e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission
File number 0-23621
MKS INSTRUMENTS, INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Massachusetts
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04-2277512
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(State or other Jurisdiction
of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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2 Tech Drive, Suite 201, Andover, Massachusetts
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01810
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(Address of Principal Executive
Offices)
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(Zip Code)
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Registrants
Telephone Number, including area code
(978) 645-5500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Exchange on Which Registered
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Common Stock, no par value
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NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant as of
June 30, 2009 based on the closing price of the
registrants Common Stock on such date as reported by the
Nasdaq Global Market: $602,380,371
Number of shares outstanding of the issuers Common Stock,
no par value, as of February 17, 2010: 49,521,849
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for MKS Annual
Meeting of Stockholders to be held on May 3, 2010 are
incorporated by reference into Part III of this
Form 10-K.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act. When used herein, the words
believe, anticipate, plan,
expect, estimate, intend,
may, see, will,
would and similar expressions are intended to
identify forward-looking statements although not all forward
looking statements contain these identifying words. These
forward-looking statements reflect managements current
opinions and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
stated or implied. MKS assumes no obligation to update this
information. Risks and uncertainties include, but are not
limited to, those discussed in the section entitled Risk
Factors of this annual report on
Form 10-K.
PART I
MKS Instruments, Inc. (the Company or
MKS) was founded in 1961 as a Massachusetts
corporation. We are a leading worldwide provider of instruments,
subsystems and process control solutions that measure, control,
power, monitor and analyze critical parameters to improve
process performance and productivity of advanced manufacturing
processes. We also provide services relating to the maintenance
and repair of our products, software maintenance, installation
services and training.
We are managed as one operating segment. We group our products
into three product groups: Instruments and Control Systems,
Power and Reactive Gas Products and Vacuum Products. Our
products are derived from our core competencies in pressure
measurement and control, materials delivery, gas composition
analysis, electrostatic charge management, control and
information technology, power and reactive gas generation and
vacuum technology.
Our products are used in diverse markets, applications and
processes. Our primary served markets are manufacturers of
capital equipment for semiconductor devices and for other thin
film applications including flat panel displays, light emitting
diodes (LEDs), solar cells, data storage media and
other advanced coatings. We also leverage our technology into
other markets with advanced manufacturing applications including
medical equipment, biopharm and environmental monitoring.
For over 45 years, we have focused on satisfying the needs
of our customers by establishing long-term, collaborative
relationships. We have a diverse base of customers that includes
manufacturers of semiconductor capital equipment and
semiconductor devices, thin film capital equipment used in the
manufacture of flat panel displays, light emitting diodes, solar
cells, data storage media and other coating applications; and
other industrial, medical, biopharm, environmental monitoring
and other advanced manufacturing companies, as well as
university, government and industrial research laboratories.
We file reports, proxy statements and other documents with the
Securities and Exchange Commission (SEC). You may
read and copy any document we file at the SEC Headquarters at
Office of Investor Education and Assistance,
100 F Street, NE, Washington, D.C. 20549. You
should call
1-800-SEC-0330
for more information on the public reference room. Our SEC
filings are also available to you on the SECs internet
site at
http://www.sec.gov.
Our internet address is www.mksinstruments.com. We are not
including the information contained in our website as part of,
or incorporating it by reference into, this annual report on
Form 10-K.
We make available free of charge through our internet site our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, as soon as reasonably
practicable after we electronically file such materials with the
Securities and Exchange Commission.
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Markets
and Applications
We are focused on improving process performance and productivity
by measuring, controlling, powering, monitoring and analyzing
advanced manufacturing processes in semiconductor, thin film and
other market sectors. We estimate that approximately 52%, 57%
and 68% of our net sales for the years 2009, 2008 and 2007,
respectively, were to semiconductor capital equipment
manufacturers and semiconductor device manufacturers.
Approximately 48%, 43% and 32% of our net sales in the years
2009, 2008 and 2007, respectively, were for other advanced
manufacturing applications. These include, but are not limited
to, thin-film processing equipment applications such as flat
panel displays, LEDs, solar cells, data storage media and other
thin film coatings as well as medical equipment; energy
generation and environmental monitoring processes; biopharm and
other industrial manufacturing; and university, government and
industrial research laboratories.
We estimate that approximately 46%, 43% and 39% of our net sales
for the years 2009, 2008 and 2007, respectively, were to
customers located in international markets. International sales
include sales by our foreign subsidiaries, but exclude direct
export sales.
Semiconductor
Manufacturing Applications
The majority of our sales are derived from products sold to
semiconductor capital equipment manufacturers and semiconductor
device manufacturers. Our products are used in the major
semiconductor processing steps such as depositing thin films of
material onto silicon wafer substrates and etching and cleaning
circuit patterns. In addition, we provide specialized
instruments and software to monitor and analyze process
performance.
We anticipate that the semiconductor manufacturing market will
continue to account for a substantial portion of our sales.
While the semiconductor device manufacturing market is global,
major semiconductor capital equipment manufacturers are
concentrated in Japan and the United States.
Other
Advanced Manufacturing Applications
Our products are used in the manufacture of flat panel displays,
data storage media, solar cells and other coatings including
architectural glass that require the same or similar thin film
deposition processes as semiconductor manufacturing.
Flat
Panel Display Manufacturing
Flat panel displays are used in electronic hand-held devices,
laptop computers, desktop computer monitors and television sets.
We sell products to flat panel display equipment manufacturers
and to end-users in the flat panel display market. Major
manufacturers of flat panel displays are concentrated in Japan,
Korea and Taiwan, and major manufacturers of flat panel display
equipment are concentrated in Japan and the United States. The
transition to larger panel sizes and higher display resolution
is driving the need for improved process control to reduce
defects.
Light
Emitting Diodes (LEDs)
LEDs, or light emitting diodes are made using vacuum processes
similar to semiconductor chip manufacturing. Because of their
high brightness and long life, as well as environmentally
friendly benefits such as lower power consumption, LEDs are
experiencing rapid acceptance in solid state lighting and back
side lighting of flat screen TV displays.
Solar
Cells
Our products are used in crystalline silicon and emerging thin
film processes to manufacture photovoltaic (PV) cells.
Crystalline silicon technology requires wafer based deposition
systems and is currently the dominant manufacturing technology.
Thin film deposition on a non-silicon substrate, such as glass,
is the emerging technology.
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Data
Storage Media
Our products are used to manufacture storage media that store
and read data magnetically; optical storage media that store and
read data using laser technology; hard disks; data storage
devices; and digital video discs.
The transition to higher density storage capacity requires
manufacturing processes incorporating tighter process controls.
Major manufacturers of storage media are concentrated in Japan
and the Asia Pacific region, and major manufacturers of storage
media capital equipment are concentrated in Europe, Japan and
the United States.
Other
Advanced Coatings
Thin film coatings for diverse applications such as
architectural glass and packaging are deposited using processes
similar to those used in semiconductor manufacturing. Thin film
processing manufacturers are concentrated in Europe, Japan and
the United States.
Other
Advanced Applications
Our products are used in other energy generation and
environmental monitoring processes such as nuclear fuel
processing, fuel cell research, greenhouse gas monitoring, and
chemical agent detection; medical instrument sterilization;
consumable medical supply manufacturing and biopharm
applications. Our power delivery products are also incorporated
into other end-market products such as medical imaging
equipment. In addition, our products are sold to government,
university and industrial laboratories for vacuum applications
involving research and development in materials science,
physical chemistry and electronics materials. Major equipment
and process providers and research laboratories are concentrated
in Europe, Japan and the United States.
Product
Groups
We group our products into three product groups: Instruments and
Control Systems, Power and Reactive Gas Products and Vacuum
Products.
Instruments
and Control Systems
This product group includes pressure measurement and control,
materials delivery, gas composition analysis, electrostatic
charge management and control and information technology
products.
Pressure Measurement and Control
Products. Each of our pressure measurement
and control product lines consists of products that are designed
for a variety of pressure ranges and accuracies.
Baratron®
Pressure Measurement Products. These products are
typically used to measure the pressure of the gases being
distributed upstream of the process chambers, to measure process
chamber pressures and to measure pressures between process
chambers, vacuum pumps and exhaust lines. We believe we offer
the widest range of gas pressure measurement instruments in the
semiconductor and advanced thin-film materials processing
industries.
Automatic Pressure and Vacuum Control
Products. These products enable precise control
of process pressure by electronically actuating valves that
control the flow of gases in and out of the process chamber to
minimize the difference between desired and actual pressure in
the chamber.
In most cases, Baratron pressure measurement instruments provide
the pressure input to the automatic pressure control device.
Together, these components create an integrated automatic
pressure control subsystem. Our pressure control products can
also accept inputs from other measurement instruments, enabling
the automatic control of gas input or exhaust based on
parameters other than pressure.
Materials Delivery Products. Each of
our materials delivery product lines combines MKS flow, pressure
measurement and control technologies to provide customers with
integrated subsystems and precise control capabilities that are
optimized for a given application.
Flow Measurement and Control Products. Flow
measurement products include gas and vapor flow measurement
products based upon thermal conductivity, pressure and direct
liquid injection technologies. The flow control products combine
the flow measurement device with valve control elements based
upon solenoid, piezo-
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electric and piston pump technologies. These products measure
and automatically control the mass flow rate of gases and vapors
into the process chamber.
Gas Composition Analysis Products. Gas
composition analysis instruments are sold to a variety of
industries including the semiconductor industry.
Mass Spectrometry-Based Gas Composition Analysis
Instruments. These products are based on
quadrupole mass spectrometer sensors that separate gases based
on molecular weight. These sensors include built-in electronics
and are provided with software that analyzes the composition of
background and process gases in the process chamber. These
instruments are provided both as portable laboratory systems and
as process gas monitoring systems used in the diagnosis of
semiconductor manufacturing process systems.
Fourier Transform Infra-Red (FTIR) Based Gas Composition
Analysis Products. FTIR-based products provide
information about the composition of gases by measuring the
absorption of infra-red light as it passes through the sample
being measured. Gas analysis applications include measuring the
compositions of mixtures of reactant gases; measuring the purity
of individual process gases; measuring the composition of
process exhaust gas streams to determine process health;
monitoring gases to ensure environmental health and safety and
monitoring combustion exhausts. These instruments are provided
as portable laboratory systems and as process gas monitoring
systems used in the diagnosis of manufacturing processes.
Mass spectrometry-based and FTIR-based gas monitoring systems
can indicate
out-of-bounds
conditions, such as the presence of undesirable contaminant
gases and water vapor or
out-of-tolerance
amounts of specific gases in the process, which alert operators
to diagnose and repair faulty equipment.
Leak Detection Products. Helium leak detection
is used in a variety of industries including semiconductor,
heating, ventilation and air-conditioning (HVAC),
automotive and aerospace to ensure the leak integrity of both
manufactured products and manufacturing equipment. We believe
that our products are the smallest mass spectrometer-based
helium leak detectors currently available.
Electrostatic Charge Management
Products. Semiconductor, flat panel display
and data storage industries are vulnerable to electrostatic
charge-related contamination and yield problems. We design and
manufacture products to control electrostatic attraction,
electrostatic discharge and electromagnetic interference. In
high throughput industrial applications such as plastics
manufacture and printing, ionization is used to improve process
control and productivity.
Control and Information Technology
Products. We design and manufacture a suite
of products that allow semiconductor and other manufacturing
customers to better control their processes through
computer-controlled automation. These products include digital
control network products, process chamber and system
controllers, connectivity products and data analysis/information
products.
Control Products. Digital control network
products are used to connect sensors, actuators and subsystems
to the chamber and system control computers. They support a
variety of industry-standard connection methods as well as
conventional discrete digital and analog signals. Chamber and
system control computers process these signals in real time and
allow customers to precisely manage the process conditions.
Connecting sensors, chambers and tools to the factory network is
essential for improving quality and productivity. Our
connectivity products allow information to flow from the process
sensors and subsystems and from the process tool control
computer to the factory network. By enabling this information
flow, we believe that we help customers optimize their processes
through Advanced Process Control (APC), and diagnose
equipment problems from a remote location
(e-diagnostics).
Information Technology Products. We design
on-line and off-line software products to analyze data to
improve the quality and yield of semiconductor, thin film,
biopharmaceutical, injection molding and other manufacturing
processes.
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Power
and Reactive Gas Products
This product group includes power delivery and reactive gas
generation products used in semiconductor and other thin film
applications, including solar and in medical imaging equipment
applications.
Power Delivery Products. We design and
manufacture microwave, DC and RF power delivery systems as well
as RF matching networks and metrology products. In the
semiconductor, thin film and other market sectors, our power
supplies are used to provide energy to various etching,
stripping and deposition processes. Our power amplifiers are
also used in medical imaging equipment.
Reactive Gas Generation Products. Reactive
gases are used to process and clean substrates and to clean
process chambers to reduce particle contamination. A reactive
gas is created when energy is added to a stable gas to break
apart its molecules. When the resulting dissociated gas comes
into contact with other matter it produces rapid chemical
reactions which result in the processing of thin films
(deposition of films, etching and cleaning of films and surface
modifications) or equipment cleaning.
Processing Thin Films. Our reactive gas
products include ozone generators and subsystems used for
deposition of insulators onto semiconductor devices, ozonated
water delivery systems for advanced semiconductor wafer and flat
panel display cleaning, microwave plasma based products for
photo resist removal and a new line of remote plasma generators
which provide reactive gases for a wide range of semiconductor,
flat panel and other thin film process applications.
Equipment Cleaning. As materials are deposited
on wafers, films, or solar cells, the deposited material also
accumulates on the walls of the vacuum process chamber. Our
atomic fluorine generators are used to clean the process
chambers between deposition steps to reduce particulates and
contamination caused by accumulated build up on the chamber
walls.
Vacuum
Products
This product group consists of vacuum technology products,
including vacuum containment components, vacuum gauges, vacuum
valves, effluent management subsystems and custom stainless
steel chambers, vessels, biopharmaceutical process equipment
(BPE) hardware and housings.
Vacuum Gauging Products. We offer a wide range
of vacuum instruments consisting of vacuum measurement sensors
and associated power supply and readout units as well as
transducers where the sensor and electronics are integrated
within a single package. These gauges complement our Baratron
capacitance manometers for medium and high vacuum ranges. Our
indirect gauges use thermal conductivity and ionization gauge
technologies to measure pressure and vacuum levels, and our
direct gauges use the pressure measurement technology of a
MEMS-based piezo sensor.
Vacuum Valves, Stainless Steel Components, Process Solutions
and Custom Stainless Steel Hardware. Our vacuum
valves are used for vacuum isolation of vacuum lines, load
locks, vacuum chambers and pumps for chamber isolation and
vacuum containment. Our vacuum process solutions consist of
vacuum fittings, traps and heated lines that are used downstream
from the semiconductor process chamber to control process
effluent gasses by preventing condensable materials from
depositing particles near or back into the process chamber.
Custom Manufactured Components. Our design and
manufacturing facilities build high purity chambers for material
and thin film coating, atomic layer deposition
(ALD), lithography and all semiconductor and solar
processes. We design and build custom panels, weldments, ASME
(American Society of Manufacturing Engineers) vessels and
housings, as well as a line of BPE certified components for
biopharmaceutical processes.
Customers
Our largest customers include leading semiconductor capital
equipment manufacturers. Sales to our top ten customers
accounted for approximately 36%, 38% and 46% of net sales for
the years 2009, 2008 and 2007, respectively. Sales to our
largest customer, Applied Materials, accounted for approximately
12%, 19% and 20% of our net sales for the years 2009, 2008 and
2007, respectively.
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Sales,
Marketing, Service and Support
Our worldwide sales, marketing, service and support organization
is critical to our strategy of maintaining close relationships
with semiconductor capital equipment manufacturers and
semiconductor device manufacturers. We sell our products
primarily through our direct sales force. As of
December 31, 2009, we had 174 sales employees worldwide,
located in China, France, Germany, Japan, Korea, the
Netherlands, Singapore, Sweden, Taiwan, the United Kingdom and
the United States. We also maintain sales representatives and
agents in a number of countries, which supplement this direct
sales force. We maintain a marketing staff that identifies
customer requirements, assists in product planning and
specifications, and focuses on future trends in semiconductor
and other markets.
As semiconductor device manufacturers have become increasingly
sensitive to the significant costs of system downtime, they have
required that suppliers offer comprehensive local repair service
and close customer support. Manufacturers require close support
to enable them to repair, modify, upgrade and retrofit their
equipment to improve yields and adapt new materials or
processes. To meet these market requirements, we maintain a
worldwide sales and support organization in 17 countries.
Technical support is provided from offices in China, France,
Germany, Japan, Korea, the Netherlands, Singapore, Taiwan, the
United Kingdom and the United States. Repair and calibration
services are provided at 25 service depots located worldwide. We
typically provide warranties from one to three years, depending
upon the type of product.
Research
and Development
Our products incorporate sophisticated technologies to power,
measure, control and monitor increasingly complex gas-related
semiconductor manufacturing processes, thereby enhancing uptime,
yield and throughput for our semiconductor device manufacturing
customers. Our products have continuously advanced as we strive
to meet our customers evolving needs. We have developed,
and continue to develop, new products to address industry
trends, such as the shrinking of integrated circuit critical
dimensions to 32 nanometers and below. In addition, we have
developed, and continue to develop, products that support the
migration to new classes of materials and ultra-thin layers,
such as copper for low resistance conductors, high-k dielectric
materials for capacitors and gates and low-k dielectric
materials for low loss insulators that are used in small
geometry manufacturing. We have undertaken an initiative to
involve our marketing, engineering, manufacturing and sales
personnel in the concurrent development of new products in order
to reduce the time to market for new products. Our employees
also work closely with our customers development personnel
helping us to identify and define future technical needs on
which to focus research and development efforts. We support
research at academic institutions targeted at advances in
materials science and semiconductor process development. As of
December 31, 2009, we had 337 research and development
employees, primarily located in the United States. Our research
and development expenses were $53.5 million,
$78.5 million and $74.6 million for the years 2009,
2008 and 2007, respectively. Our research and development
efforts include numerous projects, none of which are
individually material, and generally have a duration of 12 to
30 months depending upon whether the product is an
enhancement of existing technology or a new product. Our current
initiatives include projects to enhance the performance
characteristics of older products, to develop new products and
to integrate various technologies into subsystems.
Manufacturing
Our manufacturing facilities are located in China, Germany,
Israel, Mexico, the United Kingdom and the United States.
Manufacturing activities include the assembly and testing of
components and subassemblies, which are integrated into our
products. We outsource some of our subassembly work. We purchase
a wide range of electronic, mechanical and electrical
components, some of which are designed to our specifications. We
consider our lean manufacturing techniques and responsiveness to
customers significantly fluctuating product demands to be
a competitive advantage.
Competition
The market for our products is highly competitive. Principal
competitive factors include:
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historical customer relationships;
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product quality, performance and price;
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breadth of product line;
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manufacturing capabilities; and
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customer service and support.
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Although we believe that we compete favorably with respect to
these factors, there can be no assurance that we will continue
to do so.
We encounter substantial competition in most of our product
lines, although no single competitor competes with us across all
product lines. Certain of our competitors may have greater
financial and other resources than us. In some cases,
competitors are smaller than we are, but are well established in
specific product niches. Advanced Energy and Horiba offer
materials delivery products that compete with our product line
of mass flow controllers. Nor-Cal Products and VAT offer
products that compete with our vacuum components. Inficon offers
products that compete with our vacuum measurement and gas
analysis products. Brooks Automation and Inficon offer products
that compete with our vacuum gauging products. Advanced Energy
offers products that compete with our power delivery and
reactive gas generator products.
