• 2017 was a record year in revenue and GAAP and Non-GAAP EPS

    · Annual revenue increased 30% compared to pro-forma 2016 to a record $1.9 billion

    · Annual semiconductor revenue increased 45% on a pro-forma basis to a record $1.1 billion

    · Annual revenue in advanced markets increased 14% on a pro-forma basis to a record $820 million

    · 
    Light and Motion set new quarterly and annual revenue records and in Q4’17 exceeded $200 million in revenue for the first time
  • Our 2018 January Operating Model shows a 33% increase in Non-GAAP EPS compared to the October 2017 Operating Model  

ANDOVER, Mass., Jan. 31, 2018 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported fourth quarter and full year 2017 financial results.

GAAP Financial Results1
 Q4 Full Year
 2017 2016 2017 2016
Net revenues ($ millions)$512 $405 $1,916 $1,295
Operating margin23.4% 15.4% 21.2% 12.1%
Net income ($ millions)$77.6 $45.5 $339.1 $104.8
Diluted EPS$1.41 $0.83 $6.16 $1.94
 
Non-GAAP Financial Results1
 Q4 Full Year
 2017 2016 2017 2016
Net revenues ($ millions)$512 $405 $1,916 $1,295
Operating margin25.9% 20.6% 24.6% 18.7%
Net earnings ($ millions)$94.6 $57.2 $328.2 $164.0
Diluted EPS$1.71 $1.05 $5.96 $3.03
1 The full year 2016 results include the results of Newport Corporation (now the Light and Motion segment) since its acquisition on April 29, 2016.
 

Fourth Quarter Financial Results  

Sales were $512 million, an increase of 5% from $486 million in the third quarter of 2017, and an increase of 26% from $405 million in the fourth quarter of 2016.

Fourth quarter net income was $77.6 million, or $1.41 per diluted share, compared to net income of $76.0 million, or $1.38 per diluted share in the third quarter of 2017, and $45.5 million, or $0.83 per diluted share in the fourth quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $94.6 million, or $1.71 per diluted share, compared to $85.9 million, or $1.56 per diluted share in the third quarter of 2017, and $57.2 million, or $1.05 per diluted share in the fourth quarter of 2016.

Sales to semiconductor customers were $284 million, an increase of 1% compared to a strong third quarter of 2017, and sales to advanced markets were $228 million in the quarter, an increase of 11% sequentially driven largely by strong growth from our Light and Motion Division. 

Sales in the Vacuum and Analysis segment, the historic MKS business, set a quarterly record of $311 million, driven by very strong sales to semiconductor customers. Sales in the Light and Motion segment, the historic Newport business, also set a quarterly record of $201 million.

Additional Financial Information

The Company had $543 million in cash and short-term investments as of December 31, 2017 and $398 million outstanding under its Term Loan. During the fourth quarter, the Company made another voluntary Term Loan repayment of $50 million and paid a dividend of $9.8 million or $0.18 per diluted share.

Full Year Results

Sales were a record $1.92 billion, an increase of 30% from $1.47 billion in 2016 on a pro-forma basis (assuming the acquisition of Newport Corporation had occurred as of the beginning of 2016), driven by strong sales to both semiconductor customers as well as customers in thin film manufacturing, industrial manufacturing, and health and life sciences. Sales to semiconductor customers were $1.1 billion, an increase of 45% compared to 2016, also on a pro-forma basis, while sales to advanced markets were $820 million, an increase of 14%.

Sales in the Vacuum and Analysis segment were $1.2 billion, an increase of 38% from $872 million in 2016, driven by very strong sales to semiconductor customers, which increased nearly 50% from 2016.

Sales in the Light and Motion segment were $709 million, an increase of 18% from $602 million in 2016, on a pro-forma basis driven by both sales to semiconductor customers as well as industrial manufacturing customers.

“We are very pleased with our fourth quarter and full year 2017 results, which set new records for revenue and profitability, in both of our segments,” said Gerald Colella, Chief Executive Officer and President. Mr. Colella added, “This strong performance reflects our focused strategy of achieving sustainable and profitable growth by providing customers with innovative technology solutions, continuing to streamline all aspects of our operations, and investing in high-growth solutions and markets.  Moreover, our ability to successfully grow and integrate Newport into the existing MKS business helped us deliver these strong results and positions us for future success.”

