note 1 for a brief description of the Company's business. The Company
is organized around four similar product lines domestically and by geographic
locations internationally and has three reportable segments: North America, Far
East, and Europe. Net sales 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 sales.
Income from operations consists of total net sales less operating expenses and
does not include either interest income, interest expense or income taxes. The
Company had one customer comprising 30%, 29% and 25% of net sales for the years
ended December 31, 2000, 1999 and 1998, respectively. This data is presented in
accordance with SFAS 131, "Disclosures About Segments of an Enterprise and
Related Information."
22
24
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
YEAR ENDED DECEMBER 31, 2000
------------------------------------------
NORTH FAR
AMERICA EAST EUROPE TOTAL
-------- ------- ------- --------
Net sales to unaffiliated customers............... $358,777 $67,015 $41,060 $466,852
Intersegment net sales............................ 68,753 1,411 1,307 71,471
Depreciation and amortization..................... 14,072 227 576 14,875
Income from operations............................ 80,144 4,753 6,638 91,535
Segment assets.................................... 390,688 39,436 24,279 454,403
Long-lived assets................................. 106,738 5,703 4,494 116,935
Capital expenditures.............................. 31,019 154 995 32,168
YEAR ENDED DECEMBER 31, 1999
------------------------------------------
NORTH FAR
AMERICA EAST EUROPE TOTAL
-------- ------- ------- --------
Net sales to unaffiliated customers............... $200,223 $38,734 $26,335 $265,292
Intersegment net sales............................ 40,117 706 986 41,809
Depreciation and amortization..................... 8,691 252 547 9,490
Income from operations............................ 20,870 1,413 2,754 25,037
Segment assets.................................... 208,137 31,272 14,363 253,772
Long-lived assets................................. 41,800 6,524 2,874 51,198
Capital expenditures.............................. 6,746 241 357 7,344
YEAR ENDED DECEMBER 31, 1998
------------------------------------------
NORTH FAR
AMERICA EAST EUROPE TOTAL
-------- ------- ------- --------
Net sales to unaffiliated customers............... $175,556 $23,902 $23,741 $223,199
Intersegment net sales............................ 30,406 290 1,015 31,711
Depreciation and amortization..................... 8,259 210 515 8,984
Income from operations............................ 12,072 1,298 1,674 15,044
Segment assets.................................... 113,540 20,768 12,664 146,972
Long-lived assets................................. 42,811 5,655 3,363 51,829
Capital expenditures.............................. 5,513 179 444 6,136
Included in North America are the United States and Canada. Net sales to
Canada and long-lived assets in Canada were not material.
Included in the Far East are Japan, Korea, Singapore and Taiwan. Included
in Europe are Germany, France and the United Kingdom. Net sales to unaffiliated
customers from Japan were $50,187,000, $30,696,000 and $21,153,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. Long-lived assets within
Japan amounted to $5,460,000, $6,266,000 and $5,431,000 at December 31, 2000,
1999 and 1998, respectively.
12. ACQUISITIONS
The Company completed several acquisitions in fiscal 2000, all of which
have been accounted for under the purchase method of accounting. Accordingly,
the results of operations for each acquired company have been included in the
Company's supplemental consolidated results of operations from the date of
purchase. On March 10, 2000 the Company acquired Compact Instrument Technology,
LLC ("Compact Instrument"), a start-up company with proprietary technology in
process monitoring for semiconductor manufacturing and other manufacturing
processes. The acquisition has been accounted for by the purchase method of
accounting.
23
25
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
The purchase price was $8,700,000 and consisted of $8,400,000 in common stock
and $300,000 in assumed net liabilities. The purchase price was allocated to the
assets acquired based upon their estimated fair values. This allocation resulted
in goodwill of $7,600,000 and acquired technology of $1,600,000, which are being
amortized on a straight-line basis over five years and three years,
respectively.
On May 5, 2000, the Company acquired Telvac Engineering, Ltd., a UK-based,
privately held manufacturer of vacuum subsystems. The acquisition has been
accounted for by the purchase method of accounting. The purchase price was
$1,600,000, and consisted of $750,000 in cash, $750,000 in debt and $100,000 in
other acquisition expenses. The purchase price was allocated to the assets
acquired based on their estimated fair values. This allocation resulted in
goodwill of $800,000, which is being amortized on a straight-line basis over 5
years.