Patents
and Other Intellectual Property Rights
We rely on a combination of patent, copyright, trademark and
trade secret laws and license agreements to establish and
protect our proprietary rights. As of December 31, 2009, we
owned 370 U.S. patents, 239 foreign patents and had 123
pending U.S. patent applications that expire at various
dates through 2029. Foreign counterparts of certain of these
applications have been filed or may be filed at the appropriate
time.
We require each of our employees, including our executive
officers, to enter into standard agreements pursuant to which
the employee agrees to keep confidential all of our proprietary
information and to assign to us all inventions while they are
employed by us.
Employees
As of December 31, 2009, we employed 2,178 persons. We
believe that our ongoing success depends upon our continued
ability to attract and retain highly skilled employees for whom
competition is intense. None of our employees are represented by
a labor union or are party to a collective bargaining agreement.
We believe that our employee relations are good.
Acquisitions
We completed one acquisition in 2007. On November 7, 2007,
we acquired Yield Dynamics, Inc. (YDI), a provider
of yield management technology located in Sunnyvale, California.
YDIs data and yield management software, along with
MKS portfolio of sensors that control critical processes,
data collection and integration hardware, and real-time fault
detection and classification software, provides a comprehensive
offering for generating, collecting and analyzing process sensor
data and correlating the data to wafers, chambers and tools
across the semiconductor fab as well as other thin film
manufacturing processes.
The following factors could materially affect MKS
business, financial condition or results of operations and
should be carefully considered in evaluating the Company and its
business, in addition to other information presented elsewhere
in this report.
Our
business depends substantially on capital spending in the
semiconductor industry which is characterized by periodic
fluctuations that may cause a reduction in demand for our
products.
We estimate that approximately 52%, 57% and 68% of our net sales
for the years 2009, 2008 and 2007, respectively, were to
semiconductor capital equipment manufacturers and semiconductor
device manufacturers, and we expect that sales to such customers
will continue to account for a substantial portion of our sales.
Our
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business depends upon the capital expenditures of semiconductor
device manufacturers, which in turn depend upon the demand for
semiconductors.
Historically, the semiconductor market has been highly cyclical
and has experienced periods of overcapacity, resulting in
significantly reduced demand for capital equipment which may
result in lower gross margins due to reduced absorption of
manufacturing overhead. In addition, many semiconductor
manufacturers have operations and customers in Asia, a region
that in past years has experienced serious economic problems
including currency devaluations, debt defaults, lack of
liquidity and recessions. Reductions in demand for the products
manufactured by semiconductor capital equipment manufacturers
and semiconductor device manufacturers in 2008 and early 2009
adversely affected our business. The global economic uncertainty
prolonged a steep downturn in semiconductor capital equipment
spending and adversely affected our business, financial
condition and results of operations. Our product revenues during
2009 for our semiconductor and capital equipment manufacturers
and semiconductor device manufacturers decreased by 46%. We
cannot be certain of the timing or magnitude of future
semiconductor industry downturns. A decline in the level of
orders as a result of any downturn or slowdown in the
semiconductor capital equipment industry could have a material
adverse effect on our business, financial condition and results
of operations.
MKS is
exposed to risks associated with the weak global
economy.
The severe tightening of the credit markets, turmoil in the
financial markets, and weak global economy, contributed to
slowdowns in the industries in which MKS operates in 2008 and
2009. The markets for semiconductors and flat panel displays in
particular depend largely on consumer spending. Economic
uncertainty exacerbates negative trends in consumer spending and
may cause certain MKS customers to push out, cancel, or refrain
from placing equipment or service orders, which may affect
MKS ability to convert backlog to sales and may reduce
MKS net sales. Difficulties in obtaining capital and
deteriorating market conditions may also lead to the inability
of some customers to obtain affordable financing, resulting in
lower sales for MKS. Customers with liquidity issues may lead to
additional bad debt expense for MKS. These conditions may also
similarly affect key suppliers, which could affect their ability
to deliver parts and result in delays for MKS products.
Further, these conditions and uncertainty about future economic
conditions make it challenging for MKS to forecast its operating
results, make business decisions, and identify the risks that
may affect its business, financial condition and results of
operations. If MKS is not able to timely and appropriately adapt
to changes resulting from a difficult macroeconomic environment,
MKS business, financial condition or results of operations
may be materially and adversely affected.
We anticipate that international sales will continue to account
for a significant portion of our net sales. In addition, certain
of our key domestic customers derive a significant portion of
their revenues from sales in international markets. Therefore,
our sales and results of operations could be adversely affected
by economic slowdowns, such as the ongoing global economic
crisis, and other risks associated with international sales.
International sales include sales by our foreign subsidiaries,
but exclude direct export sales. International sales accounted
for approximately 46%, 43% and 39%, of net sales for the years
2009, 2008 and 2007, respectively, a significant portion of
which were sales to Japan.
Our
quarterly operating results have fluctuated, and are likely to
continue to vary significantly, which may result in volatility
in the market price of our common stock.
A substantial portion of our shipments occurs shortly after an
order is received and therefore we operate with a low level of
backlog. As a result, a decrease in demand for our products from
one or more customers could occur with limited advance notice
and could have a material adverse effect on our results of
operations in any particular period. A significant percentage of
our expenses is relatively fixed and based in part on
expectations of future net sales. The inability to adjust
spending quickly enough to compensate for any shortfall would
magnify the adverse impact of a shortfall in net sales on our
results of operations. Factors that could cause fluctuations in
our net sales include:
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|
|
|
|
the timing of the receipt of orders from major customers;
|
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|
|
shipment delays;
|
9
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|
|
|
|
disruption in sources of supply;
|
|
|
|
seasonal variations in capital spending by customers;
|
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|
|
production capacity constraints; and
|
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|
|
specific features requested by customers.
|
In addition, our quarterly operating results may be adversely
affected due to charges incurred in a particular quarter, for
example, relating to inventory obsolescence, warranty or asset
impairments.
As a result of the factors discussed above, it is likely that we
may in the future experience quarterly or annual fluctuations
and that, in one or more future quarters, our operating results
may fall below the expectations of public market analysts or
investors. In any such event, the price of our common stock
could fluctuate or decline significantly.
The
loss of net sales to any one of our major customers would likely
have a material adverse effect on us.
Our top ten customers accounted for approximately 36%, 38% and
46% of our net sales for the years 2009, 2008 and 2007,
respectively. The loss of a major customer or any reduction in
orders by these customers, including reductions due to market or
competitive conditions, would likely have a material adverse
effect on our business, financial condition and results of
operations. During the years 2009, 2008 and 2007, one customer,
Applied Materials, accounted for approximately 12%, 19% and 20%,
respectively, of our net sales. None of our significant
customers, including Applied Materials, has entered into an
agreement requiring it to purchase any minimum quantity of our
products. The demand for our products from our semiconductor
capital equipment customers depends in part on orders received
by them from their semiconductor device manufacturer customers.
Attempts to lessen the adverse effect of any loss or reduction
of net sales through the rapid addition of new customers could
be difficult because prospective customers typically require
lengthy qualification periods prior to placing volume orders
with a new supplier. Our future success will continue to depend
upon:
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|
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|
|
our ability to maintain relationships with existing key
customers;
|
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|
|
our ability to attract new customers;
|
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|
|
our ability to introduce new products in a timely manner for
existing and new customers; and
|
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|
|
the successes of our customers in creating demand for their
capital equipment products that incorporate our products.
|
As
part of our business strategy, we have entered into and may
enter into or seek to enter into business combinations and
acquisitions that may be difficult and costly to integrate, may
be disruptive to our business, may dilute stockholder value or
may divert management attention.
We made several acquisitions in the years 2000 through 2002 and,
more recently in 2006 and 2007. As a part of our business
strategy, we may enter into additional business combinations and
acquisitions. Acquisitions are typically accompanied by a number
of risks, including the difficulty of integrating the
operations, technology and personnel of the acquired companies,
the potential disruption of our ongoing business and distraction
of management, possible internal control weaknesses of the
acquired companies, expenses related to the acquisition and
potential unknown liabilities associated with acquired
businesses. If we are not successful in completing acquisitions
that we may pursue in the future, we may be required to
reevaluate our growth strategy, and we may incur substantial
expenses and devote significant management time and resources in
seeking to complete proposed acquisitions that will not generate
benefits for us.
In addition, with future acquisitions, we could use substantial
portions of our available cash as all or a portion of the
purchase price. We could also issue additional securities as
consideration for these acquisitions, which could cause
significant stockholder dilution without achieving the desired
accretion to our business. Further, our prior acquisitions and
any future acquisitions may not ultimately help us achieve our
strategic goals and may pose other risks to us.
10
As a result of our previous acquisitions, we have added several
different decentralized operating and accounting systems,
resulting in a complex reporting environment. We will need to
continue to modify our accounting policies, internal controls,
procedures and compliance programs to provide consistency across
all our operations. In order to increase efficiency and
operating effectiveness and improve corporate visibility into
our decentralized operations, we are currently implementing a
worldwide Enterprise Resource Planning (ERP) system.
We expect to continue to implement the ERP system in phases over
the next few years. Any future implementations may risk
potential disruption of our operations during the conversion
periods and the implementations could require significantly more
management time and higher implementation costs than currently
estimated.
An
inability to convince semiconductor device manufacturers to
specify the use of our products to our customers that are
semiconductor capital equipment manufacturers would weaken our
competitive position.
The markets for our products are highly competitive. Our
competitive success often depends upon factors outside of our
control. For example, in some cases, particularly with respect
to mass flow controllers, semiconductor device manufacturers may
direct semiconductor capital equipment manufacturers to use a
specified suppliers product in their equipment.
Accordingly, for such products, our success will depend in part
on our ability to have semiconductor device manufacturers
specify that our products be used at their semiconductor
fabrication facilities. In addition, we may encounter
difficulties in changing established relationships of
competitors that already have a large installed base of products
within such semiconductor fabrication facilities.
If our
products are not designed into successive generations of our
customers products, we will lose significant net sales
during the lifespan of those products.
New products designed by semiconductor capital equipment
manufacturers typically have a lifespan of five to ten years.
Our success depends on our products being designed into new
generations of equipment for the semiconductor industry. We must
develop products that are technologically advanced so that they
are positioned to be chosen for use in each successive
generation of semiconductor capital equipment. If customers do
not choose our products, our net sales may be reduced during the
lifespan of our customers products. In addition, we must
make a significant capital investment to develop products for
our customers well before our products are introduced and before
we can be sure that we will recover our capital investment
through sales to the customers in significant volume. We are
thus also at risk during the development phase that our products
may fail to meet our customers technical or cost
requirements and may be replaced by a competitive product or
alternative technology solution. If that happens, we may be
unable to recover our development costs.
The
semiconductor industry is subject to rapid demand shifts which
are difficult to predict. As a result, our inability to expand
our manufacturing capacity in response to these rapid shifts may
cause a reduction in our market share.
Our ability to increase sales of certain products depends in
part upon our ability to expand our manufacturing capacity for
such products in a timely manner. If we are unable to expand our
manufacturing capacity on a timely basis or to manage such
expansion effectively, our customers could implement our
competitors products and, as a result, our market share
could be reduced. Because the semiconductor industry is subject
to rapid demand shifts which are difficult to foresee, we may
not be able to increase capacity quickly enough to respond to a
rapid increase in demand. Additionally, capacity expansion could
increase our fixed operating expenses and if sales levels do not
increase to offset the additional expense levels associated with
any such expansion, our business, financial condition and
results of operations could be materially adversely affected.
A
material amount of our assets represents goodwill and intangible
assets, and our net income will be reduced if our goodwill or
intangible assets become impaired.
As of December 31, 2009, our goodwill and intangible
assets, net, represented approximately $149.5 million, or
19% of our total assets. Goodwill is generated in our
acquisitions when the cost of an acquisition exceeds the fair
value of the net tangible and identifiable intangible assets we
acquire. Goodwill is subject to an impairment analysis at least
annually based on the fair value of the reporting unit.
Intangible assets, which relate primarily to the
11
customer technologies, relationships and patents and trademarks
acquired by us as part of our acquisitions of other companies,
are subject to an impairment analysis whenever events or changes
in circumstances exist that indicate that the carrying value of
the intangible asset might not be recoverable. During 2009, we
recorded non-cash impairment charges of $205.0 million
related to goodwill and intangible assets. We will continue to
monitor and evaluate the carrying value of goodwill and
intangible assets. If market and economic conditions or business
performance deteriorate, the likelihood of the Company recording
an impairment charge will increase, which could materially and
adversely affect our results of operations.
We
operate in a highly competitive industry.
The market for our products is highly competitive. Principal
competitive factors include:
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historical customer relationships;
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|
|
product quality, performance and price;
|
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|
|
breadth of product line;
|
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|
|
manufacturing capabilities; and
|
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|
|
customer service and support.
|
Although we believe that we compete favorably with respect to
these factors, we may not be able to continue to do so. We
encounter substantial competition in most of our product lines.
Certain of our competitors may have greater financial and other
resources than we have. In some cases, competitors are smaller
than we are, but well established in specific product niches. We
may encounter difficulties in changing established relationships
of competitors with a large installed base of products at such
customers fabrication facilities. In addition, our
competitors can be expected to continue to improve the design
and performance of their products. Competitors may develop
products that offer price or performance features superior to
those of our products. If our competitors develop superior
products, we may lose existing customers and market share.
We
have significant foreign operations, and outsource certain
operations offshore, which pose significant risks.
We have significant international sales, service, engineering
and manufacturing operations in Europe, Israel and Asia, and
have outsourced a portion of our manufacturing to Mexico. We may
expand the level of manufacturing and certain other operations
that we do offshore in order to take advantage of cost
efficiencies available to us in those countries. However, we may
not achieve the significant cost savings or other benefits that
we anticipate from this program. These foreign operations expose
us to operational and political risks that may harm our
business, including:
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|
|
political and economic instability;
|
|
|
|
fluctuations in the value of currencies and high levels of
inflation, particularly in Asia and Europe;
|
|
|
|
changes in labor conditions and difficulties in staffing and
managing foreign operations, including, but not limited to,
labor unions;
|
|
|
|
reduced or less certain protection for intellectual property
rights;
|
|
|
|
greater difficulty in collecting accounts receivable and longer
payment cycles;
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|
|
burdens and costs of compliance with a variety of foreign laws;
|
|
|
|
increases in duties and taxation;
|
|
|
|
costs associated with compliance programs for import and export
regulations;
|
|
|
|
imposition of restrictions on currency conversion or the
transfer of funds;
|
|
|
|
changes in export duties and limitations on imports or exports;
|
12
|
|
|
|
|
expropriation of private enterprises; and
|
|
|
|
unexpected changes in foreign regulations.
|
If any of these risks materialize, our operating results may be
adversely affected.
Unfavorable
currency exchange rate fluctuations may lead to lower operating
margins or may cause us to raise prices, which could result in
reduced sales.
Currency exchange rate fluctuations could have an adverse effect
on our net sales and results of operations and we could
experience losses with respect to our hedging activities.
Unfavorable currency fluctuations could require us to increase
prices to foreign customers, which could result in lower net
sales by us to such customers. Alternatively, if we do not
adjust the prices for our products in response to unfavorable
currency fluctuations, our results of operations could be
adversely affected. In addition, most sales made by our foreign
subsidiaries are denominated in the currency of the country in
which these products are sold and the currency they receive in
payment for such sales could be less valuable at the time of
receipt as a result of exchange rate fluctuations. We enter into
forward foreign exchange contracts and may enter into local
currency purchased options to reduce currency exposure arising
from intercompany sales of inventory. However, we cannot be
certain that our efforts will be adequate to protect us against
significant currency fluctuations or that such efforts will not
expose us to additional exchange rate risks.
Changes
in tax rates or tax liabilities could affect results of
operations.
As a global company, MKS is subject to taxation in the United
States and various other countries. Significant judgment is
required to determine and estimate worldwide tax liabilities.
MKS future annual and quarterly effective tax rates could
be affected by numerous factors, including changes in the:
applicable tax laws; composition of pre-tax income in countries
with differing tax rates;
and/or
valuation of MKS deferred tax assets and liabilities. In
addition, MKS is subject to regular examination by the Internal
Revenue Service and other tax authorities. MKS regularly
assesses the likelihood of favorable or unfavorable outcomes
resulting from these examinations to determine the adequacy of
its provision for income taxes. Although MKS believes its tax
estimates are reasonable, there can be no assurance that any
final determination will not be materially different from the
treatment reflected in MKS historical income tax
provisions and accruals, which could materially and adversely
affect MKS financial condition and results of operations.
Key
personnel may be difficult to attract and retain.
Our success depends to a large extent upon the efforts and
abilities of a number of key employees and officers,
particularly those with expertise in the semiconductor
manufacturing and similar industrial manufacturing industries.
The loss of key employees or officers could have a material
adverse effect on our business, financial condition and results
of operations. We believe that our future success will depend in
part on our ability to attract and retain highly skilled
technical, financial, managerial and marketing personnel. We
cannot be certain that we will be successful in attracting and
retaining such personnel.
Our
proprietary technology is important to the continued success of
our business. Our failure to protect this proprietary technology
may significantly impair our competitive position.
As of December 31, 2009, we owned 370 U.S. patents,
239 foreign patents and had 123 pending U.S. patent
applications that expire at various dates through 2029. Although
we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot
be certain that:
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|
|
we will be able to protect our technology adequately;
|
|
|
|
competitors will not be able to develop similar technology
independently;
|
|
|
|
any of our pending patent applications will be issued;
|
|
|
|
domestic and international intellectual property laws will
protect our intellectual property rights; or
|
|
|
|
third parties will not assert that our products infringe patent,
copyright or trade secrets of such parties.
|
13
Protection
of our intellectual property rights may result in costly
litigation.
Litigation may be necessary in order to enforce our patents,
copyrights or other intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of
infringement. We are, from time to time, involved in lawsuits
enforcing or defending our intellectual property rights and may
be involved in such litigation in the future. Such litigation
could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial
condition and results of operations.
We may need to expend significant time and expense to protect
our intellectual property regardless of the validity or
successful outcome of such intellectual property claims. If we
lose any litigation, we may be required to seek licenses from
others or change, stop manufacturing or stop selling some of our
products.
The
market price of our common stock has fluctuated and may continue
to fluctuate for reasons over which we have no
control.
The stock market has from time to time experienced, and is
likely to continue to experience, extreme price and volume
fluctuations. Prices of securities of technology companies have
been especially volatile and have often fluctuated for reasons
that are unrelated to the operating performance of the
companies. The market price of shares of our common stock has
fluctuated greatly since our initial public offering and could
continue to fluctuate due to a variety of factors. In the past,
companies that have experienced volatility in the market price
of their stock have been the objects of securities class action
litigation. If we were the subject of securities class action
litigation, it could result in substantial costs and a diversion
of our managements attention and resources.
Our
dependence on sole, limited source suppliers, and international
suppliers, could affect our ability to manufacture products and
systems.