“The acquisition of Newport Corporation coupled with our organic growth has enabled us to nearly double non-GAAP EPS in 2017 compared to 2016,” said Seth Bagshaw, Senior Vice President and Chief Financial Officer.  Mr. Bagshaw added “These achievements are reflected in our newly published January 2018 Operating Model, which demonstrates our continued and long standing efforts to drive improvements in our operating leverage. Furthermore, recently enacted U.S. Federal tax reform legislation is positive for MKS and is expected to result in a significant reduction in our effective tax rate while providing more long term flexibility in our use of cash.”

First Quarter 2018 Outlook  

Based on current business levels, the Company expects that sales in the first quarter of 2018 may range from $510 to $550 million, and at these volumes, GAAP net income could range from $1.68 to $1.95 per diluted share and non-GAAP net earnings could range from $1.86 to $2.12 per diluted share. This financial guidance incorporates assumptions made based upon the Company’s current interpretation of the 2017 Tax Cut and Jobs Act, and may change as additional clarification and implementation guidance is issued.

January 2018 Operating Model

The Company also published an updated operating model, which reflects an illustrative revenue level of $2.2 billion, improvements in gross margin, lower interest expense, and the expected impact of the 2017 Tax Cut and Jobs Act. As a result of these improvements, non-GAAP EPS in the model increased by 33% to $8.55 compared to $6.42 in the prior operating model, published in October of 2017, and represents an improvement in non-GAAP EPS of more than 80% compared to the model entering 2017.    

A conference call with management will be held on Thursday, February 1, 2018 at 8:30 a.m. (Eastern Time).  To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you.  Participants will need to provide the operator with the Conference ID of 5595206, which has been reserved for this call.  A live and archived webcast of the call will be available on the Company’s website at www.mksinst.com.    

About MKS Instruments

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor, and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity.  The Company’s products are derived from core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control technology, ozone generation and delivery, RF & DC power, reactive gas generation, vacuum technology, lasers, photonics, sub-micron positioning, vibration isolation, and optics.  MKS’ primary markets include semiconductor capital equipment, general industrial, life sciences, and research.  Additional information can be found at www.mksinst.com.

Use of Non-GAAP Financial Results

Non-GAAP amounts exclude amortization of acquired intangible assets, asset impairments, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of the Company’s term loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effects of the 2017 Tax Cut and Jobs Act, the tax effect of legal entity restructurings, other discrete tax benefits and charges, and the related tax effect of these adjustments.  These non-GAAP measures are not in accordance with generally accepted accounting principles in the United States of America (GAAP).  MKS' management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results. Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44 million and included $5 million in debt issuance cost. Annualized GAAP interest expense based upon $398 million in principal currently outstanding and LIBOR plus 200 basis points would be $17.5 million and includes $4 million of debt issuance cost.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future financial performance, business prospects and growth of MKS as well as expected synergies and cost savings from the acquisition of Newport Corporation.  These statements are only predictions based on current assumptions and expectations.  Actual events or results may differ materially from those in the forward-looking statements set forth herein.  Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are the conditions affecting the markets in which MKS operates, including the fluctuations in capital spending in the semiconductor industry and other advanced manufacturing markets, fluctuations in net sales to major customers, the Company’s ability to successfully integrate Newport’s operations and employees, unexpected risks, costs, charges or expenses resulting from the Newport acquisition or other acquisitions, the terms of the term loan financing, fluctuations in interest rates, the impact of the 2017 Tax Cut and Jobs Act as additional clarification and implementation guidance is issued with respect thereto, the Company’s ability to successfully grow the business, potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and the other factors described in MKS’ most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with SEC. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter these forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.  

Company Contact: Seth H. Bagshaw
Senior Vice President, Chief Financial Officer and Treasurer  
Telephone:  978.645.5578

Investor Relations Contacts
Monica Gould
The Blueshirt Group
Telephone:  212.871.3927
Email:  monica@blueshirtgroup.com 

Lindsay Grant Savarese
The Blueshirt Group
Telephone:  212.331.8417
Email:  lindsay@blueshirtgroup.com 

        
        
MKS Instruments, Inc.   
Unaudited Consolidated Statements of Operations   
(In thousands, except per share data)   
        
        
        
  Three Months Ended  
  December 31, December 31, September 30, 
  2017 2016 2017 
        
Net revenues:       
Products $  463,851   $  359,765   $  434,710   
Services    47,949      45,375      51,557   
Total net revenues    511,800      405,140      486,267   
Cost of revenues:             
Products    242,008      194,716      225,174   
Services    31,466      27,016      33,098   
Total cost of revenues    273,474      221,732      258,272   
              