On July 21, 2000, the Company acquired Spectra International, LLC, a
privately held company with products and technology in process monitoring. The
purchase price consisted of $9,700,000 cash; 183,293 shares of common stock
valued at $6,500,000; fully vested options to purchase 83,675 shares of common
stock valued at $2,400,000, calculated at an exchange ratio of 0.4768 shares of
common stock per share of Spectra common stock; and $400,000 in acquisition
costs. The transaction also includes contingent earnout payments of up to an
aggregate of $12,000,000 over 5 years, which will be treated as compensation
expense as it is earned. The purchase price was allocated to the assets acquired
based on their estimated fair values. Goodwill, acquired technology and other
intangible assets are being amortized on a straight-line basis over 5 to 7
years. The allocation of the purchase price is as follows:
Current assets............................................. $ 5,400
Acquired intangibles....................................... 7,900
Acquired technology........................................ 3,700
Goodwill................................................... 6,100
Other assets............................................... 400
Liabilities and debt assumed............................... (4,500)
-------
$19,000
=======
The intangible assets include approximately $0.3 million for acquired
in-process technology for projects that did not have future alternative uses.
This allocation represents the estimated fair value based on risk-adjusted cash
flows related to the in-process technology projects. At the date of the
acquisition, the development of these projects had not yet reached technological
feasibility, and the technology in progress had no alternative future uses.
Accordingly, these costs were expensed in the three months ended September 30,
2000.
On September 6, 2000 the Company acquired D.I.P., Inc., a privately held
company with products and technology in digital process control. The purchase
price was $6,900,000 cash; 231,392 shares of common stock valued at $6,800,000;
and $300,000 in acquisition costs. The purchase price was allocated to the
assets
24
26
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
acquired based on their estimated fair values. Goodwill, acquired technology and
other intangibles are being amortized on a straight-line basis over 3 to 5
years. The allocation of the purchase is as follows:
Current assets............................................. $ 3,000
Acquired intangibles....................................... 1,700
Acquired technology........................................ 7,200
Goodwill................................................... 4,300
Other assets............................................... 200
Liabilities assumed........................................ (2,400)
-------
$14,000
=======
On August 4, 1999, the Company acquired substantially all of the assets of
the Shamrock product line from Sputtered Films, Inc., a designer, manufacturer
and seller of high performance sputtering equipment for the semiconductor and
magnetic storage industries. Cash consideration of approximately $6,382,000 was
paid for the assets. The costs of the acquisition were allocated on the basis of
the estimated fair market value of the assets acquired and resulted in an
allocation of $4,463,000 to goodwill. The allocation of the purchase price is as
follows:
Current assets.............................................. $ 646
Goodwill.................................................... 4,463
Property and equipment and other assets..................... 1,377
Liabilities assumed......................................... (104)
------
$6,382
======
In fiscal 1999, the Company completed two acquisitions. On April 5, 1999,
the Company completed the acquisition of Klee Corporation ("Klee"), a
manufacturer of physical vapor deposition process systems targeted to a segment
of electronics packaging known as under-bump metallurgy or flip-chip packaging.
Klee had limited operations through the date of the acquisition. The Company
acquired all of the stock of Klee in exchange for 238,202 shares of the
Company's common stock. The acquisition was accounted for on a pooling of
interests basis. The Company's supplemental consolidated financial statements
have not been restated for periods prior to acquisition as the acquisition was
considered to be an immaterial pooling.
On November 4, 1998, the Company completed the acquisition of PlasmaQuest,
Inc. ("PlasmaQuest"), a manufacturer of systems for research and development,
magnetic disk head processing, and electronic packaging applications. The
Company acquired all of the stock of PlasmaQuest for a preliminary purchase
price of $23,000 net of cash acquired of $124,000. The purchase price was paid
in cash from the Company's cash balances. The terms of certain of the
acquisition agreements provide for amounts advanced to PlasmaQuest prior to the
acquisition, to be repaid. During 2000, the amounts were not repaid in full and
the purchase price was adjusted, resulting in an additional allocation of
$330,000 to goodwill. The allocation of the purchase price is as follows:
Current assets............................................. $ 1,438
Goodwill................................................... 393
Property and equipment and other assets.................... 1,141
Liabilities assumed........................................ (2,825)
-------
$ 147
=======
25
27
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
In fiscal 1998, the Company completed the acquisition of Sorbios GmbH, a
manufacturer of ozone generators and air ionizers for semiconductor production.
The Company acquired all of the stock of Sorbios GmbH for a total purchase price
of $3,683,000. The purchase price was paid in cash, from the Company's cash
balances. Costs associated with the acquired in-process research and development
expenses were charged to expense. The allocation of the purchase price is as
follows:
Current assets............................................. $ 2,150
Acquired intangibles....................................... 2,389
Property and equipment and other assets.................... 2,551
Liabilities assumed........................................ (3,407)
-------
$ 3,683
=======
The following unaudited pro forma results of operations of the Company give
effect to the acquisitions made in 2000 as if the acquisitions had occurred at
the beginning of 1999. Such pro forma information reflects certain adjustments
including amortization of goodwill, interest expense, interest income, income
tax effect and an increase in the number of weighted average shares outstanding.