We rely on sole, limited source suppliers and international
suppliers for a few of our components and subassemblies that are
critical to the manufacturing of our products. This reliance
involves several risks, including the following:
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the potential inability to obtain an adequate supply of required
components;
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|
reduced control over pricing and timing of delivery of
components; and
|
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|
the potential inability of our suppliers to develop
technologically advanced products to support our growth and
development of new systems.
|
We believe that in time we could obtain and qualify alternative
sources for most sole, limited source and international supplier
parts. Seeking alternative sources for these parts could require
us to redesign our systems, resulting in increased costs and
likely shipping delays. We may be unable to redesign our
systems, which could result in further costs and shipping
delays. These increased costs would decrease our profit margins
if we could not pass the costs to our customers. Further,
shipping delays could damage our relationships with current and
potential customers and have a material adverse effect on our
business and results of operations.
We are
subject to governmental regulations. If we fail to comply with
these regulations, our business could be harmed.
We are subject to federal, state, local and foreign regulations,
including environmental regulations and regulations relating to
the design and operation of our products. We must ensure that
the affected products meet a variety of standards, many of which
vary across the countries in which our systems are used. For
example, the European Union has published directives
specifically relating to power supplies. In addition, the
European Union has issued directives relating to regulation of
recycling and hazardous substances, which may be applicable to
our products, or to which some customers may voluntarily elect
to adhere to. In addition, China has adopted, and certain other
Asian countries have indicated an intention to adopt similar
regulations. We must comply with any applicable regulation
adopted in connection with these types of directives in order to
ship affected products into countries that adopt these types of
regulations. We believe we are in compliance with current
applicable regulations, directives and standards and have
obtained all necessary permits, approvals and authorizations to
conduct our business. However,
14
compliance with future regulations, directives and standards, or
customer demands beyond such requirements, could require us to
modify or redesign certain systems, make capital expenditures or
incur substantial costs. If we do not comply with current or
future regulations, directives and standards:
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we could be subject to fines;
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|
our production could be suspended; or
|
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|
we could be prohibited from offering particular systems in
specified markets.
|
Some
provisions of our restated articles of organization, as amended,
our amended and restated by-laws and Massachusetts law could
discourage potential acquisition proposals and could delay or
prevent a change in control of us.
Anti-takeover provisions could diminish the opportunities for
stockholders to participate in tender offers, including tender
offers at a price above the then current market price of the
common stock. Such provisions may also inhibit increases in the
market price of the common stock that could result from takeover
attempts. For example, while we have no present plans to issue
any preferred stock, our board of directors, without further
stockholder approval, may issue preferred stock that could have
the effect of delaying, deterring or preventing a change in
control of us. The issuance of preferred stock could adversely
affect the voting power of the holders of our common stock,
including the loss of voting control to others. In addition, our
amended and restated by-laws provide for a classified board of
directors consisting of three classes. The classified board
could also have the effect of delaying, deterring or preventing
a change in control of the Company.
Changes
in financial accounting standards may adversely affect our
reported results of operations.
A change in accounting standards or practices could have a
significant effect on our reported results and may even affect
our reporting of transactions completed before the change was
effective. New accounting pronouncements and varying
interpretations of existing accounting pronouncements have
occurred and may occur in the future. Such changes may adversely
affect our reported financial results or may impact our related
business practice.
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|
Item 1B.
|
Unresolved
Staff Comments
|
None.
The following table provides information concerning MKS
principal and certain other owned and leased facilities as of
December 31, 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
Lease
|
Location
|
|
Sq. Ft.
|
|
|
Activity
|
|
Manufactured
|
|
Expires
|
|
Alameda, California
|
|
|
50,000
|
|
|
Manufacturing and Research & Development
|
|
Electrostatic Management Programs and Systems
|
|
March 31, 2011
|
Akishima, Japan
|
|
|
26,300
|
|
|
Customer Support and Service
|
|
Materials and Power Delivery Products
|
|
September 11, 2018
|
Andover, Massachusetts
|
|
|
118,000
|
|
|
Manufacturing, Research & Development and Corporate
Headquarters
|
|
Pressure Measurement and Control Products
|
|
(1)
|
Austin, Texas
|
|
|
20,880
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Control & Information Management Products
|
|
May 31, 2012
|
Berlin, Germany
|
|
|
20,750
|
|
|
Manufacturing, Customer Support, Service and Research &
Development
|
|
Reactive Gas Generation Products
|
|
December 13, 2010
|
Boulder, Colorado
|
|
|
124,000
|
|
|
Manufacturing, Customer Support, Service and Research &
Development
|
|
Vacuum Products
|
|
(2)
|
Carmiel, Israel
|
|
|
11,800
|
|
|
Manufacturing and Research & Development
|
|
Control & Information Management Products
|
|
December 31, 2009
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
Lease
|
Location
|
|
Sq. Ft.
|
|
|
Activity
|
|
Manufactured
|
|
Expires
|
|
Cheshire, United Kingdom
|
|
|
16,000
|
|
|
Manufacturing, Sales, Customer Support and Service
|
|
Materials Delivery Products
|
|
November 6, 2018
|
Colorado Springs, Colorado
|
|
|
24,000
|
|
|
Research & Development
|
|
Not applicable
|
|
(3)
|
Filderstadt, Germany
|
|
|
9,300
|
|
|
Sales and Service
|
|
Not applicable
|
|
July 31, 2014
|
Fukuoka, Japan
|
|
|
9,300
|
|
|
Customer Support and Service
|
|
Not applicable
|
|
October 19, 2010
|
Lawrence, Massachusetts
|
|
|
40,000
|
|
|
Manufacturing
|
|
Pressure Measurement and Control Products
|
|
(3)
|
Lod, Israel
|
|
|
10,500
|
|
|
Customer Support and Research & Development
|
|
Not applicable
|
|
May 31, 2010
|
Methuen, Massachusetts
|
|
|
85,000
|
|
|
Manufacturing, Customer Support, Service and Research &
Development
|
|
Pressure Measurement and Control Products and Materials Delivery
Products
|
|
(3)
|
Munich, Germany
|
|
|
14,000
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Pressure Measurement and Control Products and Materials Delivery
Products
|
|
(3)
|
Nogales, Mexico
|
|
|
67,700
|
|
|
Manufacturing
|
|
Pressure Measurement and Control Products and Reactive Gas
Generation Products
|
|
March 31, 2014
|
Richardson, Texas
|
|
|
8,800
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
November 30, 2012
|
Rochester, New York
|
|
|
156,000
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Power Delivery Products
|
|
(3)
|
San Jose, California
|
|
|
32,000
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
April 30, 2011
|
Seoul, Korea
|
|
|
18,000
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
May 29, 2010
|
Shenzhen, China
|
|
|
242,000
|
|
|
Manufacturing
|
|
Power Delivery Products
|
|
May 31, 2017
|
Shropshire, United Kingdom
|
|
|
25,000
|
|
|
Manufacturing
|
|
Control & Information Management Products
|
|
October 18, 2010
|
Singapore
|
|
|
6,100
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
July 7, 2010
|
Sunnyvale, California
|
|
|
10,000
|
|
|
Vacant
|
|
Not applicable
|
|
July 7, 2010
|
Taiwan
|
|
|
21,400
|
|
|
Sales, Customer Support and Service
|
|
Not applicable
|
|
August 25, 2010
|
Tianjin, China
|
|
|
12,917
|
|
|
Research & Development
|
|
Not applicable
|
|
August 1, 2011
|
Tokyo, Japan
|
|
|
12,600
|
|
|
Sales and Customer Support
|
|
Not applicable
|
|
(4)
|
Umea, Sweden
|
|
|
7,000
|
|
|
Sales, Customer Support and Research & Development
|
|
Not applicable
|
|
August 31, 2010
|
Wilmington, Massachusetts
|
|
|
118,000
|
|
|
Manufacturing, Sales, Customer Support, Service and Research
& Development
|
|
Reactive Gas Generation Products and Power Delivery Products
|
|
(3)
|
|
|
|
(1) |
|
MKS owns one facility with 82,000 square feet of space used
for manufacturing and research and development and leases
36,000 square feet of space used for its corporate
headquarters with a lease term which expires January 1,
2018. |
|
(2) |
|
MKS leases two facilities, one has 39,000 square feet of
space and the other has 38,000 square feet of space. Both
leases expire on May 31, 2015. MKS also owns a third and
fourth facility with 27,000 and 20,000 square feet of
space, respectively. |
|
(3) |
|
This facility is owned by MKS. |
|
(4) |
|
MKS leases one facility which has 6,000 square feet of
space with a lease term that expires January 31, 2011. MKS
owns a second facility of 6,600 square feet. |
16
In addition to manufacturing and other operations conducted at
the foregoing leased or owned facilities, MKS provides worldwide
sales, customer support and services from various other leased
facilities throughout the world not listed in the table above.
See Business Sales, Marketing and
Support.
|
|
Item 3.
|
Legal
Proceedings
|
We are subject to various legal proceedings and claims, which
have arisen in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters will
not have a material adverse effect on our results of operations,
financial condition or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2009 through the solicitation of proxies
or otherwise.
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
Our common stock is traded on the NASDAQ Global Market under the
symbol MKSI. On February 17, 2010, the closing price of our
common stock, as reported on the NASDAQ Global Market, was
$19.00 per share. The following table sets forth for the periods
indicated the high and low sales prices per share of our common
stock as reported by the NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Price Range of Common Stock
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
16.29
|
|
|
$
|
11.38
|
|
|
$
|
22.24
|
|
|
$
|
15.90
|
|
Second Quarter
|
|
|
17.50
|
|
|
|
12.75
|
|
|
|
25.88
|
|
|
|
20.91
|
|
Third Quarter
|
|
|
20.60
|
|
|
|
13.28
|
|
|
|
25.00
|
|
|
|
19.00
|
|
Fourth Quarter
|
|
|
20.24
|
|
|
|
14.80
|
|
|
|
19.79
|
|
|
|
11.76
|
|
On February 17, 2010, we had approximately 184 stockholders
of record.
Dividend
Policy
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain earnings, if any, to
support our growth strategy and do not anticipate paying cash
dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including
our financial condition, operating results and current and
anticipated cash needs.
17
Comparative
Stock Performance
The following graph compares the cumulative total shareholder
return (assuming reinvestment of dividends) from investing
$100.00 on December 31, 2004, and plotted at the last
trading day of each of the fiscal years ended December 31,
2005, 2006, 2007, 2008 and 2009, in each of MKS Common
Stock; an industry group index of semiconductor
equipment/material manufacturers (the Hemscott Group
Index), compiled by Hemscott Data (Hemscott),
a business owned by Morningstar, Inc.; and the NASDAQ Market
Index of companies. The stock price performance on the graph
below is not necessarily indicative of future price performance.
The Companys Common Stock is listed on the NASDAQ Global
Market under the ticker symbol MKSI.
Performance
Graph
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MKS INSTRUMENTS, INC., NASDAQ MARKET INDEX AND
SEMICONDUCTOR EQUIPMENT & MATERIALS MANUFACTURERS
Assumes $100.00 invested on December 31, 2004
Assumes dividend reinvested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2009
|
|
MKS Instruments, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
96.44
|
|
|
|
$
|
121.73
|
|
|
|
$
|
103.18
|
|
|
|
$
|
79.73
|
|
|
|
$
|
93.80
|
|
Hemscott Group Index
|
|
|
$
|
100.00
|
|
|
|
$
|
105.15
|
|
|
|
$
|
118.39
|
|
|
|
$
|
112.59
|
|
|
|
$
|
59.90
|
|
|
|
$
|
86.97
|
|
NASDAQ Market Index
|
|
|
$
|
100.00
|
|
|
|
$
|
102.20
|
|
|
|
$
|
112.68
|
|
|
|
$
|
124.57
|
|
|
|
$
|
74.71
|
|
|
|
$
|
108.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information included under the heading Comparative
Stock Performance in Item 5 of this Annual Report on
Form 10-K
is furnished and not filed and shall not
be deemed to be soliciting material or subject to
Regulation 14A, shall not be deemed filed for
purposes of Section 18 of the Exchange Act, or otherwise
subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Exchange Act.
18
|
|
Item 6.
|
Selected
Financial Data
|
Selected
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
411,406
|
|
|
$
|
646,994
|
|
|
$
|
780,487
|
|
|
$
|
782,801
|
|
|
$
|
509,294
|
|
Gross profit
|
|
|
138,090
|
|
|
|
259,943
|
|
|
|
331,487
|
|
|
|
338,122
|
|
|
|
200,434
|
|
Income (loss) from operations(1)
|
|
|
(240,499
|
)
|
|
|
35,533
|
|
|
|
106,985
|
|
|
|
122,541
|
|
|
|
40,548
|
|
Net income (loss)(2)
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
$
|
94,235
|
|
|
$
|
34,565
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(4.31
|
)
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
$
|
1.70
|
|
|
$
|
0.64
|
|
Diluted
|
|
$
|
(4.31
|
)
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
$
|
1.68
|
|
|
$
|
0.63
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,009
|
|
|
$
|
119,261
|
|
|
$
|
223,968
|
|
|
$
|
215,208
|
|
|
$
|
220,573
|
|
Short-term investments
|
|
|
160,786
|
|
|
|
159,608
|
|
|
|
99,797
|
|
|
|
74,749
|
|
|
|
72,046
|
|
Working capital
|
|
|
461,581
|
|
|
|
452,793
|
|
|
|
514,235
|
|
|
|
461,541
|
|
|
|
410,060
|
|
Long-term marketable securities
|
|
|
4,853
|
|
|
|
|
|
|
|
|
|
|
|
2,816
|
|
|
|
857
|
|
Total assets
|
|
|
774,069
|
|
|
|
984,939
|
|
|
|
1,076,260
|
|
|
|
1,043,720
|
|
|
|
863,740
|
|
Short-term obligations
|
|
|
12,885
|
|
|
|
18,678
|
|
|
|
20,203
|
|
|
|
23,021
|
|
|
|
18,886
|
|
Long-term obligations, less current portion
|
|
|
|
|
|
|
396
|
|
|
|
5,871
|
|
|
|
6,113
|
|
|
|
6,152
|
|
Stockholders equity
|
|
$
|
684,933
|
|
|
$
|
886,698
|
|
|
$
|
954,009
|
|
|
$
|
901,219
|
|
|
$
|
762,843
|
|
|
|
|
(1) |
|
Income (loss) from operations for the years 2009, 2008, 2007 and
2006 includes stock-based compensation of $8.8 million,
$15.3 million, $12.9 million and $13.1 million,
respectively. Loss from operations for 2009 includes an
impairment charge of $208.5 million related to the
write-down of goodwill, intangible and long-lived assets and
$5.8 million of restructuring charges. Income from
operations for 2008 includes an impairment charge of
$6.1 million related to the write-down of intangible assets. |
|
(2) |
|
Net income (loss) for the years 2009, 2008, 2007 and 2006
includes stock-based compensation of $5.7 million,
$9.9 million, $8.4 million and $8.7 million, net
of tax, respectively. Loss from operations for 2009 includes
charges, net of tax, of $202.7 million related to the
write-down of goodwill, intangible and long-lived assets and
$3.6 million of restructuring charges. Income from
operations for 2008 includes an impairment charge of
$3.8 million, net of tax, related to the write-down of
intangible assets. |
19
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are a leading worldwide provider of instruments, subsystems
and process control solutions that measure, control, power,
monitor and analyze critical parameters to improve process
performance and productivity of advanced manufacturing processes.
We are managed as one operating segment. We group our products
into three product groups: Instruments and Control Systems,
Power and Reactive Gas Products and Vacuum Products. Our
products are derived from our core competencies in pressure
measurement and control, materials delivery, gas composition
analysis, electrostatic charge management, control and
information technology, power and reactive gas generation and
vacuum technology. Our products are used in diverse markets,
applications and processes. Our primary served markets are
manufacturers of capital equipment for semiconductor devices,
and for thin film applications including flat panel displays,
LEDs, solar cells, data storage media and other advanced
coatings. We also leverage our technology in other markets with
advanced manufacturing applications including medical equipment,
biopharm manufacturing, energy generation and environmental
monitoring.
We have a diverse base of customers that includes manufacturers
of semiconductor capital equipment and semiconductor devices,
thin film capital equipment used in the manufacture of flat
panel displays, LEDs, solar cells, data storage media and other
coating applications; and other industrial, medical, energy
generation, environmental monitoring and manufacturing
companies, and university, government and industrial research
laboratories. During the years 2009, 2008 and 2007, we estimate
that approximately 52%, 57% and 68% of our net sales,
respectively, were to semiconductor capital equipment
manufacturers and semiconductor device manufacturers. We expect
that sales to semiconductor capital equipment manufacturers and
semiconductor device manufacturers will continue to account for
a substantial portion of our sales.
Reductions in demand for the products manufactured by
semiconductor capital equipment manufacturers and semiconductor
device manufacturers adversely affected our business in 2008 and
in early 2009. The global economic uncertainty prolonged a steep
downturn in semiconductor capital equipment spending and
adversely affected our business, financial condition and results
of operations. Our product revenues decreased 46% for 2009
compared to the prior year for these customers. However, in the
second half of 2009 we saw an increase in orders and shipments
compared to the first half of 2009, primarily as a result of
increased demand by semiconductor capital equipment
manufacturers and semiconductor device manufacturers. The
semiconductor capital equipment industry is subject to rapid
demand shifts, which are difficult to predict, and we are
uncertain as to the timing or extent of further increased demand
or any future weakness in the semiconductor capital equipment
industry.
Our product revenues sold to other markets, which exclude
semiconductor capital equipment and semiconductor device product
applications, decreased 30% for 2009 compared to the prior year.
Although the decrease in 2009 reflects the overall weakness in
the global economy and the impact from tightened credit markets
on our customers ability to invest in capital spending,
our product revenues in these other markets showed an increase
in orders and shipments in the second half of 2009 compared to
the first six months of 2009.
A significant portion of our net sales is to operations in
international markets. International net sales include sales by
our foreign subsidiaries, but exclude direct export sales.
International net sales accounted for approximately 46%, 43% and
39% of net sales for the years 2009, 2008 and 2007,
respectively, a significant portion of which were sales in
Japan. We expect that international net sales will continue to
represent a significant percentage of our total net sales.
Critical
Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition
and Results of Operations discusses our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue
20
recognition and allowance for doubtful accounts, inventory,
warranty costs, stock-based compensation expense, intangible
assets, goodwill and other long-lived assets, in-process
research and development and income taxes. We base our estimates
and judgments on historical experience and on various other
factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect the
most significant judgments, assumptions and estimates we use in
preparing our consolidated financial statements:
Revenue Recognition and Accounts Receivable
Allowances. Revenue from product sales is
recorded upon transfer of title and risk of loss to the customer
provided that there is evidence of an arrangement, the sales
price is fixed or determinable, and collection of the related
receivable is reasonably assured. In most transactions, we have
no obligations to our customers after the date products are
shipped other than pursuant to warranty obligations. In some
instances, we provide installation, training, support and
services to customers after the product has been shipped. We
defer the fair value of any undelivered elements until the
undelivered element is delivered. Fair value is the price
charged when the element is sold separately. Shipping and
handling fees billed to customers, if any, are recognized as
revenue. The related shipping and handling costs are recognized
in cost of sales.
We monitor and track the amount of product returns, provide for
accounts receivable allowances and reduce revenue at the time of
shipment for the estimated amount of such future returns, based
on historical experience. While product returns have
historically been within our expectations and the provisions
established, there is no assurance that we will continue to
experience the same return rates that we have in the past. Any
significant increase in product return rates could have a
material adverse impact on our operating results for the period
or periods in which such returns materialize.
While we maintain a credit approval process, significant
judgments are made by management in connection with assessing
our customers ability to pay at the time of shipment.