Gross profit    238,326      183,408      227,995   
              
Research and development    33,045      32,870      32,548   
Selling, general and administrative    72,510      67,626      71,839   
Acquisition and integration costs    634      2,089      2,466   
Restructuring    1,324      618      10   
Asset impairment    -       5,000      -    
Amortization of intangible assets    10,797      12,691      10,977   
Income from operations    120,016      62,514      110,155   
                
Interest income    1,125      702      873   
Interest expense    7,989      10,085      7,172   
Other expense, net    2,155      3,575      2,485   
Income from operations before income taxes    110,997      49,556      101,371   
Provision for income taxes     33,359      4,069      25,377   
Net income $  77,638   $  45,487   $  75,994   
              
Net income per share:             
Basic $  1.43   $  0.85   $  1.40   
Diluted $  1.41   $  0.83   $  1.38   
              
Cash dividends per common share $  0.18   $  0.17   $  0.175   
              
Weighted average shares outstanding:              
Basic    54,318      53,617      54,282   
Diluted    55,236      54,518      55,101   
              
The following supplemental Non-GAAP earnings information is presented              
to aid in understanding MKS' operating results:             
              
Net income $  77,638   $  45,487   $  75,994   
              
Adjustments:             
Acquisition and integration costs (Note 1)    634      2,089      2,466   
Fees and expenses relating to re-pricing of term loan (Note 2)    -       526      492   
Amortization of debt issuance costs (Note 3)    3,983      2,430      2,314   
Restructuring (Note 4)    1,324      618      10   
Asset impairment (Note 5)    -       5,000      -    
Amortization of intangible assets    10,797      12,691      10,977   
Windfall tax benefit on stock-based compensation (Note 6)    (658)    -       (594) 
Withholding tax on dividends (Note 7)    -       1,362      -    
Tax benefit from a legal entity restructuring (Note 8)    -       (6,570)    -    
Deferred tax adjustment (Note 9)    (24,546)    -       -    
Transition tax on accumulated foreign earnings (Note 10)    28,658      -       -    
Tax adjustment related to the sale of a business (Note 11)    (12,131)    -       -    
Accrued tax on MKS subsidiary distribution (Note 12)    14,000      -       -    
Pro-forma tax adjustments    (5,083)    (6,437)    (5,789) 
              
Non-GAAP net earnings  $  94,616   $  57,196   $  85,870   
              
Non-GAAP net earnings per share $  1.71   $  1.05   $  1.56   
              
Weighted average shares outstanding    55,236      54,518      55,101   
              
Income from operations $  120,016   $  62,514   $  110,155   
              
Adjustments:             
Acquisition and integration costs (Note 1)    634      2,089      2,466   
Fees and expenses relating to re-pricing of term loan (Note 2)    -       526      492   
Restructuring (Note 4)    1,324      618      10   
Asset impairment (Note 5)    -       5,000      -    
Amortization of intangible assets    10,797      12,691      10,977   
              
Non-GAAP income from operations  $  132,771   $  83,438   $  124,100   
              
Non-GAAP operating margin percentage   25.9%  20.6%  25.5% 
              
Interest expense $  7,989   $  10,085   $  7,172   
Amortization of debt issuance costs (Note 3)    3,983    2,430    2,314   
              
Non-GAAP interest expense $  4,006   $  7,655   $  4,858   
              
Net income $  77,638   $  45,487   $  75,994   
Interest expense, net    6,864      9,383      6,299   
Provision for income taxes    33,359      4,069      25,377   
Depreciation    9,208      9,478      9,153   
Amortization    10,797      12,691      10,977   
EBITDA  $  137,866   $  81,108   $  127,800   
Stock-based compensation     4,544      5,402      4,846   
Acquisition and integration costs (Note 1)    634      2,089      2,466   
Fees and expenses relating to re-pricing of term loan (Note 2)    -       526      492   
Restructuring (Note 4)    1,324      618      10   
Asset impairment (Note 5)    -       5,000      -    
Other adjustments    839      817      836   
Adjusted EBITDA  $  145,207   $  95,560   $  136,450   
              
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016. 
        
Note 2: We recorded fees and expenses related to the re-pricing of our Term Loan Credit Agreement during the three month periods ended September 30, 2017 and December 31, 2016. 
  