This pro forma information does not necessarily reflect the results of
operations that would have occurred had the acquisitions taken place as
described and is not necessarily indicative of results that may be obtained in
the future.
YEAR ENDED
DECEMBER 31,
--------------------
2000 1999
-------- --------
Net sales.............................................. $479,371 $283,717
Net income............................................. $ 58,005 $ 17,997
Net income per share:
Basic................................................ $ 1.64 $ 0.58
Diluted.............................................. $ 1.59 $ 0.57
In July 2000, the Company invested $1.5 million in Opnetics Corporation,
for a 12.6% investment in the common stock of that company. One of the Company's
vice presidents is also an investor with a 1.68% holding of the outstanding
common stock.
13. RESTRUCTURING CHARGES AND OTHER RELATED EXPENSES
During 1999, the Company consolidated its Modesto, California operations
into its Woburn, Massachusetts and Colorado Springs, Colorado sites. The Company
also consolidated its Beverly, Massachusetts operation into Woburn. These
consolidations resulted in a restructuring charge of $1,497,000. The
restructuring charge consisted of severance relating to the termination of 70
employees, abandonment of leasehold improvements and fixed assets, and facility
costs (primarily future lease payments relating to abandoned facilities).
In connection with the aforementioned consolidations, the Company wrote
down inventory having a cost of $1,090,000 during 1999. The write-down was due
to excess inventory resulting from the unexpected severity of the downturn in
the semiconductor equipment industry, excess and obsolete customer-specific
inventory, and the abandonment of certain marginal product lines. The Company
also incurred $393,000 of other transition costs related to the consolidations
for moving assets and training personnel. The write-down of inventory and other
transition costs are reflected in the consolidated supplemental statement of
operations as cost of sales and revenues, and general and administrative
expenses, respectively.
26
28
MKS INSTRUMENTS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Tables in Thousands, Except Per Share Data)
Also during 1999, the Company announced the consolidation of its recently
acquired PlasmaQuest operations based in Dallas, Texas into its newly leased
space in Wilmington, Massachusetts. This consolidation has resulted in a
restructuring charge of approximately $763,000, primarily consisting of
severance relating to the termination of 16 employees, abandonment of leasehold
improvements and fixed assets, and facility costs (primarily future lease
payments relating to the abandoned facility).
Total 1999 costs related to restructurings, inventory writedowns and
transition costs were $3,743,000.
The following table summarizes the recorded accruals and uses of the 1999
restructuring and impairment actions:
ASSET SEVERANCE EXIT
IMPAIRMENTS BENEFITS COSTS TOTAL
----------- --------- ----- ------
First Quarter Restructuring
Total charge...................................... $ 606 $ 579 $ 312 $1,497
Cash payments..................................... (8) (546) (140) (694)
Noncash items..................................... (598) -- -- (598)
Adjustments of accrual............................ -- (33) 2 (31)
----- ----- ----- ------
Accrual balance as of December 31, 1999........ -- -- 174 174
----- ----- ----- ------
Cash payments..................................... -- -- (172) (172)
Adjustment of accrual............................. -- -- (2) (2)
----- ----- ----- ------
Accrual balance as of December 31, 2000........ $ -- $ -- $ -- $ --
===== ===== ===== ======
Fourth Quarter Restructuring
Total charges..................................... $ 183 $ 196 $ 384 $ 763
Noncash items..................................... (183) -- -- (183)
----- ----- ----- ------
Accrual balance as of December 31, 1999........ -- 196 384 580
----- ----- ----- ------
Cash payments..................................... -- (196) (340) (536)
Adjustment of accrual............................. -- -- (44) (44)
----- ----- ----- ------
Accrual balance as of December 31, 2000........ $ -- $ -- $ -- $ --
===== ===== ===== ======
14. INTANGIBLE ASSETS
Intangible assets include the following at December 31:
USEFUL
2000 1999 LIVES
------- ------- ----------
Patents, proprietary technology and other acquired
intangibles....................................... $22,965 $ 1,053 3-10 years
Goodwill............................................ 28,508 4,909 5-10 years
------- -------
51,473 5,962
Less: accumulated amortization...................... (6,148) (1,126)
------- -------
Total............................................... $45,325 $ 4,836
======= =======
27