Despite this assessment, from time to time, our customers are
unable to meet their payment obligations. We continuously
monitor our customers credit worthiness, and use our
judgment in establishing a provision for estimated credit losses
based upon our historical experience and any specific customer
collection issues that we have identified. While such credit
losses have historically been within our expectations and the
provisions established, there is no assurance that we will
continue to experience the same credit loss rates that we have
in the past. A significant change in the liquidity or financial
position of our customers could have a material adverse impact
on the collectability of accounts receivable and our future
operating results.
Inventory. We value our inventory at the lower
of cost
(first-in,
first-out method) or market. We regularly review inventory
quantities on hand and record a provision to write-down excess
and obsolete inventory to its estimated net realizable value, if
less than cost, based primarily on our estimated forecast of
product demand. Demand for our products can fluctuate
significantly. A significant increase in the demand for our
products could result in a short-term increase in the cost of
inventory purchases as a result of supply shortages or a
decrease in the cost of inventory purchases as a result of
volume discounts, while a significant decrease in demand could
result in an increase in the charges for excess inventory
quantities on hand. In addition, our industry is subject to
technological change, new product development and product
technological obsolescence that could result in an increase in
the amount of obsolete inventory quantities on hand. Therefore,
any significant unanticipated changes in demand or technological
developments could have a significant impact on the value of our
inventory and our reported operating results. Due to a sharp
decrease in demand during the fourth quarter of 2008, we took a
charge for excess and obsolete inventory of $6.5 million.
For the twelve months ended December 31, 2008, our total
charges for excess and obsolete inventory totaled
$11.4 million. Due to the continued weakness in the markets
we serve, we recorded a charge for excess and obsolete inventory
of $14.4 million during the first quarter of 2009. For the
twelve months ended December 31, 2009, our total charges
for excess and obsolete inventory totaled $20.3 million.
Warranty costs. We provide for the estimated
costs to fulfill customer warranty obligations upon the
recognition of the related revenue. We provide warranty coverage
for our products ranging from 12 to 36 months, with the
majority of our products ranging from 12 to 24 months. We
estimate the anticipated costs of repairing our products under
such warranties based on the historical costs of the repairs and
any known specific product issues.
21
The assumptions we use to estimate warranty accruals are
reevaluated periodically in light of actual experience and, when
appropriate, the accruals are adjusted. Our determination of the
appropriate level of warranty accrual is based upon estimates.
Should product failure rates differ from our estimates, actual
costs could vary significantly from our expectations.
Stock-Based Compensation Expense. For the past
three years, we have been issuing restricted stock awards as
stock-based compensation. Prior to that, we issued shared-based
options. Accounting for share-based compensation requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors based
on estimated fair values. For restricted stock awards, the fair
value is the stock price on the date of grant. For share-based
options, we have estimated the fair value on the date of grant
using the Black Scholes pricing model, which is affected by our
stock price as well as assumptions regarding a number of complex
and subjective variables. These variables include our expected
stock price volatility over the term of the awards, actual and
projected employee option exercise behaviors, risk free interest
rate and expected dividends. We are also required to estimate
forfeitures at the time of grant and revise those estimates in
subsequent periods if actual forfeitures differ from those
estimates. Management determined that blended volatility, a
combination of historical and implied volatility, is more
reflective of market conditions and a better indicator of
expected volatility than historical or implied volatility.
Certain restricted stock awards involve stock to be issued upon
the achievement of performance conditions (performance shares)
under our stock incentive plans. Such performance shares become
available subject to time-based vesting conditions if, and to
the extent that, financial performance criteria for the
applicable period are achieved. Accordingly, the number of
performance shares earned will vary based on the level of
achievement of financial performance objectives for the
applicable period. Until such time that our performance can
ultimately be determined, each quarter we estimate the number of
performance shares more likely than not to be earned based on an
evaluation of the probability of achieving the performance
objectives. Such estimates are revised, if necessary, in
subsequent periods when the underlying factors change our
evaluation of the probability of achieving the performance
objectives. Accordingly, share-based compensation expense
associated with performance shares may differ significantly from
the amount recorded in the current period.
The assumptions used in calculating the fair value of
share-based payment awards represents managements best
estimates, but these estimates involve inherent uncertainties
and the application of managements judgment. As a result, if
factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future.
Intangible assets, goodwill and other long-lived
assets. As a result of our acquisitions, we have
identified intangible assets and generated significant goodwill.
Intangible assets are valued based on estimates of future cash
flows and amortized over their estimated useful life. Goodwill
is subject to annual impairment testing as well as testing upon
the occurrence of any event that indicates a potential
impairment. Intangible assets and other long-lived assets are
subject to an impairment test if there is an indicator of
impairment. The carrying value and ultimate realization of these
assets is dependent upon estimates of future earnings and
benefits that we expect to generate from their use. If our
expectations of future results and cash flows are significantly
diminished, intangible assets and goodwill may be impaired and
the resulting charge to operations may be material. When we
determine that the carrying value of intangibles or other
long-lived assets may not be recoverable based upon the
existence of one or more indicators of impairment, we use the
projected undiscounted cash flow method to determine whether an
impairment exists, and then measure the impairment using
discounted cash flows. To measure impairment for goodwill, we
compare the fair value of our reporting units by measuring
discounted cash flows to the book value of the reporting units.
Goodwill would be impaired if the resulting implied fair value
of goodwill was less than the recorded book value of the
goodwill.
The estimation of useful lives and expected cash flows require
us to make significant judgments regarding future periods that
are subject to some factors outside of our control. Changes in
these estimates can result in significant revisions to the
carrying value of these assets and may result in material
charges to the results of operations.
We have elected to perform our annual goodwill impairment
testing on October 31 of each fiscal year, or more often if
events or circumstances indicate that there may be impairment.
Reporting units are defined as operating
22
segments or one level below an operating segment, referred to as
a component. We have determined that our reporting units are
components of our one operating segment. We allocate goodwill to
reporting units at the time of acquisition and base that
allocation on which reporting units will benefit from the
acquired assets and liabilities. The estimated fair values of
our reporting units were based on discounted cash flow models
derived from internal earnings and external market forecasts.
Assumptions in estimating future cash flows are subject to a
high degree of judgment and complexity. We make every effort to
forecast these future cash flows as accurately as possible with
the information available at the time the forecast is developed.
Goodwill impairment is determined using a two-step process. The
first step involves a comparison of the estimated fair value of
a reporting unit to its carrying amount, including goodwill. In
performing the first step, we determine the fair value of a
reporting unit using a discounted cash flow (DCF)
analysis. Determining fair value requires the exercise of
significant judgment, including judgments about appropriate
discount rates, perpetual growth rates, and the amount and
timing of expected future cash flows. Discount rates are based
on a weighted average cost of capital (WACC), which
represents the average rate a business must pay its providers of
debt and equity. The WACC used to test goodwill is derived from
a group of comparable companies. The cash flows employed in the
DCF analysis are derived from internal earnings and forecasts
and external market forecasts. If the estimated fair value of a
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not impaired and the second step of the
impairment test is not necessary. If the carrying amount of a
reporting unit exceeds its estimated fair value, then the second
step of the goodwill impairment test must be performed. The
second step of the goodwill impairment test compares the implied
fair value of the reporting units goodwill with its
carrying amount of goodwill to measure the amount of impairment
loss, if any. The implied fair value of goodwill is determined
in the same manner as the amount of goodwill recognized in a
business combination, whereby the estimated fair value of the
reporting unit is allocated to all of the assets and liabilities
of that unit (including any unrecognized intangible assets) as
if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the
purchase price paid. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to
that excess.
Due to various factors, including market and economic conditions
that contributed to a decline in our forecasted business levels,
and the excess of our consolidated net assets over market
capitalization for a sustained period of time, we concluded an
interim assessment for impairment should be conducted for our
goodwill and intangible assets as of April 30, 2009, the
date of the triggering event. In the interim assessment, we
determined that for certain reporting units, the carrying amount
of their net assets exceeded their respective fair values,
indicating that a potential impairment existed. After completing
the second step of the goodwill impairment test, we recorded a
goodwill impairment charge in the second quarter of 2009 of
$193.3 million. We tested the long-lived assets in question
for recoverability by comparing the sum of the undiscounted cash
flows attributable to each respective asset group to their
carrying amounts, and determined that the carrying amounts were
not recoverable. We then evaluated the fair values of each
long-lived asset of the potentially impaired long-lived asset
group to determine the amount of the impairment, if any. The
fair value of each intangible asset was based primarily on an
income approach, which is a present value technique used to
measure the fair value of future cash flows produced by the
asset. We estimated future cash flows over the remaining useful
life of each intangible asset. As a result of this analysis, we
determined that certain of our intangible assets related to
completed technology, customer relationships, and patents and
trademarks, had carrying values that exceeded their estimated
fair values. As a result, an impairment charge of
$11.7 million was recorded in the second quarter of 2009.
As of October 31, 2009, we performed our annual impairment
assessment of goodwill and determined that no additional
impairment charges were required. We will continue to monitor
and evaluate the carrying value of goodwill. If market and
economic conditions or business performance deteriorate, this
could increase the likelihood of us recording an impairment
charge.
As a result of a facility consolidation in Asia, we recorded an
asset impairment charge of $3.5 million in the second
quarter of 2009 resulting from the write-down of the value of a
building to its estimated fair value.
During the fourth quarter of 2008, we incurred an intangible
asset impairment charge of $6.1 million related to the
acquired YDI customer technologies, relationships, and patents
and trademarks. The impairment charge was primarily related to
lower than previously estimated revenues from our YDI management
software due to the macroeconomic environment and industry
downturn.
23
Income taxes. We evaluate the realizability of
our net deferred tax assets and assess the need for a valuation
allowance on a quarterly basis. The future benefit to be derived
from our deferred tax assets is dependent upon our ability to
generate sufficient future taxable income to realize the assets.
We record a valuation allowance to reduce our net deferred tax
assets to the amount that may be more likely than not to be
realized. To the extent we established a valuation allowance, an
expense is recorded within the provision for income taxes line
in the consolidated statements of operations. In future periods,
if we were to determine that it was more likely than not that we
would not be able to realize the recorded amount of our
remaining net deferred tax assets, an adjustment to the
valuation allowance would be recorded as an increase to income
tax expense in the period such determination was made.
Accounting for income taxes requires a two-step approach to
recognize and measure uncertain tax positions. The first step is
to evaluate the tax position for recognition by determining if,
based on the technical merits, it is more likely than not that
the position will be sustained upon audit, including resolutions
of related appeals or litigation processes, if any. The second
step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon ultimate settlement.
We reevaluate these uncertain tax positions on a quarterly
basis. This evaluation is based on factors including, but not
limited to, changes in facts or circumstances, changes in tax
law, effectively settled issues under audit and new audit
activity. Any change in these factors could result in the
recognition of a tax benefit or an additional charge to the tax
provision.
Results
of Operations
The following table sets forth, for the periods indicated, the
percentage of total net sales of certain line items included in
our consolidated statements of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
66.4
|
|
|
|
59.8
|
|
|
|
57.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
33.6
|
|
|
|
40.2
|
|
|
|
42.5
|
|
Research and development
|
|
|
13.0
|
|
|
|
12.2
|
|
|
|
9.6
|
|
Selling, general and administrative
|
|
|
25.9
|
|
|
|
20.2
|
|
|
|
17.0
|
|
Amortization of acquired intangible assets
|
|
|
1.1
|
|
|
|
1.4
|
|
|
|
2.1
|
|
Goodwill and asset impairment
|
|
|
50.7
|
|
|
|
0.9
|
|
|
|
|
|
Restructuring
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Purchase of in-process technology
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(58.5
|
)
|
|
|
5.5
|
|
|
|
13.7
|
|
Interest income, net
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
1.9
|
|
Impairment of investments
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(58.1
|
)
|
|
|
6.4
|
|
|
|
15.4
|
|
Provision (benefit) for income taxes
|
|
|
(6.4
|
)
|
|
|
1.7
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(51.7
|
)%
|
|
|
4.7
|
%
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended 2009 Compared to 2008 and 2007
Net
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
% Change
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
in 2009
|
|
|
in 2008
|
|
|
|
(Dollars in millions)
|
|
|
Product
|
|
$
|
342.1
|
|
|
$
|
560.9
|
|
|
$
|
708.5
|
|
|
|
(39.0
|
)
|
|
|
(20.8
|
)
|
Service
|
|
|
69.3
|
|
|
|
86.1
|
|
|
|
72.0
|
|
|
|
(19.6
|
)
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
411.4
|
|
|
$
|
647.0
|
|
|
$
|
780.5
|
|
|
|
(36.4
|
)
|
|
|
(17.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Product revenues decreased $218.7 million or 39.0% during
2009 compared to 2008 mainly due to a decrease in worldwide
demand from our semiconductor capital equipment manufacturer and
semiconductor device manufacturer customers. Product revenues
related to these customers decreased $144.9 million or
45.8% compared to the same period for the prior year. Revenues
related to other markets decreased $73.8 million or 30.2%
compared to the same period for the prior year. Our domestic
product revenues decreased by $135.4 million or 40.7%
mainly due to a high concentration of sales to the semiconductor
capital equipment and device manufacturer customers. Our
international product revenues decreased $83.4 million or
36.6% during 2009. This decrease consists of a
$40.8 million decrease in product revenues from our
semiconductor customers and a decrease in product revenues of
$42.6 million related to other markets.
Product revenues decreased $147.6 million or 20.8% during
2008 compared to 2007 mainly due to a decrease in worldwide
demand from our semiconductor capital equipment manufacturer and
semiconductor device manufacturer customers. Product revenues
related to these customers decreased $166.3 million or
34.5% compared to the same period for the prior year. This
decrease was partially offset by an $18.7 million or 8.3%
increase in revenues related to other markets, mainly solar. Our
domestic product revenues decreased by $114.8 million or
25.6% mainly due to a high concentration of sales to the
semiconductor capital equipment and device manufacturer
customers. Our international product revenues decreased
$32.8 million or 12.6% during 2008. This decrease consists
of a $59.0 million decrease in product revenues from our
semiconductor customers offset by an increase of
$26.2 million related to other markets, mainly solar.
Service revenues consisted mainly of fees for services related
to the maintenance and repair of our products, software
maintenance, installation services and training. Service
revenues decreased $16.8 million or 19.6% during 2009
compared to 2008 due to lower spending by our customers on these
services as a result of the global economic conditions. Service
revenues increased $14.1 million or 19.5% during 2008
compared to 2007 mainly due to a higher installed base of
products and increased software maintenance fees.
Total international net revenues, including product and service,
were $188.5 million for 2009 or 45.8% of net sales compared
to $281.3 million for 2008 or 43.5% of net sales and
$302.7 million or 38.8% of net sales for 2007.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Points
|
|
|
% Points
|
|
|
|
Years Ended December 31,
|
|
|
Change in
|
|
|
Change in
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
Product
|
|
|
32.9
|
%
|
|
|
40.7
|
%
|
|
|
43.4
|
%
|
|
|
(7.8
|
)
|
|
|
(2.7
|
)
|
Service
|
|
|
37.0
|
%
|
|
|
36.5
|
%
|
|
|
33.5
|
%
|
|
|
0.5
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
33.6
|
%
|
|
|
40.2
|
%
|
|
|
42.5
|
%
|
|
|
(6.6
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit on product revenues decreased by
7.8 percentage points during 2009 compared to the prior
year. The decrease is mainly due to a reduction in product
revenue volumes partially offset by lower overhead spending,
which total 6.4 percentage points of the overall decrease.
A decrease of 2.6 percentage points is a result of excess
and obsolete inventory related charges. These decreases were
offset by 1.0 percentage point due to a favorable product
mix. The excess and obsolete inventory related charges were
primarily a result of a lower inventory consumption plan in the
first quarter of 2009 that we implemented in response to the
weakness in the markets we serve during that period. The
decrease in overhead costs was primarily related to lower
compensation expense resulting from workforce reductions
associated with our restructuring plan.
Gross profit on product revenues decreased by
2.7 percentage points for 2008 compared to the prior year.
The decrease consists of approximately 3.2 lower percentage
points from decreased revenue volumes, 0.4 percentage
points from unfavorable foreign currency fluctuations and
0.8 percentage points from additional excess and obsolete
inventory charges. These decreases were offset by
1.7 percentage points from lower overhead spending due to
lower sales volumes and favorable product mix.
Cost of service revenues consists primarily of costs of
providing services for repair and training which includes
salaries and related expenses and other fixed costs. Service
gross profit for 2009 increased modestly compared to the same
period for the prior year. Service gross profit increased by
3.0 percentage points for 2008 compared to 2007.
25
The increase was a result of increased revenue volumes partly
related to our YDI acquisition in the fourth quarter of 2007.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
in 2009
|
|
in 2008
|
|
|
(Dollars in millions)
|
|
Research and development expenses
|
|
$
|
53.5
|
|
|
$
|
78.5
|
|
|
$
|
74.6
|
|
|
|
(31.8
|
)
|
|
|
5.2
|
|
Research and development expenses decreased $25.0 million
or 31.8% during 2009 compared to the prior year. The decrease
includes a $14.1 million decrease in compensation expense,
a $4.7 million reduction in spending on project materials,
a $1.7 million decrease in consulting costs and a
$4.5 million decrease in other discretionary spending. The
decrease in compensation expense is mainly due to workforce
reductions that took place from the third quarter of 2008
through the first quarter of 2009, as well as other temporary
cost reductions.
Research and development expenses increased $3.9 million or
5.2% during 2008 compared to the prior year, mainly due to
$3.7 million in expenses related to the YDI acquisition and
$1.0 million in other research and development costs,
primarily patent legal fees. These increases were offset by
$0.8 million in lower compensation expenses as a result of
decreased staffing levels.
Our research and development is primarily focused on developing
and improving our instruments, components, subsystems and
process control solutions to improve process performance and
productivity.
We have hundreds of products and our research and development
efforts primarily consist of a large number of projects related
to these products, none of which is individually material to us.
Current projects typically have a duration of 12 to
30 months depending upon whether the product is an
enhancement of existing technology or a new product. Our current
initiatives include projects to enhance the performance
characteristics of older products, to develop new products and
to integrate various technologies into subsystems. These
projects support in large part the transition in the
semiconductor industry to larger wafer sizes and smaller
integrated circuit geometries, which require more advanced
process control technology. Research and development expenses
consist primarily of salaries and related expenses for personnel
engaged in research and development, fees paid to consultants,
material costs for prototypes and other expenses related to the
design, development, testing and enhancement of our products as
well as legal costs associated with maintaining and defending
our intellectual property.
We believe that the continued investment in research and
development and ongoing development of new products are
essential to the expansion of our markets, and expect to
continue to make significant investment in research and
development activities. We are subject to risks if products are
not developed in a timely manner, due to rapidly changing
customer requirements and competitive threats from other
companies and technologies. Our success primarily depends on our
products being designed into new generations of equipment for
the semiconductor industry. We develop products that are
technologically advanced so that they are positioned to be
chosen for use in each successive generation of semiconductor
capital equipment. If our products are not chosen to be designed
into our customers products, our net sales may be reduced
during the lifespan of those products.