Note 3: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. 
  
Note 4: We recorded restructuring costs, primarily related to the consolidation of two manufacturing plants during the three months ended December 31, 2017. We recorded restructuring costs related to one of our international facilities during the three months ended December 31, 2016. 
  
Note 5: We recorded an asset impairment charge related to a minority interest investment in a privately held company during the three months ended December 31, 2016. 
  
Note 6: We recorded windfall tax benefits on the vesting of stock-based compensation during the three months ended December 31, 2017 and September 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09). 
  
Note 7: We recorded withholding tax on intercompany dividends during the three months ended December 31, 2016. 
        
Note 8: We recorded a tax benefit related to a legal entity restructuring during the three months ended December 31, 2016. 
  
Note 9: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to U.S. tax reform legislation during the three months ended December 31, 2017. 
  
Note 10*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three months ended December 31, 2017. 
  
Note 11*: We recorded a tax adjustment resulting from the 2017 Tax Cut and Jobs Act, related to the sale of our Data Analytics Solutions business during the three months ended December 31, 2017. 
  
Note 12*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the three months ended December 31, 2017. 
  
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time. 
        
        


      
MKS Instruments, Inc. 
Unaudited Consolidated Statements of Operations 
(In thousands, except per share data) 
      
      
      
  Twelve Months Ended 
  December 31, 
   2017   2016  
          
Net revenues:         
Products $  1,723,433   $  1,134,013   
Services    192,544      161,329   
Total net revenues    1,915,977      1,295,342   
Cost of revenues:         
Products    901,546      627,850   
Services    122,980      101,873   
Total cost of revenues    1,024,526      729,723   
          
Gross profit    891,451      565,619   
          
Research and development    132,555      110,579   
Selling, general and administrative    290,548      229,171   
Acquisition and integration costs    5,332      27,279   
Restructuring    3,920      642   
Asset impairment     6,719      5,000   
Amortization of intangible assets    45,743      35,681   
Income from operations    406,634      157,267   
          
Interest income    3,021      2,560   
Interest expense    30,990      30,611   
Gain on sale of business    74,856      -    
Other expense, net    5,896      1,239   
Income from operations before income taxes    447,625      127,977   
Provision for income taxes     108,493      23,168   
Net income $  339,132   $  104,809   
          
Net income per share:         
Basic $  6.26   $  1.96   
Diluted $  6.16   $  1.94   
          
Cash dividends per common share $  0.71   $  0.68   
          
Weighted average shares outstanding:          
Basic    54,137      53,472   
Diluted    55,074      54,051   
          
The following supplemental Non-GAAP earnings information is presented          
to aid in understanding MKS' operating results:         
          
Net income $  339,132   $  104,809   
          
Adjustments:         
Acquisition and integration costs (Note 1)    5,332      27,279   
Acquisition inventory step-up (Note 2)    -       15,090   
Expenses related to sale of a business (Note 3)    859      -    
Excess and obsolete inventory charge (Note 4)    1,160      -    
Fees and expenses relating to re-pricing of term loan (Note 5)    492      1,239   
Amortization of debt issuance costs (Note 6)    9,405      6,897   
Restructuring (Note 7)    3,920      642   
Asset impairment (Note 8)    6,719      5,000   
Gain on sale of business (Note 9)    (74,856)    -    
Net proceeds from an insurance policy (Note 10)    -       (1,323) 
Amortization of intangible assets    45,743      35,681   
Taxes related to the sale of a business (Note 11)    2,876      -    
Windfall tax benefit on stock-based compensation (Note 12)    (11,071)    -    
Withholding tax on dividends (Note 13)    -       1,362   
Tax benefit from a legal entity restructuring (Note 14)    -       (5,038) 
Deferred tax adjustment (Note 15)    (24,546)    -    
Transition tax on accumulated foreign earnings (Note 16)    28,658      -    
Accrued tax on MKS subsidiary distribution (Note 17)    14,000      -    
Pro-forma tax adjustments    (19,639)    (27,617) 
          
Non-GAAP net earnings  $  328,184   $  164,021   
          
Non-GAAP net earnings per share  $  5.96   $  3.03   
          
Weighted average shares outstanding    55,074      54,051   
          
Income from operations $  406,634   $  157,267   
          
Adjustments:         
Acquisition and integration costs (Note 1)    5,332      27,279   
Acquisition inventory step-up (Note 2)    -       15,090   
Expenses related to the sale of a business (Note 3)    859      -    
Excess and obsolete inventory charge (Note 4)    1,160      -    
Fees and expenses relating to re-pricing of term loan (Note 5)    492      1,239   
Restructuring (Note 7)    3,920      642   
Asset impairment (Note 8)    6,719      5,000   
Amortization of intangible assets    45,743      35,681   
          
Non-GAAP income from operations  $  470,859   $  242,198   
          
Non-GAAP operating margin percentage   24.6%  18.7% 
          
Gross profit $  891,451   $  565,619   
Acquisition inventory step-up (Note 2)    -       15,090   
Excess and obsolete inventory charge (Note 4)    1,160      -    
          
Non-GAAP gross profit  $  892,611   $  580,709   
          
Non-GAAP gross profit percentage   46.6%  44.8% 
          
Interest expense $  30,990   $  30,611   
Amortization of debt issuance costs (Note 6)    9,405      6,897   
          
Non-GAAP interest  expense $  21,585   $  23,714   
          
Net income $  339,132   $  104,809   
Interest expense, net    27,969      28,051   
Provision for income taxes    108,493      23,168   
Depreciation    36,813      30,245   
Amortization    45,743      35,681   
EBITDA  $  558,150   $  221,954   
Stock-based compensation     24,378      25,228   
Acquisition and integration costs (Note 1)    5,332      27,279   
Acquisition inventory step-up (Note 2)    -       15,090   
Expenses related to the sale of a business (Note 3)    859      -    
Excess and obsolete inventory charge (Note 4)    1,160      -    
Fees and expenses relating to re-pricing of term loan (Note 5)    492      1,239   
Restructuring (Note 7)    3,920      642   
Asset impairment (Note 8)    6,719      5,000   
Gain on sale of business (Note 9)    (74,856)    -    
Net proceeds from an insurance policy (Note 10)    -       (1,323) 
Other adjustments    3,244      2,312   
Adjusted EBITDA  $  529,398   $  297,421   
          
Note 1: We recorded acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016. 
  
Note 2: We recorded a charge in cost of sales related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition during the twelve months ended December 31, 2016. 
  
Note 3: We recorded legal, consulting and compensation related expenses related to the sale of a business, during the twelve months ended December 31, 2017. 
  
Note 4: We recorded excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants during the twelve months ended December 31, 2017. 
  
Note 5: We recorded fees and expenses related to re-pricings of our Term Loan Credit Agreement. 
  
Note 6: We recorded additional interest expense related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility. 
  
Note 7: We recorded restructuring costs related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices during the twelve months ended December 31, 2017. We recorded restructuring costs related to one of our international facilities during the twelve months ended December 31, 2016. 
  
Note 8: We recorded an asset impairment charge, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants during the twelve months ended December 31, 2017. We recorded an impairment charge related to a minority interest investment in a privately held company during the twelve months ended December 31, 2016. 
  
Note 9: We recorded a gain on the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017. 
  
Note 10: We recorded net proceeds from a Company owned life insurance policy during the twelve months ended December 31, 2016. 
  
Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017. 
  
Note 12: We recorded a windfall tax benefit on the vesting of stock-based compensation relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09) during the twelve months ended December 31, 2017. 
  
Note 13: We recorded a withholding tax on intercompany dividends during the twelve months ended December 31, 2016. 
  
Note 14: We recorded a tax benefit related to a legal entity restructuring during the twelve months ended December 31, 2016. 
  
Note 15*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to  the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017. 
  
Note 16*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017. 
  
Note 17*:  We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the twelve months ended December 31, 2017. 
  
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.
 
  
  


MKS Instruments, Inc. 
Unaudited Consolidated Statements of Cash Flows 
(In thousands, except per share data) 
       
 Three Months Ended  
 December 31, December 31,  September 30, 
  2017   2016   2017  
Cash flows from operating activities:      
Net income$  77,638   $  45,487   $  75,994   
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization   20,006    22,169    20,130   
Amortization of debt issuance costs and original issue discount   4,314    2,812    2,643   
Stock-based compensation   4,544    5,402    4,845   
Provision for excess and obsolete inventory   4,864    4,994    4,347   
Provision for doubtful accounts   175    943    139   
Deferred income taxes   (16,528)  (29,255)  (1,157) 
Excess tax benefit from stock-based compensation   -     (790)    -    
Asset impairment   -     5,000      -    
Other   (7)  131    36   
Changes in operating assets and liabilities   (14,220)    (4,172)    (8,014) 
             