Selling,
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
in 2009
|
|
in 2008
|
|
|
(Dollars in millions)
|
|
Selling, general and administrative expenses
|
|
$
|
106.3
|
|
|
$
|
130.8
|
|
|
$
|
132.8
|
|
|
|
(18.7
|
)
|
|
|
(1.5
|
)
|
Selling, general and administrative expenses decreased
$24.5 million or 18.7% during 2009 compared to 2008. The
decrease includes a $17.1 million decrease in compensation
expense, a $3.1 million decrease in depreciation and
facility related costs and a decrease of $3.2 million in
consulting, professional and other fees. The decrease in
compensation expense is mainly due to workforce reductions that
took place from the third quarter of 2008 through the first
quarter of 2009, as well as other temporary cost reductions.
26
Selling, general and administrative expenses decreased
$2.0 million or 1.5% during 2008 compared to 2007. The
decrease includes a $5.6 million decrease in consulting and
professional fees and a $2.3 million decrease in foreign
exchange costs. These decreases were partially offset by a
$5.3 million increase related to the YDI acquisition and a
$1.0 million increase in facilities costs related to the
relocated corporate headquarters. The decrease in consulting and
professional fees was due primarily to lower IT infrastructure
spending. The foreign exchange gains during 2008 were primarily
attributable to the settlement of cash and intercompany loans at
different foreign exchange rates in connection with a legal
entity consolidation in the first quarter of 2008 between some
of our foreign subsidiaries.
Amortization
of Acquired Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
in 2009
|
|
in 2008
|
|
|
(Dollars in millions)
|
|
Amortization of acquired intangible assets
|
|
$
|
4.4
|
|
|
$
|
9.0
|
|
|
$
|
16.2
|
|
|
|
(51.0
|
)
|
|
|
(44.4
|
)
|
Amortization expense for 2009 decreased $4.6 million or
51.0% as certain acquired intangible assets became fully
amortized during 2008, and as a result of the write-downs of
certain intangibles of $6.1 million recorded in the fourth
quarter of 2008 and $11.7 million in the second quarter of
2009.
Amortization expense for 2008 decreased $7.2 million or
44.4% primarily related to intangible assets from earlier
acquisitions that became fully amortized during 2007.
Goodwill
and Asset Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in millions)
|
|
Goodwill and asset impairment charges
|
|
$
|
208.5
|
|
|
$
|
6.1
|
|
|
$
|
|
|
During the second quarter of 2009, we reviewed our goodwill,
intangible assets, and other long-lived assets for potential
impairment as a result of market and economic conditions that
contributed to a decline in our forecasted business levels, and
the excess of our consolidated net assets over our market
capitalization for a sustained period of time. As a result of
this impairment assessment, we recorded non-cash goodwill and
intangible asset impairment charges of $193.3 million and
$11.7 million, respectively. In addition, as a result of a
facility consolidation in Asia in the second quarter of 2009, we
recorded a non-cash impairment charge of $3.5 million
resulting from the write-down of the value of a building to its
estimated fair value.
During the fourth quarter of 2008, we incurred an intangible
asset impairment charge of $6.1 million related to customer
technologies, relationships, and patents and trademarks. The
impairment charge was primarily as a result of lower than
previously estimated revenues from our YDI management software
due to the macroeconomic environment and industry downturn. The
lower estimated future cash flows were based on the amount by
which the carrying value of the intangible assets exceeded the
estimated fair value. Fair value was determined based on a
discounted estimate of future cash flows expected to be derived
from the intangible assets.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in millions)
|
|
Restructuring
|
|
$
|
5.8
|
|
|
$
|
|
|
|
$
|
|
|
In light of the global financial crisis and its impact on our
semiconductor equipment OEM customers and the other markets we
serve, we initiated a restructuring plan in the first quarter of
2009. The plan included a reduction in our worldwide headcount
of approximately 630 people, which represented
approximately 24% of our global workforce. This resulted in
restructuring charges of $5.8 million primarily for
severance and other charges associated with the reductions in
workforce. As of December 31, 2009, approximately
$0.2 million of accrued
27
employee related benefit costs are remaining and will be paid by
June 31, 2010. The costs related to workforce reductions
that took place during 2008 were immaterial.
Interest
Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
in 2009
|
|
in 2008
|
|
|
(Dollars in millions)
|
|
Interest income, net
|
|
$
|
1.6
|
|
|
$
|
6.4
|
|
|
$
|
14.5
|
|
|
|
(74.5
|
)
|
|
|
(55.7
|
)
|
Net interest income decreased $4.8 million during 2009
compared to the prior year mainly related to lower average rates
on our investment portfolio.
Net interest income decreased $8.1 million during 2008
compared to the prior year mainly related to lower average
outstanding cash and investment balances in 2008 and lower
average rates. The lower cash and investment balances were
mainly a result of our stock repurchase program.
Impairment
of Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in millions)
|
|
Impairment of investments
|
|
$
|
|
|
|
$
|
(0.9
|
)
|
|
$
|
(1.5
|
)
|
We review our investment portfolio on a monthly basis to
identify and evaluate individual investments that have
indications of potential impairment. The factors considered in
determining whether a loss is
other-than-temporary
include: the length of time and extent to which fair market
value has been below the cost basis, the financial condition and
near-term prospects of the issuer, credit quality, and our
ability to hold the investment for a period of time sufficient
to allow for any anticipated recovery in fair value. At
December 31, 2007, we determined that declines in the fair
value of two of our investments in certain commercial paper were
other-than-temporary,
and as a result, we recorded a $1.5 million impairment
charge to earnings.
For 2008, we recorded additional net impairment charges of
$0.9 million related to these two investments. We
liquidated our position in these two impaired investments during
the third quarter of 2008, one by sale and the other by a
structured payment. We received a combined total of
$3.4 million from the settlement of these investments
during 2008.
Provision (Benefit) for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in millions)
|
|
Provision (benefit) for income taxes
|
|
$
|
(26.2
|
)
|
|
$
|
10.9
|
|
|
$
|
33.7
|
|
The provision (benefit) for income taxes in 2009, 2008 and 2007
are comprised of U.S. federal, state and foreign income
taxes.
Our effective tax rate for the years 2009, 2008 and 2007 was
(11.0)%, 26.6% and 28.0%, respectively. The effective tax rate
in 2009 is less than the statutory rate primarily due to the
benefit from the U.S. federal research and development
credits, the profits of our international subsidiaries being
taxed at rates lower than the U.S. statutory tax rate,
discrete reserve releases and a non-deductible goodwill
impairment charge of $190.7 during the second quarter.
The effective tax rate in 2008 was less than the statutory tax
rate primarily due to the benefit from the U.S. federal
research and development credits, the profits of our
international subsidiaries being taxed at rates lower than the
U.S. statutory tax rate and discrete reserve releases.
28
The effective tax rate in 2007 was less than the statutory tax
rate primarily due to the benefit from the U.S. federal
research and development credits and the profits of our
international subsidiaries being taxed at rates lower than the
U.S. statutory tax rate.
At December 31, 2009, the total amount of gross
unrecognized tax benefits, which excludes interest and
penalties, was approximately $9.1 million. The decrease
from December 31, 2008 was primarily attributable to the
close of the 2005 and 2006 U.S. federal tax audits. At
December 31, 2009, if these benefits were recognized in a
future period, the timing of which is not estimable, the net
unrecognized tax benefit of $6.5 million, excluding
interest and penalties, would impact our effective tax rate.
At December 31, 2008, the total amount of gross
unrecognized tax benefits, which excludes interest and
penalties, was approximately $14.7 million. If these
benefits were recognized in a future period, the timing of which
is not estimable, the net unrecognized tax benefit of
$10.9 million, excluding interest and penalties, would
impact our effective tax rate.
We accrue interest and penalties, if applicable, for any
uncertain tax positions. This interest and penalty expense is a
component of income tax expense. At December 31, 2009 and
2008, we had $0.7 million and $1.7 million,
respectively, accrued for interest on net unrecognized tax
benefits.
Over the next 12 months it is reasonably possible that we
may recognize $1.9 million to $2.4 million of
previously unrecognized tax benefits related to various
U.S. federal, state and foreign tax positions as a result
of the conclusion of various audits and the expiration of
statutes of limitations. The following tax years, in the major
tax jurisdictions noted, are open for assessment or refund:
U.S. Federal: 2006 to 2008, Germany: 2001 to 2008, Korea:
2004 to 2008, Japan: 2004 to 2008, and the United Kingdom: 2007
and 2008. As of December 31, 2009 and currently, there are
ongoing audits in various tax jurisdictions for various tax
years.
On a quarterly basis, we evaluate both positive and negative
evidence that bears on the realizability of net deferred tax
assets and assess the need for a valuation allowance. The future
benefit to be derived from our deferred tax assets is dependent
upon our ability to generate sufficient future taxable income to
realize the assets. During 2009, we increased our valuation
allowance by $0.5 million for state tax credit
carryforwards as we determined it is more likely than not that
the deferred tax assets related to these attributes will not be
realized. In addition, in 2009, we recorded a net benefit to
income tax expense of $5.7 million, excluding interest and
penalties, due to discrete reserve releases primarily related to
the close of the 2005 and 2006 U.S. federal tax audits.
During 2007, we amended prior U.S. federal tax returns to
reflect revised estimates for qualifying U.S. federal
research and development costs that allowed us to claim
additional research tax credits. As a result of this claim, we
recorded a benefit to income tax expense of $1.8 million.
During 2006, we received a notification letter from the Israeli
Ministry of Industry Trade and Labor (MITL)
indicating that our Israeli operations were in compliance with
requirements relating to the tax holiday granted to our
manufacturing operations in Israel in 2001. This tax holiday is
anticipated to expire in 2011 and is subject to meeting
continued investment, employment and other requirements under
the guidelines of the MITL. This tax holiday resulted in income
tax savings of $0.3 million, $0.2 million and
$3.4 million for 2009, 2008 and 2007, respectively.
Liquidity
and Capital Resources
Cash, cash equivalents and short-term marketable securities
totaled $271.8 million at December 31, 2009 compared
to $278.9 million at December 31, 2008. This decrease
was mainly due to $4.2 million of cash used to purchase
plant and equipment, a decrease of $4.5 million of cash for
net repayments of short-term borrowings and a $5.9 million
decrease in net purchases of available for sale investments.
These decreases were offset by an increase of $7.4 million
of cash provided by operations. The primary driver in our
current and anticipated future cash flows is and will continue
to be cash generated from operations, consisting mainly of our
net income and changes in operating assets and liabilities. In
periods when our sales are growing, higher sales to customers
will result in increased trade receivables, and inventories will
generally increase as we build products for future sales. This
may result in lower cash generated from operations. Conversely,
in periods when our sales are declining, our trade accounts
receivable and inventory balances will generally decrease,
resulting in increased cash from operations.
29
Net cash provided by operating activities was $7.4 million
for 2009 and resulted mainly from a net loss of
$212.7 million, a $28.0 million increase in operating
assets and a $4.7 million decrease in operating
liabilities, offset by a $20.3 million provision for excess
or obsolete inventory, non-cash charges of $208.5 million
for impairment of goodwill, intangibles and other long-lived
assets, $18.8 million for depreciation and amortization and
$11.3 million for stock-based compensation and related
taxes. The increase in operating assets consisted of a
$9.9 million increase in accounts receivable as a result of
higher sales in the last two months of 2009 compared to 2008 and
a $15.9 million increase in income taxes receivable as we
expect to receive an income tax refund due to current operating
losses. The decrease in operating liabilities is mainly caused
by a decrease of $5.0 million in non-current income taxes
payable, a decrease of $2.3 million in accrued compensation
and a decrease of $1.7 million in the product warranty
reserve. The decrease in accrued compensation is primarily as a
result of the workforce reduction and mandatory time-off. The
decrease in the product warranty reserve is primarily as a
result of lower product revenues.
Net cash provided by operating activities was $89.8 million
for 2008 and resulted mainly from net income of
$30.1 million, a $23.9 million decrease in operating
assets, non-cash charges of $30.5 million for depreciation,
amortization and impairments, a $12.0 million charge for
stock-based compensation and related taxes, a decrease in net
operating liabilities of $13.6 million, an
$11.4 million provision for excess or obsolete inventory
and a deferred tax benefit of $5.0 million. The decrease in
operating assets consisted of a $23.6 million decrease in
accounts receivable as a result of lower sales in the last two
months of 2008 compared to 2007 and a $7.1 million decrease
in inventories due to lower ordering levels partially offset by
a $3.0 million increase in income taxes receivable. The
decrease in operating liabilities was mainly caused by a
decrease of $9.2 million in accounts payable primarily as a
result of lower inventory procurement activities and a decrease
of $4.4 million in accrued expenses and other current
liabilities primarily as a result of lower accrued compensation.
Net cash used in investing activities was $9.6 million for
2009 and resulted primarily from the net purchases of
$5.9 million of available-for-sale investments and
purchases of plant and equipment of $4.2 million. The
$4.2 million increase in plant and equipment was primarily
for the purchase of calibration and test equipment. Net cash
used in investing activities was $74.1 million for 2008 and
resulted primarily from the net purchases of $60.7 million
of available-for-sale investments and purchases of plant and
equipment of $13.5 million. The purchases of plant and
equipment related to leasehold improvements in Japan to
facilitate a consolidation of facilities, IT hardware to reduce
system operating costs in the future and test equipment.
Net cash used in financing activities was $8.0 million for
2009 and consisted primarily of $4.5 million in net
repayment of short-term borrowings and $2.5 million related
to excess tax benefits from stock-based compensation. Net cash
used in financing activities of $114.8 million for 2008,
resulted from $115.7 million used to repurchase common
stock, $4.8 million in net repayment of short-term
borrowings and $6.3 million in principal payments on
capital lease obligations and long-term debt, primarily to
retire a $5.0 million industrial development revenue bond,
offset by $8.9 million in proceeds from the exercise of
stock options and purchases under our employee stock purchase
plan.
On March 18, 2009, we entered into an amendment to the
Optional Advance Demand Grid Note dated August 3, 2004 (the
Grid Note). The unsecured short-term LIBOR-based
loan agreement with HSBC Bank USA is utilized primarily by our
Japanese subsidiary for short-term liquidity purposes. The
credit line, as amended: (a) decreased the maximum amount
of the note from $35.0 million to $5.0 million,
(b) decreased the limit for standby letters of credit under
the note from $0.8 million to $0.7 million, and
(c) established an annual facility fee of 0.0375% of the
maximum amount of the note. We believe the reduced amount of the
note more accurately reflects our anticipated utilization of
this line, and minimizes the cost of the new facility fee. At
December 31, 2008, total outstanding borrowings under this
credit line were $1.1 million at an interest rate of 1.65%.
There were no outstanding borrowings under this line of credit
at December 31, 2009.
On January 31, 2010, we entered into an amendment to the
Grid Note, as amended, to extend its maturity date to
July 31, 2010.
Additionally, our Japanese subsidiary has lines of credit and
short-term borrowing arrangements with two financial
institutions which provide for aggregate borrowings as of
December 31, 2009 of up to an equivalent of
$26.9 million U.S. dollars, which generally expire and
are renewed at three month intervals. At December 31, 2009
30
and 2008, total borrowings outstanding under these arrangements
were $12.9 million and $16.7 million, respectively, at
interest rates ranging from 0.76% to 1.48% at December 31,
2009 and at interest rates ranging from 1.20% to 1.68% at
December 31, 2008.
We have provided financial guarantees for certain unsecured
borrowings and have standby letters of credit, some of which do
not have fixed expiration dates. At December 31, 2009, our
maximum exposure as a result of these standby letters of credit
and performance bonds was approximately $1.0 million.
Future payments due under debt, lease and purchase commitment
obligations as of December 31, 2009 are as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due By Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Contractual Obligations (In thousands)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Other
|
|
|
Operating lease obligations
|
|
$
|
30,120
|
|
|
$
|
7,794
|
|
|
$
|
11,160
|
|
|
$
|
5,928
|
|
|
$
|
5,238
|
|
|
$
|
|
|
Purchase obligations(1)
|
|
|
137,840
|
|
|
|
111,834
|
|
|
|
11,731
|
|
|
|
10,457
|
|
|
|
3,818
|
|
|
|
|
|
Other long-term liabilities reflected on the Balance Sheet under
GAAP(2)
|
|
|
17,836
|
|
|
|
98
|
|
|
|
18
|
|
|
|
|
|
|
|
10,947
|
|
|
|
6,773
|
|
Contingent purchase consideration in connection with
acquisitions(3)
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
190,796
|
|
|
$
|
124,726
|
|
|
$
|
22,909
|
|
|
$
|
16,385
|
|
|
$
|
20,003
|
|
|
$
|
6,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
(1) |
|
The majority of the outstanding inventory purchase commitments
of approximately $98.4 million at December 31, 2009
are to be purchased within the next 12 months.
Additionally, approximately $32.7 million represents a
commitment, as of December 31, 2009, to multiple parties
engaged to provide certain computer equipment, IT network
services and IT support. These contracts are for periods ranging
from two to six years and the actual timing of payments and
amounts may vary based on equipment deployment dates. However,
the amount noted represents our expected obligation based on
anticipated deployment. |
|
(2) |
|
The majority of this balance relates to income taxes payable and
accrued compensation for certain executives related to
supplemental retirement benefits. |
|
(3) |
|
In connection with the YDI acquisition, additional purchase
consideration may be payable upon the achievement of specific
annual and cumulative revenue targets for 2010. |
We believe that our working capital, together with the cash
anticipated to be generated from operations, will be sufficient
to satisfy our estimated working capital and planned capital
expenditure requirements through at least the next
12 months.
On February 12, 2007, our Board of Directors approved a
share repurchase program (the Program) for the
repurchase of up to $300.0 million of our outstanding stock
over the next two years. The repurchases were made from time to
time on the open market or through privately negotiated
transactions. The timing and amount of any shares repurchased
under the Program were dependent upon a variety of factors,
including price, corporate and regulatory requirements, capital
availability, and other market conditions. During 2007, we
repurchased 4,779,000 shares of common stock for
$101.2 million for an average price of $21.17 per share.
During 2008, we repurchased 5,667,000 shares of common
stock for $115.7 million for an average price of $20.42 per
share. The Program expired on February 11, 2009 with no
additional share repurchases in 2009. In total, we repurchased
10,446,000 shares of common stock for $216.9 million
for an average price of $20.76 per share.
Derivatives
We enter into derivative instruments for risk management
purposes only, including derivatives designated as hedging
instruments and those utilized as economic hedges. We operate
internationally, and in the normal course of business, are
exposed to fluctuations in interest rates and foreign exchange
rates. These fluctuations can increase the costs of financing,
investing and operating the business. We have used derivative
instruments, such as forward contracts, to manage certain
foreign currency exposure.
31
By nature, all financial instruments involve market and credit
risks. We enter into derivative instruments with major
investment grade financial institutions and no collateral is
required. We have policies to monitor the credit risk of these
counterparties. While there can be no assurance, we do not
anticipate any material non-performance by any of these
counterparties.
We hedge a portion of our forecasted foreign currency
denominated intercompany sales of inventory, over a maximum
period of eighteen months, using forward foreign exchange
contracts accounted for as cash-flow hedges related to Japanese,
South Korean, British and European currencies. To the extent
these derivatives are effective in offsetting the variability of
the hedged cash flows, and otherwise meet the hedge accounting
criteria, changes in the derivatives fair value are not
included in current earnings but are included in accumulated
other comprehensive income in stockholders equity. These
changes in fair value will subsequently be reclassified into
earnings as a component of product cost, as applicable, when the
forecasted transaction occurs. To the extent that a previously
designated hedging transaction is no longer an effective hedge,
any ineffectiveness measured in the hedging relationship is
recorded immediately in earnings in the period it occurs. The
cash flows resulting from forward exchange contracts are
classified in the consolidated statements of cash flows as part
of cash flows from operating activities. We do not enter into
derivative instruments for trading or speculative purposes.