Net cash provided by operating activities   80,786      52,721      98,963   
             
Cash flows from investing activities:            
Purchases of investments   (30,545)    (152,383)    (129,430) 
Sales of investments   9,993      1,404      18,252   
Maturities of investments   40,563      12,311      31,545   
Purchases of property, plant and equipment   (13,431)    (7,164)    (8,118) 
Other   66      232      -    
             
Net cash provided by (used in) investing activities   6,646      (145,600)    (87,751) 
             
Cash flows from financing activities:            
Restricted cash (177)  316      5,163   
Payments of short-term borrowings   (16,435)    (3,453)    (4,020) 
Proceeds from short and long-term borrowings   15,394      4,438      4,522   
Payments of long-term borrowings   (50,000)    (41,570)    (125,000) 
Dividend payments   (9,775)    (9,112)    (9,500) 
Excess tax benefit from stock-based compensation   -       790      -    
Net proceeds related to employee stock awards   2,504      1,186      (1,306) 
             
Net cash used in financing activities   (58,489)    (47,405)    (130,141) 
             
Effect of exchange rate changes on cash and cash equivalents   (1,152)    2,033      2,076   
             
Increase (decrease) in cash and cash equivalents   27,791      (138,251)    (116,853) 
             
Cash and cash equivalents at beginning of period 305,977    366,874    422,830   
             
Cash and cash equivalents at end of period$  333,768   $  228,623   $  305,977   
             
             


MKS Instruments, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands, except per share data)
     
  Twelve Months Ended
  December 31, December 31,
   2017   2016 
Cash flows from operating activities:    
Net income  $  339,132   $  104,809  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  82,556    65,926  
Amortization of inventory step-up adjustment to fair value    -     15,090  
Amortization of debt issuance costs and original issue discount  10,699    9,265  
Stock-based compensation  24,378    25,228  
Provision for excess and obsolete inventory  20,213    16,039  
Provision for doubtful accounts  825    1,109  
Deferred income taxes  (9,886)  (38,822)
Excess tax benefit from stock-based compensation    -     (1,468)
Asset impairment  6,719    5,000  
Gain on sale of business  (74,856)    -   
Other  824    256  
Changes in operating assets and liabilities    (45,382)    (22,334)
         
Net cash provided by operating activities    355,222      180,098  
         
Cash flows from investing activities:        
Net proceeds from the sale of a business  72,509      -   
Acquisition of business, net of cash acquired    -     (939,591)
Purchases of investments  (229,557)    (268,458)
Sales of investments  53,564      338,996  
Maturities of investments  157,342      160,917  
Purchases of property, plant and equipment  (31,287)    (19,123)
Other  66      273  
         
Net cash provided by (used in) investing activities    22,637      (726,986)
         
Cash flows from financing activities:        
Restricted cash  4,835    (5,860)
Payments of short-term borrowings    (29,711)    (11,742)
Proceeds from short-term borrowings    28,360      18,964  
Payments of long-term borrowings    (228,141)    (153,395)
Proceeds from long-term borrowings    191      744,653  
Repurchases of common stock    -       (1,545)
Dividend payments  (38,178)    (36,361)
Excess tax benefit from stock-based compensation    -       1,468  
Net proceeds related to employee stock awards  (12,215)    (1,922)
         
Net cash (used in) provided by financing activities    (274,859)    554,260  
         
Effect of exchange rate changes on cash and cash equivalents  2,145      (6,323)
         
Increase in cash and cash equivalents    105,145      1,049  
         
Cash and cash equivalents at beginning of year  228,623    227,574  
         
Cash and cash equivalents at end of year $  333,768   $  228,623  
         
         


             
MKS Instruments, Inc. 
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate 
(In thousands) 
             
  Three Months Ended December 31, 2017 Three Months Ended September 30, 2017
  Income Before Provision (benefit) Effective   Income Before Provision (benefit) Effective 
  Income Taxes for Income Taxes Tax Rate Income Taxes for Income Taxes Tax Rate
             