To the extent that hedge accounting criteria is not met, the
foreign currency forward contracts are considered economic
hedges and changes in the fair value of these contracts are
recorded immediately in earnings in the period in which they
occur. These include hedges that are used to reduce exchange
rate risks arising from the change in fair value of certain
foreign currency denominated assets and liabilities (i.e.,
payables, receivables) and other economic hedges where the hedge
accounting criteria were not met.
We had forward exchange contracts with notional amounts totaling
$48.7 million outstanding at December 31, 2009 of
which $29.0 million were outstanding to exchange Japanese
yen for U.S. dollars. We had forward exchange contracts
with notional amounts totaling $30.6 million outstanding at
December 31, 2008 of which $17.3 million were
outstanding to exchange Japanese yen for U.S. dollars.
As of December 31, 2009, the unrealized gain that will be
reclassified from accumulated other comprehensive income to cost
of products over the next twelve months is $0.8 million.
The ineffective portions of the derivatives are recorded in
selling, general and administrative costs and were immaterial in
2009, 2008 and 2007, respectively.
We also hedge certain intercompany and other payables with
forward exchange contracts. Typically, as these derivatives
hedge existing amounts that are denominated in foreign
currencies, the derivatives do not qualify for hedge accounting.
The foreign exchange gain or loss on these derivatives was
immaterial in 2009, a gain of $2.7 million in 2008 and
immaterial in 2007.
Realized and unrealized gains and losses on forward exchange
contracts that do not qualify for hedge accounting are
recognized immediately in earnings. The cash flows resulting
from forward exchange contracts are classified in our
consolidated statements of cash flows as part of cash flows from
operating activities. We do not hold or issue derivative
financial instruments for trading purposes.
Gains and losses on forward exchange contracts that qualify for
hedge accounting are classified in cost of products, which
totaled a gain of $1.1 million, losses of $1.2 million
and gains of $1.3 million for the years 2009, 2008 and
2007, respectively.
Off-Balance
Sheet Arrangements
We do not have any financial partnerships with unconsolidated
entities, such as entities often referred to as structured
finance, special purpose entities or variable interest entities
which are often established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes. Accordingly, we are not exposed to any
financing, liquidity, market or credit risk that could arise if
we had such relationships.
Recently
Issued Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board
(FASB) issued guidance that establishes the
accounting and reporting provisions for arrangements including
multiple revenue-generating activities. This
32
guidance provides amendments to the criteria for separating
deliverables, measuring and allocating arrangement consideration
to one or more units of accounting. The amendments in this
guidance also establish a selling price hierarchy for
determining the selling price of a deliverable. Significantly
enhanced disclosures are also required to provide information
about a vendors multiple-deliverable revenue arrangements,
including information about the nature and terms, significant
deliverables, and its performance within arrangements. The
amendments also require providing information about the
significant judgments made and changes to those judgments and
about how the application of the relative selling-price method
effects the timing or amount of revenue recognition. The
amendments in this guidance are effective prospectively for
revenue arrangements entered into or materially modified in the
fiscal years beginning on or after June 15, 2010. Early
application is permitted. We are currently evaluating the
potential impact of this new guidance on our consolidated
financial statements.
In October 2009, the FASB issued guidance that changes the
accounting model for revenue arrangements that include both
tangible products and software elements that are essential
to the functionality, and scopes these products out of
current software revenue guidance. The new guidance will include
factors to help companies determine what software elements are
considered essential to the functionality. The
amendments will now subject software-enabled products to other
revenue guidance and disclosure requirements, such as guidance
surrounding revenue arrangements with multiple-deliverables. The
amendments in this guidance are effective prospectively for
revenue arrangements entered into or materially modified in the
fiscal years beginning on or after June 15, 2010. Early
application is permitted. We are currently evaluating the
potential impact of this new guidance on our consolidated
financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market
Risk and Sensitivity Analysis
Our primary exposures to market risks include fluctuations in
interest rates on our investment portfolio, short and long-term
debt as well as fluctuations in foreign currency exchange rates.
Foreign
Exchange Rate Risk
We mainly enter into forward exchange contracts to reduce
currency exposure arising from intercompany sales of inventory.
We sometimes also enter into forward exchange contracts to
reduce foreign exchange risks arising from the change in fair
value of certain foreign currency denominated assets and
liabilities.
There were forward exchange contracts with notional amounts
totaling $48.7 million and $30.6 million outstanding
at December 31, 2009 and 2008, respectively. Of such
forward exchange contracts, $29.0 million and
$17.3 million, respectively, were outstanding to exchange
Japanese yen for U.S. dollars with the remaining amounts
relating to contracts to exchange the British pound, South
Korean won and Euro for U.S. dollars. The potential fair
value loss for a hypothetical 10% adverse change in the currency
exchange rate on our forward exchange contracts at
December 31, 2009 and 2008 would be $4.9 million and
$3.1 million, respectively. The potential losses in 2009
and 2008 were estimated by calculating the fair value of the
forward exchange contracts at December 31, 2009 and 2008
and comparing that with those calculated using the hypothetical
forward currency exchange rates.
At December 31, 2009 and 2008 we had $1.3 million and
$0.6 million, respectively, in loans outstanding between
subsidiaries that were subject to foreign exchange exposure. At
December 31, 2009 and 2008 a hypothetical 10% adverse
change in foreign exchange rates would result in a net
transaction loss of $0.1 million and $0.1 million,
respectively, which would be recorded in current earnings.
At December 31, 2009 and 2008, we had $12.9 million
and $17.8 million, respectively, related to short-term
borrowings denominated in Japanese yen. The carrying value of
these short-term borrowings approximates fair value due to their
short period to maturity. Assuming a hypothetical 10% adverse
change in the Japanese yen to U.S. dollar year-end exchange
rate, the fair value of these short-term borrowings would
increase by $1.4 million and $2.0 million,
respectively. The potential increase in fair value was estimated
by calculating the fair value of the short-term borrowings at
December 31, 2009 and 2008, respectively, and comparing
that with the fair value using the hypothetical year-end
exchange rate.
33
Interest
Rate Risk
Due to its short-term duration, the fair value of our cash and
investment portfolio at December 31, 2009 and 2008
approximated its carrying value. Interest rate risk was
estimated as the potential decrease in fair value resulting from
a hypothetical 10% increase in interest rates for securities
contained in the investment portfolio. The resulting
hypothetical fair value was not materially different from the
year-end carrying values.
From time to time, we have outstanding short-term borrowings
with variable interest rates, primarily denominated in Japanese
yen. At December 31, 2009 and 2008, we had
$12.9 million and $17.8 million, respectively,
outstanding related to these short-term borrowings at interest
rates ranging from 0.76% to 1.48% and 1.2% to 1.68%,
respectively. Due to the short-term nature and amount of this
short-term debt, a hypothetical change of 10% in interest rates
would not have a material effect on our near-term financial
condition or results of operations.
34
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors and Shareholders of
MKS Instruments, Inc.:
In our opinion, the accompanying consolidated financial
statements listed in the index appearing under
Item 15(a)(1) present fairly, in all material respects, the
financial position of MKS Instruments, Inc. and its subsidiaries
at December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
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. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 2010
35
MKS
INSTRUMENTS, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
111,009
|
|
|
$
|
119,261
|
|
Short-term investments
|
|
|
160,786
|
|
|
|
159,608
|
|
Trade accounts receivable, net of allowances of $2,415 and
$2,148 at December 31, 2009 and 2008, respectively
|
|
|
94,215
|
|
|
|
85,350
|
|
Inventories
|
|
|
118,004
|
|
|
|
131,519
|
|
Income taxes receivable
|
|
|
14,476
|
|
|
|
4,057
|
|
Deferred income taxes
|
|
|
21,505
|
|
|
|
19,058
|
|
Other current assets
|
|
|
12,886
|
|
|
|
9,875
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
532,881
|
|
|
|
528,728
|
|
Property, plant and equipment, net
|
|
|
67,196
|
|
|
|
82,017
|
|
Goodwill
|
|
|
144,511
|
|
|
|
337,765
|
|
Acquired intangible assets, net
|
|
|
4,963
|
|
|
|
21,069
|
|
Other assets
|
|
|
24,518
|
|
|
|
15,360
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
774,069
|
|
|
$
|
984,939
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
12,885
|
|
|
$
|
17,808
|
|
Current portion of capital lease obligations
|
|
|
|
|
|
|
870
|
|
Accounts payable
|
|
|
26,292
|
|
|
|
19,320
|
|
Accrued compensation
|
|
|
10,658
|
|
|
|
13,768
|
|
Other current liabilities
|
|
|
21,465
|
|
|
|
24,169
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
71,300
|
|
|
|
75,935
|
|
Long-term portion of capital lease obligations
|
|
|
|
|
|
|
396
|
|
Other liabilities
|
|
|
17,836
|
|
|
|
21,910
|
|
Commitments and contingencies (Note 20)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common Stock, no par value, 200,000,000 shares authorized;
49,514,941 and 49,275,975 shares issued and outstanding at
December 31, 2009 and 2008, respectively
|
|
|
113
|
|
|
|
113
|
|
Additional paid-in capital
|
|
|
645,411
|
|
|
|
637,938
|
|
Retained earnings
|
|
|
28,769
|
|
|
|
241,428
|
|
Accumulated other comprehensive income
|
|
|
10,640
|
|
|
|
7,219
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
684,933
|
|
|
|
886,698
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
774,069
|
|
|
$
|
984,939
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
36
MKS
INSTRUMENTS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
342,145
|
|
|
$
|
560,888
|
|
|
$
|
708,456
|
|
Services
|
|
|
69,261
|
|
|
|
86,106
|
|
|
|
72,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
411,406
|
|
|
|
646,994
|
|
|
|
780,487
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
|
|
|
229,686
|
|
|
|
332,366
|
|
|
|
401,119
|
|
Cost of services
|
|
|
43,630
|
|
|
|
54,685
|
|
|
|
47,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
273,316
|
|
|
|
387,051
|
|
|
|
449,000
|
|
Gross profit
|
|
|
138,090
|
|
|
|
259,943
|
|
|
|
331,487
|
|
Research and development
|
|
|
53,543
|
|
|
|
78,540
|
|
|
|
74,628
|
|
Selling, general and administrative
|
|
|
106,330
|
|
|
|
130,800
|
|
|
|
132,791
|
|
Amortization of acquired intangible assets
|
|
|
4,407
|
|
|
|
9,001
|
|
|
|
16,183
|
|
Purchase of in-process technology
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Goodwill and asset impairment charges
|
|
|
208,497
|
|
|
|
6,069
|
|
|
|
|
|
Restructuring
|
|
|
5,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(240,499
|
)
|
|
|
35,533
|
|
|
|
106,985
|
|
Interest income, net
|
|
|
1,641
|
|
|
|
6,425
|
|
|
|
14,488
|
|
Impairment of investments
|
|
|
|
|
|
|
(906
|
)
|
|
|
(1,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(238,858
|
)
|
|
|
41,052
|
|
|
|
120,016
|
|
Provision (benefit) for income taxes
|
|
|
(26,199
|
)
|
|
|
10,935
|
|
|
|
33,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(4.31
|
)
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(4.31
|
)
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
49,318
|
|
|
|
49,717
|
|
|
|
56,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
49,318
|
|
|
|
50,754
|
|
|
|
57,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
37
MKS
INSTRUMENTS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (loss)
|
|
|
Income (loss)
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at December 31, 2006
|
|
|
56,671,625
|
|
|
$
|
113
|
|
|
$
|
680,164
|
|
|
$
|
210,877
|
|
|
$
|
10,065
|
|
|
|
|
|
|
$
|
901,219
|
|
Net issuance under stock-based plans
|
|
|
2,368,954
|
|
|
|
|
|
|
|
45,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,266
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
12,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,918
|
|
Tax benefit from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
5,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,712
|
|
Stock repurchases
|
|
|
(4,778,632
|
)
|
|
|
|
|
|
|
(59,165
|
)
|
|
|
(41,993
|
)
|
|
|
|
|
|
|
|
|
|
|
(101,158
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
570
|
|
Comprehensive income (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,360
|
|
|
|
|
|
|
|
86,360
|
|
|
|
86,360
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges and unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(622
|
)
|
|
|
(622
|
)
|
|
|
(622
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,744
|
|
|
|
3,744
|
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
54,261,947
|
|
|
$
|
113
|
|
|
$
|
685,465
|
|
|
$
|
255,244
|
|
|
$
|
13,187
|
|
|
|
|
|
|
$
|
954,009
|
|
Net issuance under stock-based plans
|
|
|
681,493
|
|
|
|
|
|
|
|
8,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,861
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
15,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,176
|
|
Tax benefit from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
Stock repurchases
|
|
|
(5,667,465
|
)
|
|
|
|
|
|
|
(71,790
|
)
|
|
|
(43,933
|
)
|
|
|
|
|
|
|
|
|
|
|
(115,723
|
)
|
Comprehensive income (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,117
|
|
|
|
|
|
|
|
30,117
|
|
|
|
30,117
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
203
|
|
|
|
203
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,171
|
)
|
|
|
(6,171
|
)
|
|
|
(6,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
49,275,975
|
|
|
$
|
113
|
|
|
$
|
637,938
|
|
|
$
|
241,428
|
|
|
$
|
7,219
|
|
|
|
|
|
|
$
|
886,698
|
|
Net issuance under stock-based plans
|
|
|
238,966
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
8,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,845
|
|
Tax expense from stock-based plans
|
|
|
|
|
|
|
|
|
|
|
(1,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,258
|
)
|
Comprehensive income (loss) (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,659
|
)
|
|
|
|
|
|
|
(212,659
|
)
|
|
|
(212,659
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in value of financial instruments designated as cash
flow hedges and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
|
|
359
|
|
|
|
359
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
|
|
3,062
|
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(209,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
49,514,941
|
|
|
$
|
113
|
|
|
$
|
645,411
|
|
|
$
|
28,769
|
|
|
$
|
10,640
|
|
|
|
|
|
|
$
|
684,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
38
MKS
INSTRUMENTS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,759
|
|
|
|
23,524
|
|
|
|
30,644
|
|
Stock-based compensation
|
|
|
8,845
|
|
|
|
15,274
|
|
|
|
12,918
|
|
Excess tax benefit (expense) from stock-based compensation
|
|
|
2,460
|
|
|
|
(3,250
|
)
|
|
|
(2,688
|
)
|
Deferred income taxes
|
|
|
(7,202
|
)
|
|
|
(4,975
|
)
|
|
|
(10,283
|
)
|
Provision for excess and obsolete inventory
|
|
|
20,335
|
|
|
|
11,401
|
|
|
|
6,401
|
|
Impairment of goodwill
|
|
|
193,255
|
|
|
|
|
|
|
|
|
|
Impairment of intangibles and other long-lived assets
|
|
|
15,242
|
|
|
|
6,069
|
|
|
|
|
|
Impairment of investments
|
|
|
|
|
|
|
906
|
|
|
|
1,457
|
|
Other
|
|
|
1,003
|
|
|
|
394
|
|
|
|
888
|
|
Changes in operating assets and liabilities, net of effects of
businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(9,935
|
)
|
|
|
23,565
|
|
|
|
18,263
|
|
Inventories
|
|
|
(4,677
|
)
|
|
|
7,088
|
|
|
|
(5,195
|
)
|
Income taxes receivable
|
|
|
(15,880
|
)
|
|
|
(3,047
|
)
|
|
|
5,116
|
|
Other current assets
|
|
|
2,511
|
|
|
|
(3,730
|
)
|
|
|
708
|
|
Accrued expenses and other current liabilities
|
|
|
(10,792
|
)
|
|
|
(4,384
|
)
|
|
|
(6,615
|
)
|
Accounts payable
|
|
|
6,103
|
|
|
|
(9,175
|
)
|
|
|
(18,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
7,368
|
|
|
|
89,777
|
|
|
|
119,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(24,021
|
)
|
Purchases of short-term and long-term
available-for-sale
investments
|
|
|
(254,057
|
)
|
|
|
(324,375
|
)
|
|
|
(183,927
|
)
|
Maturities and sales of short-term and long-term
available-for-sale
investments
|
|
|
248,147
|
|
|
|
263,715
|
|
|
|
160,269
|
|
Purchases of property, plant and equipment
|
|
|
(4,179
|
)
|
|
|
(13,457
|
)
|
|
|
(15,090
|
)
|
Proceeds from sale of assets
|
|
|
128
|
|
|
|
336
|
|
|
|
370
|
|
Other
|
|
|
333
|
|
|
|
(273
|
)
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(9,628
|
)
|
|
|
(74,054
|
)
|
|
|
(60,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
162,361
|
|
|
|
155,922
|
|
|
|
137,656
|
|
Payments on short-term borrowings
|
|
|
(166,847
|
)
|
|
|
(160,771
|
)
|
|
|
(141,749
|
)
|
Repurchases of common stock
|
|
|
|
|
|
|
(115,723
|
)
|
|
|
(101,158
|
)
|
Payments on long-term debt
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(961
|
)
|
|
|
(1,330
|
)
|
|
|
(1,426
|
)
|
Proceeds (payments) from exercise of stock options and employee
stock purchase plan
|
|
|
(114
|
)
|
|
|
8,861
|
|
|
|
45,266
|
|
Excess tax benefit (expense) from stock-based compensation
|
|
|
(2,460
|
)
|
|
|
3,250
|
|
|
|
2,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(8,021
|
)
|
|
|
(114,791
|
)
|
|
|
(58,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,029
|
|
|
|
(5,639
|
)
|
|
|
9,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(8,252
|
)
|
|
|
(104,707
|
)
|
|
|
8,760
|
|
Cash and cash equivalents at beginning of year
|
|
|
119,261
|
|
|
|
223,968
|
|
|
|
215,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
111,009
|
|
|
$
|
119,261
|
|
|
$
|
223,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
187
|
|
|
$
|
649
|
|
|
$
|
830
|
|
Income taxes
|
|
$
|
10,038
|
|
|
$
|
11,625
|
|
|
$
|
27,116
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment capital leases
|
|
$
|
194
|
|
|
$
|
489
|
|
|
$
|
1,244
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
39
MKS
INSTRUMENTS, INC.
(Tables
in thousands, except share and per share data)
|
|
1)
|
Description
of Business
|
MKS Instruments, Inc. (MKS or the
Company) was founded in 1961 and is a leading
worldwide provider of instruments, subsystems and process
control solutions that measure, control, power, monitor and
analyze critical parameters to improve process performance and
productivity of advanced manufacturing processes. MKS is managed
as one operating segment which is organized around three product
groups: Instruments and Control Systems, Power and Reactive Gas
Products and Vacuum Products. MKS products are derived
from its core competencies in pressure measurement and control,
materials delivery, gas composition analysis, electrostatic
change management, control and information technology, power and
reactive gas generation and vacuum technology.
|
|
2)
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation
The consolidated financial statements include the accounts of
MKS Instruments, Inc. and its wholly owned subsidiaries
(collectively, the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of
Estimates
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including
those related to revenue recognition, stock-based compensation,
inventory, intangible assets, goodwill, and other long-lived
assets, acquisition expenses, income taxes and investments.
Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
Revenue
Recognition and Accounts Receivable Allowances
Revenue from product sales is recorded upon transfer of title
and risk of loss to the customer provided that there is evidence
of an arrangement, the sales price is fixed or determinable, and
collection of the related receivable is reasonably assured. In
most transactions, the Company has no obligations to customers
after the date products are shipped other than pursuant to
warranty obligations. In some instances, the Company provides
installation, training, support and services to customers after
the product has been shipped. For revenue arrangements with
multiple deliverables, the Company defers the fair value related
to any undelivered elements until the undelivered element is
delivered. Fair value is the price charged when the element is
sold separately. The Company provides for the estimated costs to
fulfill customer warranty obligations upon the recognition of
the related revenue. Shipping and handling fees, if any, billed
to customers are recognized as revenue. The related shipping and
handling costs are recognized in cost of sales. Accounts
receivable allowances include sales returns and bad debt
allowances. The Company monitors and tracks the amount of
product returns and reduces revenue at the time of shipment for
the estimated amount of such future returns, based on historical
experience. The Company makes estimates evaluating its allowance
for doubtful accounts. The Company continuously monitors
collections and payments from its customers and maintains a
provision for estimated credit losses based upon its historical
experience and any specific customer collection issues that it
has identified.
40
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Research
and Development
Research and development costs are expensed as incurred and
consist mainly of compensation related expenses and project
materials. The Companys research and development efforts
include numerous projects, which generally have a duration of 12
to 30 months.
Advertising
Costs
Advertising costs are expensed as incurred and were immaterial
in 2009, 2008 and 2007.
Stock-Based
Compensation
The accounting for share-based compensation expense requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors based
on estimated fair values. For restricted stock awards, the fair
value is the fair value on the date of grant. The Company has
estimated the fair value of share-based options on the date of
grant using the Black Scholes pricing model, which is affected
by the Companys stock price as well as assumptions
regarding a number of complex and subjective variables. These
variables include the Companys expected stock price
volatility over the term of the awards, actual and projected
employee option exercise behaviors, risk free interest rate and
expected dividends. The Company is also required to estimate
forfeitures at the time of grant and revise those estimates in
subsequent periods if actual forfeitures differ from those
estimates.
Management determined that blended volatility, a combination of
historical and implied volatility, is more reflective of market
conditions and a better indicator of expected volatility than
historical or implied volatility. The assumptions used in
calculating the fair value of share-based payment awards
represent managements best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses
different assumptions, its stock-based compensation expense
could be materially different in the future.
Net
Income Per Share
Basic earnings per share is based on the weighted average number
of common shares outstanding, and diluted earnings per share is
based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares
outstanding. The dilutive effect of options and restricted stock
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 when the effect of their
inclusion would be dilutive.
Cash and
Cash Equivalents and Investments
All highly liquid investments with a maturity date of three
months or less at the date of purchase are considered to be cash
equivalents. The appropriate classification of investments in
securities is determined at the time of purchase. Debt
securities that the Company does not have the intent and ability
to hold to maturity are classified as
available-for-sale
and are carried at fair value. Unrealized gains and losses on
securities classified as
available-for-sale
are included in accumulated other comprehensive income in
consolidated stockholders equity.
The Company reviews its investment portfolio on a monthly basis
to identify and evaluate individual investments that have
indications of possible impairment. The factors considered in
determining whether a loss is
other-than-temporary
include: the length of time and extent to which fair market
value has been below the cost basis, the financial condition and
near-term prospects of the issuer, credit quality, and the
Companys ability to hold the investment for a period of
time sufficient to allow for any anticipated recovery in fair
value.
41
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Concentrations
of Credit Risk
The Companys 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 some banks with which it has borrowings.
The Company maintains investments primarily in
U.S. Treasury and government agency securities and
corporate debt securities, with minimum rating of A1-P1 or AAA.
The Company enters into forward currency contracts with high
credit-quality financial institutions in order to minimize
credit risk exposure. The Companys customers are primarily
concentrated in the semiconductor industry, and a limited number
of customers account for a significant portion of the
Companys revenues. The Company regularly monitors the
creditworthiness of its customers and believes it has adequately
provided for potential credit loss exposures. Credit is extended
for all customers based primarily on financial condition and
collateral is not required.
Inventories
The Company values its inventory at the lower of cost
(first-in,
first-out method) or market. The Company regularly reviews
inventory quantities on hand and records a provision to
write-down excess and obsolete inventory to its estimated net
realizable value, if less than cost, based primarily on its
estimated forecast of product demand.
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 twenty to thirty-one and one-half
years for buildings and three to seven years for machinery and
equipment, furniture and fixtures and office equipment, which
includes enterprise resource planning (ERP)
software. 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
acquired. These include acquired customer lists, technology,
patents, trade name and covenants not to compete. Intangible
assets are amortized from two to eight years on a straight-line
basis which represents the estimated periods of benefit. During
2009 and 2008, the Company recorded impairments of
indefinite-lived intangible assets of $11,699,000 and
$6,069,000, respectively.
Goodwill
Goodwill is the amount by which the cost of acquired net assets
exceeded the fair value of those net assets on the date of
acquisition. The Company allocates goodwill to reporting units
at the time of acquisition and bases that allocation on which
reporting units will benefit from the acquired assets and
liabilities. Reporting units are defined as operating segments
or one level below an operating segment, referred to as a
component. The Company has determined that its reporting units
are components of its one operating segment. The Company
assesses goodwill for impairment on an annual basis on October
31 or more frequently when events and circumstances occur
indicating that the recorded goodwill may be impaired. If the
book value of a reporting unit exceeds its fair value,
42
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
the implied fair value of goodwill is compared with the carrying
amount of goodwill. If the carrying amount of goodwill exceeds
the implied fair value, an impairment loss is recorded equal to
that excess. During 2009, the Company recorded a goodwill
impairment charge of $193,254,000.
Impairment
of Long-Lived Assets
The Company evaluates the recoverability of its long-lived
assets whenever events and changes in circumstances indicate
that the carrying amount of an asset may not be fully
recoverable. This periodic review may result in an adjustment of
estimated depreciable lives or asset impairment. When indicators
of impairment are present, the carrying values of the asset are
evaluated in relation to their operating performance and future
undiscounted cash flows of the underlying business. If the
future undiscounted cash flows are less than their book value,
impairment exists. The impairment is measured as the difference
between the book value and the fair value of the underlying
asset. Fair values are based on estimates of market prices and
assumptions concerning the amount and timing of estimated future
cash flows and assumed discount rates, reflecting varying
degrees of perceived risk. During 2009, the Company recorded an
impairment charge of $3,544,000 resulting from the write-down of
the value of a building to its estimated fair value.
Foreign
Exchange
The functional currency of the majority of the Companys
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
during the year. The resulting translation adjustments are
included in accumulated other comprehensive income in
consolidated stockholders equity. Foreign exchange
transaction gains and losses, which arise from transaction
activity, are reflected in selling, general and administrative
expenses in the consolidated statements of operations.
Income
Taxes
The Company records income taxes using the asset and liability
method. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective income tax
bases, operating loss and tax credit carryforwards. On a
quarterly basis, the Company evaluates both the positive and
negative evidence that bears on the realizability of net
deferred tax assets and assesses the need for a valuation
allowance. The future benefit to be derived from its deferred
tax assets is dependent upon its ability to generate sufficient
future taxable income to realize the assets. The Company records
a valuation allowance to reduce its net deferred tax assets to
the amount that is more likely than not to be realized. To the
extent the Company establishes a valuation allowance, an expense
will be recorded within the provision for income taxes line on
the consolidated statements of operations. As of
December 31, 2007, the Company had a valuation allowance of
$534,000 primarily related to state tax credit carryforwards.
During 2008, the Company increased the valuation allowance by
$3,303,000 for state tax credit carryforwards and $816,000 for
U.S. federal capital loss carryforwards, as the Company has
determined it is more likely than not that both of these tax
attributes will not be realized. As a result, the valuation
allowance was $4,653,000 at December 31, 2008. During 2009,
the Company increased the valuation allowance by $548,000
primarily for state tax credit carryforwards, as the Company has
determined it is more likely than not that this tax attribute
will not be realized. As a result, the valuation allowance is
$5,201,000 at December 31, 2009.
Accounting for income taxes requires a two-step approach to
recognize and measure uncertain tax positions. The first step is
to evaluate the tax position for recognition by determining if,
based on the technical merits, it is more likely than not that
the position will be sustained upon audit, including resolutions
of related appeals or litigation processes, if any. The second
step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon ultimate settlement.
The Company reevaluates these uncertain tax positions on a
43
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
quarterly basis. This evaluation is based on factors including,
but not limited to, changes in facts or circumstances, changes
in tax law, effectively settled issues under audit and new audit
activity. Any change in these factors could result in the
recognition of a tax benefit or an additional charge to the tax
provision.
New
Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board
(FASB) issued guidance that establishes new
accounting and reporting provisions for arrangements including
multiple revenue-generating activities. This guidance provides
amendments to the criteria for separating deliverables,
measuring and allocating arrangement consideration to one or
more units of accounting. The amendments in this guidance also
establish a selling price hierarchy for determining the selling
price of a deliverable. Significantly enhanced disclosures are
also required to provide information about a vendors
multiple-deliverable revenue arrangements, including information
about the nature and terms, significant deliverables, and its
performance within arrangements. The amendments also require
providing information about the significant judgments made and
changes to those judgments and about how the application of the
relative selling-price method effects the timing or amount of
revenue recognition. The amendments in this guidance are
effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after
June 15, 2010. Early application is permitted. The Company
is currently evaluating the potential impact of this new
guidance on its consolidated financial statements.
In October 2009, the FASB issued guidance that changes the
accounting model for revenue arrangements that include both
tangible products and software elements that are essential
to the functionality, and scopes these products out of
current software revenue guidance. The new guidance will include
factors to help companies determine what software elements are
considered essential to the functionality. The
amendments will now subject software-enabled products to other
revenue guidance and disclosure requirements, such as guidance
surrounding revenue arrangements with multiple-deliverables. The
amendments in this guidance are effective prospectively for
revenue arrangements entered into or materially modified in the
fiscal years beginning on or after June 15, 2010. Early
application is permitted. The Company is currently evaluating
the potential impact of this new guidance on its consolidated
financial statements.
In June 2009, the FASB issued guidance which changed the
referencing of financial standards and the Hierarchy of
Generally Accepted Accounting Principles and is effective for
interim or annual financial periods ending after
September 15, 2009. The Company adopted the provisions of
the new guidance in the third quarter of 2009 and updated its
disclosures.
In May 2009, the FASB issued guidance that modified the
definition of what qualifies as a subsequent event
those events or transactions that occur following the balance
sheet date, but before the financial statements are issued, or
are available to be issued and required companies to
disclose the date through which it has evaluated subsequent
events and the basis for determining that date. The Company
adopted the provisions of the new guidance in the second quarter
of 2009.
In April 2009, the FASB issued additional guidance for
estimating fair value when the volume and level of activity for
the asset or liability being measured have significantly
decreased and identifying circumstances that indicate a
transaction is not orderly. The Company adopted the new guidance
in the second quarter of 2009 and the adoption did not have an
impact on the Companys financial position, results of
operations, or cash flows.
In April 2009, the FASB amended the existing guidance on the
initial recognition and measurement, subsequent measurement and
accounting, and disclosures for assets and liabilities arising
from contingencies in business combinations. The new guidance
eliminates the distinction between contractual and
non-contractual contingencies, including the initial recognition
and measurement criteria and instead carries forward most of the
previous provisions for acquired contingencies. The Company
adopted the new guidance effective as of January 1,
44
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
2009 and the adoption did not have an impact on the
Companys financial position, results of operations, or
cash flows.
|
|
3)
|
Cash and
Cash Equivalents and Investments
|
The Company reviews its investment portfolio on a monthly basis
to identify and evaluate individual investments that have
indications of possible impairment. The factors considered in
determining whether a loss is
other-than-temporary
include: the length of time and extent to which fair market
value has been below the cost basis, the financial condition and
near-term prospects of the issuer, credit quality, and the
Companys ability to hold the investment for a period of
time sufficient to allow for any anticipated recovery in fair
value. During this review, as of December 31, 2007, the
Company determined that declines in the fair value of two of its
investments in certain commercial paper were
other-than-temporary.
This commercial paper was issued by two structured investment
vehicles (SIVs) that entered into receivership during the fourth
quarter of 2007 and failed to make payment at maturity. Due to
the mortgage-related assets held by these issuers, they were
exposed to adverse market conditions that affected the value of
their collateral and their ability to access short-term funding.
These investments were not trading on active markets, and
therefore, had no readily determinable market value. As a result
of the Companys evaluation as of December 31, 2007,
it recorded a $1,457,000 impairment charge to earnings based
upon the Company receiving contemporaneous quotes from
established third-party pricing services. This resulted in a new
cost basis for the securities of $4,275,000 at December 31,
2007.
For 2008, the Company recorded additional net impairment charges
of $906,000 related to these two investments. The Company
liquidated its position in these two investments during the
third quarter of 2008, one by sale and the other by a structured
payment. The Company received a combined total of $3,369,000
from the settlement of these investments during 2008.
The fair value of short-term
available-for-sale
investments with maturities or estimated lives of less than one
year consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Federal government and government agency obligations
|
|
$
|
150,648
|
|
|
$
|
137,981
|
|
Commercial paper and corporate obligations
|
|
|
5,842
|
|
|
|
21,627
|
|
Money market funds
|
|
|
4,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
160,786
|
|
|
$
|
159,608
|
|
|
|
|
|
|
|
|
|
|
The fair value of long-term
available-for-sale
investments (included in Other assets) with maturities or
estimated lives of one to five years consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Federal government and government agency obligations
|
|
$
|
4,853
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
45
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The following table shows the gross unrealized gains and
(losses) aggregated by investment category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government and government agency obligations
|
|
$
|
147,354
|
|
|
$
|
75
|
|
|
$
|
(82
|
)
|
|
$
|
147,347
|
|
Commercial paper and corporate obligations
|
|
|
2,142
|
|
|
|
1
|
|
|
|
(200
|
)
|
|
|
1,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
149,496
|
|
|
$
|
76
|
|
|
$
|
(282
|
)
|
|
$
|
149,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government and government agency obligations
|
|
$
|
126,106
|
|
|
$
|
373
|
|
|
$
|
(2
|
)
|
|
$
|
126,477
|
|
Commercial paper and corporate obligations
|
|
|
2,993
|
|
|
|
87
|
|
|
|
(783
|
)
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,099
|
|
|
$
|
460
|
|
|
$
|
(785
|
)
|
|
$
|
128,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income is accrued as earned. Dividend income is
recognized as income on the date the stock trades
ex-dividend. The cost of marketable securities sold
is determined by the specific identification method and realized
gains or losses are reflected in income and were not material in
2009, 2008 and 2007.
|
|
4)
|
Fair
Value Measurements
|
In accordance with the provisions of fair value accounting, a
fair value measurement assumes that a transaction to sell an
asset or transfer a liability occurs in the principal market for
the asset or liability or, in the absence of a principal market,
the most advantageous market for the asset or liability and
defines fair value based upon an exit price model.
The fair value measurement guidance establishes a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs
when measuring fair value. The guidance describes three levels
of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or
liabilities as of the reporting date. Active markets are those
in which transactions for the asset and liability occur in
sufficient frequency and volume to provide pricing information
on an ongoing basis. Level 1 assets and liabilities include
debt and equity securities and derivative contracts that are
traded in an active exchange market.
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 2 assets and liabilities include debt securities with
quoted prices that are traded less frequently than
exchange-traded instruments and derivative contracts whose value
is determined using a pricing model with inputs that are
observable in the market or can be derived principally from or
corroborated by observable market data. This category generally
includes certain U.S. Government and Agency mortgage-backed
debt securities, corporate debt securities, and non-exchange
traded derivative contracts.
|
Level 3
|
|
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination
of fair value requires significant management judgment or
estimation.
|
46
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Assets and liabilities of the Company measured at fair value on
a recurring basis as of December 31, 2009, are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
6,939
|
|
|
$
|
6,939
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
securities
|
|
|
165,639
|
|
|
|
165,639
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
|
1,505
|
|
|
|
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
174,083
|
|
|
$
|
172,578
|
|
|
$
|
1,505
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
$
|
423
|
|
|
$
|
|
|
|
$
|
423
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities of the Company measured at fair value on
a recurring basis as of December 31, 2008, are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
13,550
|
|
|
$
|
13,550
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
securities
|
|
|
159,608
|
|
|
|
159,608
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
|
2,645
|
|
|
|
|
|
|
|
2,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
175,803
|
|
|
$
|
173,158
|
|
|
$
|
2,645
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives currency forward contracts
|
|
$
|
2,137
|
|
|
$
|
|
|
|
$
|
2,137
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Equivalents
As of December 31, 2009 and December 31, 2008, cash
equivalents consisted of Federal Government and Government
Agency obligations, commercial paper, and corporate obligations,
classified within Level 1 of the fair value hierarchy
because they are valued using quoted market prices in active
markets.
Available-For-Sale
Securities
As of December 31, 2009 and December 31, 2008,
available-for-sale
securities consisted of Federal Government and Government Agency
obligations, commercial paper, corporate obligations and money
market funds classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices in
active markets.
47
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Derivatives
As a result of the Companys global operating activities,
the Company is exposed to market risks from changes in foreign
currency exchange rates, which may adversely affect its
operating results and financial position. When deemed
appropriate, the Company minimizes its risks from foreign
currency exchange rate fluctuations through the use of
derivative financial instruments. The Companys forward
foreign currency exchange contracts are valued using broker
quotations, or market transactions in either the listed or
over-the-counter
markets. As such, these derivative instruments are classified
within Level 2.
The table below presents a reconciliation for all assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs within Level 3 for the
period from January 1, 2008 to December 31, 2008.
There were no Level 3 investments at December 31, 2009
or December 31, 2008.
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable
|
|
|
|
Inputs (Level 3)
|
|
|
|
Available-For-Sale Securities
|
|
|
Beginning balance at January 1, 2008
|
|
$
|
4,275
|
|
Total losses (realized)
|
|
|
|
|
Included in earnings (or changes in net assets)
|
|
|
(1,412
|
)
|
Settlements
|
|
|
(490
|
)
|
Transfers out of Level 3
|
|
|
(2,373
|
)
|
|
|
|
|
|
Ending balance at December 31, 2008
|
|
$
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in
earnings (or changes in net assets) attributable to the change
in unrealized gains or losses relating to assets still held at
the reporting date
|
|
$
|
|
|
|
|
|
|
|
Assets and liabilities of the Company measured at fair value on
a non-recurring basis as of and for the year ended
December 31, 2009 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total Losses
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
144,511
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
144,511
|
|
|
$
|
193,254
|
|
Definite-lived intangible assets
|
|
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
4,963
|
|
|
|
11,699
|
|
Long-lived assets held and used
|
|
|
1,297
|
|
|
|
|
|
|
|
1,297
|
|
|
|
|
|
|
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
150,771
|
|
|
$
|
|
|
|
$
|
1,297
|
|
|
$
|
149,474
|
|
|
$
|
208,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of accounting for goodwill and
other intangible assets, goodwill with a carrying amount of
$337,765,000 was written down to its implied fair value of
$144,511,000, resulting in an impairment charge of $193,254,000,
which was included in earnings in the second quarter of 2009. In
accordance with the provisions of accounting for the impairment
of long-lived assets, definite-lived intangible assets with a
carrying amount of $18,866,000, were written down to their fair
value of $7,167,000, resulting in an impairment charge of
$11,699,000, which was included in earnings in the second
quarter of 2009. Refer to Note 8 for the
48
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
information and description used to develop the inputs and the
fair value determination of the goodwill and other intangible
assets.