GAAP $  110,997   $  33,359    30.1% $  101,371   $  25,377   25.0%
                        
Adjustments:                       
Acquisition and integration costs (Note 1)    634      -           2,466      -      
Fees and expenses relating to re-pricing of term loan (Note 5)    -       -           492      -      
Amortization of debt issuance costs (Note 6)    3,983      -           2,314      -      
Restructuring (Note 7)    1,324      -           10      -      
Amortization of intangible assets    10,797      -           10,977      -      
Windfall tax benefit on stock-based compensation (Note 10)    -       658          -       594     
Deferred tax adjustment (Note 15)    -       24,546          -       -      
Transition tax on accumulated foreign earnings (Note 16)    -       (28,658)        -       -      
Accrued tax on MKS subsidiary distribution (Note 17)    -       (14,000)        -       -      
Tax adjustment related to the sale of a business (Note 11)    -       12,131          -       -      
Tax effect of pro-forma adjustments    -       5,083          -       5,789     
                        
Non-GAAP $  127,735   $  33,119    25.9% $  117,630   $  31,760   27.0%
                  
                  
  Three Months Ended December 31, 2016           
  Income Before Provision (benefit) Effective             
  Income Taxes for Income Taxes Tax Rate           
                  
GAAP $  49,556   $  4,069    8.2%           
                        
Adjustments:                       
Acquisition and integration costs (Note 1)    2,089      -                  
Fees and expenses relating to re-pricing of term loan (Note 5)    526      -                  
Amortization of debt issuance costs (Note 6)    2,430      -                  
Restructuring (Note 7)    618      -                  
Asset impairment (Note 8)    5,000      -                  
Amortization of intangible assets    12,691      -                  
Taxes related to a legal entity restructuring (Note 13)    -       6,570                 
Withholding tax on dividends (Note 14)    -       (1,362)               
Tax effect of pro-forma adjustments    -       6,437                 
                        
Non-GAAP $  72,910   $  15,714    21.6%           
                        
             
  Twelve Months Ended December 31, 2017 Twelve Months Ended December 31, 2016
  Income Before Provision (benefit) Effective   Income Before Provision (benefit) Effective 
  Income Taxes for Income Taxes Tax Rate Income Taxes for Income Taxes Tax Rate
             
GAAP $  447,625   $  108,493    24.2% $  127,977   $  23,168   18.1%
                        
Adjustments:                       
Acquisition and integration costs (Note 1)    5,332      -           27,279      -      
Acquisition inventory step-up (Note 2)    -       -           15,090      -      
Expenses related to the sale of a business (Note 3)    859      -           -       -      
Excess and obsolete inventory charge (Note 4)    1,160      -           -       -      
Fees and expenses relating to re-pricing of term loan (Note 5)    492      -           1,239      -      
Amortization of debt issuance costs (Note 6)    9,405      -           6,897      -      
Restructuring (Note 7)    3,920      -           642      -      
Asset impairment (Note 8)    6,719      -           5,000      -      
Gain on sale of business (Note 9)    (74,856)    -           -       -      
Amortization of intangible assets    45,743      -           35,681      -      
Windfall tax benefit on stock-based compensation (Note 10)    -       11,071          -       -      
Taxes related to the sale of a business (Note 11)    -       (2,876)        -       -      
Net proceeds from an insurance policy (Note 12)    -       -           (1,323)    -      
Taxes related to a legal entity restructuring (Note 13)    -       -           -       5,038     
Withholding tax on dividends (Note 14)    -       -           -       (1,362)   
Deferred tax adjustment (Note 15)    -       24,546          -       -      
Transition tax on accumulated foreign earnings (Note 16)    -       (28,658)        -       -      
Accrued tax on MKS subsidiary distribution (Note 17)    -       (14,000)        -       -      
Tax effect of pro-forma adjustments    -       19,639          -       27,617     
                        
Non-GAAP $  446,399   $  118,215    26.5% $  218,482   $  54,461   24.9%
                        
Note 1: Acquisition and integration costs related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded a charge in cost of sales related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition, during the twelve months ended December 31, 2016.
 
Note 3: We recorded expenses related to the sale of a business, during the twelve months ended December 31, 2017.
 
Note 4: We recorded excess and obsolete inventory charges in cost of sales related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants, during the twelve months ended December 31, 2017.
 
Note 5: We recorded fees and expenses related to the re-pricing of our Term Loan Credit Agreement, during the three months ended September 30, 2017 and December 31, 2016 and the twelve months ended December 31, 2017 and 2016.
 
Note 6: Amortization of debt issuance costs are affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: We recorded restructuring costs primarily related to the consolidation of two manufacturing plants and costs related to a restructuring of one of our international facilities and the consolidation of sales offices during the three and twelve months ended December 31, 2017. We recorded restructuring costs related to the restructuring of one of our international facilities during the twelve months ended December 31, 2016.
 
Note 8: We recorded an asset impairment charge, during the twelve months ended December 31, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants. We recorded an impairment charge during the three and twelve months ended December 31, 2016, related to a minority interest investment in a privately held company.
 
Note 9: We recorded a gain on the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017.
 
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 11: We recorded taxes related to the sale of our Data Analytics Solutions business during the twelve months ended December 31, 2017. The three months ended December 31, 2017 includes a tax adjustment related to the sale of our Data Analytics Solutions business resulting from U.S. tax reform legislation.
 
Note 12: We recorded net proceeds from a Company owned life insurance policy during the twelve months ended December 31, 2016.
 
Note 13: We recorded a tax expense related to a legal entity restructuring during the twelve months ended December 31, 2016.
 
Note 14: We recorded withholding tax on intercompany dividends during the three and twelve months ended December 31, 2016.
 
Note 15*: We recorded a deferred tax adjustment, which also includes the reversal of a tax accrual on a French dividend, related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.
 
Note 16*: We recorded a transition tax on accumulated foreign earnings related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.
 
Note 17*: We recorded an accrual for tax expense on a potential distribution to a subsidiary, related to the 2017 Tax Cut and Jobs Act during the three and twelve months ended December 31, 2017.
 
*The computation of the one-time tax on our offshore earnings pursuant to the 2017 Tax Cut and Jobs Act (the "Tax Act") as well as our net deferred tax liability is based on our current understanding and assumptions regarding the impact of the Tax Act, and may change as additional clarification and implementation guidance is issued and as the interpretation of the Tax Act evolves over time.
 
 
MKS Instruments, Inc. 
Reconciliation of Q1-18 Guidance - GAAP Net Income to Non-GAAP Net Earnings  
(In thousands, except per share data)  
             
  Three Months Ended March 31, 2018    
  Low Guidance High Guidance    
  $ Amount $ Per Share $ Amount $ Per Share    
             
GAAP net income $  93,200   $  1.68   $  108,100   $  1.95      
                     
Amortization  11,000      0.20    11,000      0.20      
                     
Deferred financing costs  900      0.02    900      0.02      
                     
Tax effect of adjustments (Note 1)  (2,200)    (0.04)  (2,300)    (0.04)    
                     
Non-GAAP net earnings $  102,900   $  1.86   $  117,700   $  2.12      
                     
Q1 -18 forecasted shares      55,400        55,400      
             
Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates. 
 
 


MKS Instruments, Inc. 
Unaudited Consolidated Balance Sheet 
(In thousands) 
      
      
      
      
  December 31, December 31, 
  2017 2016
 
         
ASSETS        
         
Cash and cash equivalents $  333,768  $  228,623   
Restricted cash    119     5,287   
Short-term investments    209,434     189,463   
Trade accounts receivable, net    300,308     248,757   
Inventories    339,081     275,869   
Other current assets    53,543     50,770   
         
Total current assets    1,236,253     998,769   
         
Property, plant and equipment, net    171,782     174,559   
Goodwill    591,047     588,585   
Intangible assets, net    366,398     408,004   
Long-term investments    10,655     9,858   
Other assets    37,883     32,467   
         
Total assets $  2,414,018  $  2,212,242   
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
Short-term debt $  2,972  $  10,993   
Accounts payable    82,518     69,337   
Accrued compensation    96,147     67,728   
Income taxes payable    25,106     22,794   
Deferred revenue    12,842     14,463   
Other current liabilities    73,945     51,985   
Total current liabilities    293,530     237,300   
         
Long-term debt, net    389,993     601,229   
Non-current deferred taxes    56,516     66,446   
Non-current accrued compensation    51,700     44,714   
Other liabilities    33,372     20,761   
Total liabilities    825,111     970,450   
         
Stockholders' equity:        
Common stock    113     113   
Additional paid-in capital    789,644     777,482   
Retained earnings    795,698     494,744   
Accumulated other comprehensive loss    3,452     (30,547) 
Total stockholders' equity    1,588,907     1,241,792   
         
Total liabilities and stockholders' equity $  2,414,018  $  2,212,242