The long-lived asset held and used with a carrying amount of
$4,841,000 was written down to its fair value of $1,297,000,
resulting in a loss of $3,544,000, which was included in
earnings in the second quarter of 2009.
Assets and liabilities of the Company measured at fair value on
a non-recurring basis as of and for the twelve months ended
December 31, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total Losses
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
337,765
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
337,765
|
|
|
$
|
|
|
Definite-lived intangible assets
|
|
|
21,069
|
|
|
|
|
|
|
|
|
|
|
|
21,069
|
|
|
|
6,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
358,834
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
358,834
|
|
|
$
|
6,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2008, the adverse economic climate
was a significant factor that indicated that the carrying amount
of certain long-lived asset groups were not recoverable. A
review of future cash flows indentified asset groups within
Yield Dynamics (YDI), which the Company acquired in
2007, that had carrying values in excess of future cash flows.
The Company reviewed the fair value of the long-lived assets for
these asset groups and determined that intangible assets related
to customer technologies, relationships and patents and
trademarks had carrying values that exceeded their estimated
fair values. As a result, an impairment charge of $6,069,000 was
recorded in the fourth quarter of 2008.
In March 2008, the FASB amended existing guidance to provide
enhanced disclosure about how and why the entity uses derivative
instruments, how the instruments and related hedged items are
accounted for and how the instruments and related hedged items
affect the financial position, results of operations, and cash
flows of the entity. The Company adopted this new guidance
effective January 1, 2009.
The Company enters into derivative instruments for risk
management purposes only, including derivatives designated as
hedging instruments and those utilized as economic hedges. The
Company operates internationally and, in the normal course of
business, is exposed to fluctuations in interest rates and
foreign exchange rates. These fluctuations can increase the
costs of financing, investing and operating the business. The
Company has used derivative instruments, such as forward
contracts, to manage certain foreign currency exposure.
By nature, all financial instruments involve market and credit
risks. The Company enters into derivative instruments with major
investment grade financial institutions and no collateral is
required. The Company has policies to monitor the credit risk of
these counterparties. While there can be no assurance, the
Company does not anticipate any material non-performance by any
of these counterparties.
The Company hedges a portion of its forecasted foreign currency
denominated intercompany sales of inventory, over a maximum
period of eighteen months, using forward foreign exchange
contracts accounted for as cash-flow hedges related to Japanese,
South Korean, British and European currencies. To the extent
these derivatives are effective in off-setting the variability
of the hedged cash flows, and otherwise meet the hedge
accounting criteria, changes in the derivatives fair value
are not included in current earnings but are included in
accumulated other comprehensive income (OCI) in
stockholders equity. These changes in fair value will
49
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
subsequently be reclassified into earnings as a component of
product cost, as applicable, when the forecasted transaction
occurs. To the extent that a previously designated hedging
transaction is no longer an effective hedge, any ineffectiveness
measured in the hedging relationship is recorded currently in
earnings in the period it occurs. The cash flows resulting from
forward exchange contracts are classified in the consolidated
statements of cash flows as part of cash flows from operating
activities. The Company does not enter into derivative
instruments for trading or speculative purposes.
To the extent that hedge accounting criteria is not met, the
related foreign currency forward contracts are considered as
economic hedges and changes in the fair value of these contracts
are recorded immediately in earnings in the period in which they
occur. These include hedges that are used to reduce exchange
rate risks arising from the change in fair value of certain
foreign currency denominated assets and liabilities (i.e.,
payables, receivables) and other economic hedges where the hedge
accounting criteria were not met.
As of December 31, 2009 and 2008, the Company had
outstanding forward foreign exchange contracts with gross
notional values of $48,724,000 and $30,556,000, respectively.
The following tables provide a summary of the primary net
hedging positions and corresponding fair values held as of
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Gross Notional
|
|
|
|
|
Currency Hedged (Buy/Sell)
|
|
Value
|
|
|
Fair Value(1)
|
|
|
U.S. Dollar/Japanese Yen
|
|
$
|
28,980
|
|
|
$
|
1,220
|
|
U.S. Dollar/South Korean Won
|
|
|
8,477
|
|
|
|
(338
|
)
|
U.S. Dollar/Euro
|
|
|
8,069
|
|
|
|
149
|
|
U.S. Dollar/U.K. Pound Sterling
|
|
|
3,198
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,724
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Gross Notional
|
|
|
|
|
Currency Hedged (Buy/Sell)
|
|
Value
|
|
|
Fair Value(1)
|
|
|
U.S. Dollar/Japanese Yen
|
|
$
|
17,348
|
|
|
$
|
(2,137
|
)
|
U.S. Dollar/South Korean Won
|
|
|
7,607
|
|
|
|
1,926
|
|
U.S. Dollar/Euro
|
|
|
4,176
|
|
|
|
313
|
|
U.S. Dollar/U.K. Pound Sterling
|
|
|
1,425
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,556
|
|
|
$
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the net receivable (payable) amount included in the
consolidated balance sheets. |
The following table provides a summary of the fair value amounts
of the Companys derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Derivatives Designated as Hedging Instruments
|
|
2009
|
|
|
2008
|
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
1,505
|
|
|
$
|
2,645
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
423
|
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
|
Total net derivative assets designated as hedging instruments(1)
|
|
$
|
1,082
|
|
|
$
|
508
|
|
|
|
|
|
|
|
|
|
|
50
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
|
(1) |
|
The derivative asset of $1,505,000 and derivative liability of
$423,000 are classified in other current assets and other
current liabilities, respectively, in the consolidated balance
sheet as of December 31, 2009. The derivative net asset of
$508,000 is classified in other current assets in the
consolidated balance sheet as of December 31, 2008. |
The following table provides a summary of the gains (losses) on
derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Derivatives Designated as Cash Flow Hedging Relationships
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Forward exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in OCI(1)
|
|
$
|
1,290
|
|
|
$
|
465
|
|
|
$
|
(955
|
)
|
Net gain (loss) reclassified from accumulated OCI into income(2)
|
|
|
1,062
|
|
|
|
(1,176
|
)
|
|
|
1,312
|
|
Net gain (loss) recognized in income(3)
|
|
|
313
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
(1) |
|
Net change in the fair value of the effective portion classified
in OCI. |
|
(2) |
|
Effective portion classified as cost of products. |
|
(3) |
|
Ineffective portion amount excluded from effectiveness testing,
classified in selling, general and administrative. |
The following table provides a summary of gains on derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Derivatives Not Designated as Hedging Instruments
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Forward exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain recognized in income(1)
|
|
$
|
9
|
|
|
$
|
2,669
|
|
|
$
|
|
|
|
|
|
(1) |
|
Classified in selling, general and administrative. |
The $2,669,000 gain was primarily attributable to the settlement
of cash and intercompany loans at different foreign exchange
rates related to a legal entity consolidation among some of the
Companys foreign subsidiaries.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw material
|
|
$
|
56,083
|
|
|
$
|
63,696
|
|
Work in process
|
|
|
16,501
|
|
|
|
17,436
|
|
Finished goods
|
|
|
45,420
|
|
|
|
50,387
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,004
|
|
|
$
|
131,519
|
|
|
|
|
|
|
|
|
|
|
During 2009, the Company recorded charges of $20,335,000 for
excess and obsolete inventory. Of this amount, $14,373,000 was
recorded in the first quarter of 2009, primarily as a result of
a lower inventory consumption plan in the first quarter of 2009
that the Company implemented in response to the weakness in its
markets during that period.
51
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
|
|
7)
|
Property,
Plant and Equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
9,086
|
|
|
$
|
12,308
|
|
Buildings
|
|
|
64,786
|
|
|
|
65,926
|
|
Machinery and equipment
|
|
|
92,136
|
|
|
|
90,215
|
|
Furniture and fixtures and office equipment
|
|
|
52,844
|
|
|
|
51,574
|
|
Leasehold improvements
|
|
|
18,050
|
|
|
|
16,016
|
|
Construction in progress
|
|
|
1,355
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,257
|
|
|
|
241,494
|
|
Less: accumulated depreciation and amortization
|
|
|
171,061
|
|
|
|
159,477
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67,196
|
|
|
$
|
82,017
|
|
|
|
|
|
|
|
|
|
|
As a result of a facility consolidation in Asia, the Company
recorded an asset impairment charge of $3,544,000 in the second
quarter of 2009 resulting from the write-down of the value of a
building to its estimated fair value.
Depreciation and amortization of property, plant and equipment
totaled $14,352,000, $14,523,000 and $14,476,000 for the years
2009, 2008 and 2007, respectively.
|
|
8)
|
Goodwill
and Intangible Assets
|
Goodwill
The Company tests goodwill for impairment on an annual basis,
which has been determined to be as of October 31 of each fiscal
year. The Company also tests goodwill between annual tests if an
event occurs or circumstances change that indicate that the fair
value of a reporting unit may be below its carrying value. Due
to various factors, including current market and economic
conditions that contributed to a decline in the Companys
forecasted business levels, and the excess of the Companys
consolidated net assets over its market capitalization for a
sustained period of time, the Company concluded an interim
assessment for impairment should be conducted for its goodwill
as of April 30, 2009, the date of the triggering event.
Goodwill impairment is determined using a two-step process. The
first step involves a comparison of the estimated fair value of
a reporting unit to its carrying amount, including goodwill. In
performing the first step, the Company determines the fair value
of a reporting unit using a discounted cash flow
(DCF) analysis. Determining fair value requires the
exercise of significant judgment, including judgments about
appropriate discount rates, perpetual growth rates, and the
amount and timing of expected future cash flows. Discount rates
are based on a weighted average cost of capital
(WACC), which represents the average rate a business
must pay its providers of debt and equity. The WACC used to test
goodwill was derived from a group of comparable companies. The
cash flows employed in the DCF analysis were derived from
internal earnings and forecasts and external market forecasts.
If the estimated fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is not impaired
and the second step of the impairment test is not necessary. If
the carrying amount of a reporting unit exceeds its estimated
fair value, then the second step of the goodwill impairment test
must be performed. The second step of the goodwill impairment
test compares the implied fair value of the reporting
units goodwill with its carrying amount of goodwill to
measure the amount of impairment loss, if any. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination, whereby the
estimated fair value of the reporting unit is allocated to all
of the assets and liabilities of that unit (including any
52
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
unrecognized intangible assets) as if the reporting unit had
been acquired in a business combination and the fair value of
the reporting unit was the purchase price paid. If the carrying
amount of the reporting units goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in
an amount equal to that excess.
In the interim assessment, the Company determined that for
certain reporting units, the carrying amount of their net assets
exceeded their respective fair values, indicating that a
potential impairment existed. After completing the second step
of the goodwill impairment test, the Company recorded a goodwill
impairment charge in the second quarter of 2009 of $193,254,000.
The Company completed its annual impairment test as of
October 31, 2009 and concluded that no additional
impairment of goodwill existed.
The changes in the carrying amount of goodwill and accumulated
impairment losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
|
Carrying
|
|
|
Impairment
|
|
|
|
|
|
Carrying
|
|
|
Impairment
|
|
|
|
|
|
|
Amount
|
|
|
Loss
|
|
|
Net
|
|
|
Amount
|
|
|
Loss
|
|
|
Net
|
|
|
Beginning balance at January 1
|
|
$
|
337,765
|
|
|
$
|
|
|
|
$
|
337,765
|
|
|
$
|
337,473
|
|
|
$
|
|
|
|
$
|
337,473
|
|
Adjustments to deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
|
|
|
|
292
|
|
Impairment losses
|
|
|
|
|
|
|
(193,254
|
)
|
|
|
(193,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31
|
|
$
|
337,765
|
|
|
$
|
(193,254
|
)
|
|
$
|
144,511
|
|
|
$
|
337,765
|
|
|
$
|
|
|
|
$
|
337,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
The Company is required to test certain long-lived assets when
indicators of impairment are present. Due to various factors,
including current market and economic conditions that
contributed to a decline in the Companys forecasted
business levels, and the excess of the Companys
consolidated net assets over market capitalization for a
sustained period of time, the Company concluded an interim
assessment for impairment should be conducted for its intangible
assets as of April 30, 2009. For the purposes of an
impairment test, long-lived assets are grouped with other assets
and liabilities at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets
and liabilities. The Company tested the long-lived assets in
question for recoverability by comparing the sum of the
undiscounted cash flows attributable to each respective asset
group to their carrying amounts, and determined that the
carrying amounts were not recoverable. Management then evaluated
the fair values of each long-lived asset of the potentially
impaired long-lived asset group to determine the amount of the
impairment, if any. The fair value of each intangible asset was
based primarily on an income approach, which is a present value
technique used to measure the fair value of future cash flows
produced by the asset. The Company estimated future cash flows
over the remaining useful life of each intangible asset. As a
result of this analysis, the Company determined that certain of
its intangible assets related to completed technology, customer
relationships, and patents and trademarks had carrying values
that exceeded their estimated fair values. As a result, an
impairment charge of $11,699,000 was recorded in the second
quarter of 2009.
During the fourth quarter of 2008, the adverse economic climate
was a significant factor that indicated that the carrying amount
of certain long-lived asset groups were not recoverable. A
review of future cash flows identified asset groups which had
carrying values in excess of future cash flows. The Company
reviewed the fair value of the long-lived assets for these asset
groups and determined that intangible assets related to customer
technologies, relationships, and patents and trademarks had
carrying values that exceeded their estimated fair values. As a
result, an impairment charge of $6,069,000 was recorded in the
fourth quarter of 2008.
53
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Components of the Companys acquired intangible assets are
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Accumulated
|
|
|
|
|
For The Year Ended December 31, 2009:
|
|
Gross
|
|
|
Charges
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
$
|
88,855
|
|
|
$
|
(3,812
|
)
|
|
$
|
(82,705
|
)
|
|
$
|
2,338
|
|
Customer relationships
|
|
|
21,879
|
|
|
|
(7,113
|
)
|
|
|
(13,326
|
)
|
|
|
1,440
|
|
Patents, trademarks, trade names and other
|
|
|
29,672
|
|
|
|
(774
|
)
|
|
|
(27,713
|
)
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,406
|
|
|
$
|
(11,699
|
)
|
|
$
|
(123,744
|
)
|
|
$
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
Accumulated
|
|
|
|
|
For The Year Ended December 31, 2008:
|
|
Gross
|
|
|
Charges
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
$
|
93,204
|
|
|
$
|
(4,349
|
)
|
|
$
|
(80,685
|
)
|
|
$
|
8,170
|
|
Customer relationships
|
|
|
23,542
|
|
|
|
(1,663
|
)
|
|
|
(12,152
|
)
|
|
|
9,727
|
|
Patents, trademarks, trade names and other
|
|
|
29,729
|
|
|
|
(57
|
)
|
|
|
(26,500
|
)
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,475
|
|
|
$
|
(6,069
|
)
|
|
$
|
(119,337
|
)
|
|
$
|
21,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense related to acquired intangibles
for the years 2009, 2008 and 2007 were $4,407,000, $9,001,000
and $16,183,000, respectively. Estimated amortization expense
related to acquired intangibles for each of the four remaining
years is as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2010
|
|
$
|
2,134
|
|
2011
|
|
|
1,588
|
|
2012
|
|
|
634
|
|
2013
|
|
|
607
|
|
|
|
9)
|
Other
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
17,373
|
|
|
$
|
12,743
|
|
Long-term marketable securities
|
|
|
4,853
|
|
|
|
|
|
Other
|
|
|
2,292
|
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
24,518
|
|
|
$
|
15,360
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities:
|
|
|
|
|
|
|
|
|
Product warranties
|
|
$
|
6,560
|
|
|
$
|
8,334
|
|
Deferred revenue
|
|
|
4,101
|
|
|
|
4,631
|
|
Other
|
|
|
10,804
|
|
|
|
11,204
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
21,465
|
|
|
$
|
24,169
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
$
|
6,773
|
|
|
$
|
11,756
|
|
Accrued compensation
|
|
|
10,424
|
|
|
|
9,567
|
|
Other
|
|
|
639
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
17,836
|
|
|
$
|
21,910
|
|
|
|
|
|
|
|
|
|
|
54
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The Company provides for the estimated costs to fulfill customer
warranty obligations upon the recognition of the related
revenue. While the Company engages in extensive product quality
programs and processes, including actively monitoring and
evaluating the quality of its component suppliers, the
Companys warranty obligation is affected by product
failure rates, utilization levels, material usage and supplier
warranties on parts delivered to the Company. Should actual
product failure rates, utilization levels, material usage, or
supplier warranties on parts differ from the Companys
estimates, revisions to the estimated warranty liability would
be required.
Product warranty activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
8,334
|
|
|
$
|
9,497
|
|
Provisions for product warranties
|
|
|
2,520
|
|
|
|
5,345
|
|
Direct charges to the warranty liability
|
|
|
(4,294
|
)
|
|
|
(6,508
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
6,560
|
|
|
$
|
8,334
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2009, the Company initiated a
restructuring plan due to the global financial crisis and its
impact on the Companys semiconductor equipment OEM
customers and the other markets it serves. The plan included a
reduction in the Companys worldwide headcount of
approximately 630 people, which represented approximately
24% of its global workforce.
The Company recorded restructuring charges of $5,812,000 during
2009. The restructuring charges were primarily for severance and
other charges associated with the reductions in workforce. As of
December 31, 2009, the accrued restructuring costs totaled
$220,000 and were included in accrued compensation in the
consolidated balance sheets. These costs will be substantially
paid by June 30, 2010. The costs related to workforce
reductions that took place during 2008 were immaterial.
The activity related to the Companys restructuring accrual
is shown below:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
|
|
Severance and employee related costs
|
|
|
5,812
|
|
Payments
|
|
|
(5,592
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
220
|
|
|
|
|
|
|
Credit
Agreements and Short-Term Borrowings
On March 18, 2009, the Company entered into an amendment to
the Optional Advance Demand Grid Note dated August 3, 2004
(the Grid Note). The unsecured short-term LIBOR
based loan agreement with HSBC Bank USA is utilized primarily by
the Companys Japanese subsidiary for short-term liquidity
purposes. The credit line as amended (a) decreased the
maximum amount of the note from $35,000,000 to $5,000,000,
(b) decreased the limit for standby letters of credit under
the note from $750,000 to $650,000, and (c) established an
annual facility fee of
55
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
0.0375% of the maximum amount of the note. The Company believes
the reduced amount of the note more accurately reflects its
anticipated utilization of this line, and minimizes the cost of
the new facility fee. At December 31, 2008, total
outstanding borrowings under this line of credit were $1,101,000
at an interest rate of 1.65%. The Company did not have
outstanding borrowings under this line of credit at
December 31, 2009.
On January 31, 2010, the Company entered into an amendment
to the Grid Note, as amended, to extend its maturity date to
July 31, 2010.
Additionally, the Companys Japanese subsidiary has lines
of credit and short-term borrowing arrangements with two
financial institutions which provide for aggregate borrowings as
of December 31, 2009 of up to an equivalent of $26,893,000
U.S. dollars, which generally expire and are renewed at
three month intervals. At December 31, 2009 and 2008, total
borrowings outstanding under these arrangements were $12,885,000
and $16,707,000, respectively, at interest rates ranging from
0.76% to 1.48% at December 31, 2009 and at interest rates
ranging from 1.20% to 1.68% at December 31, 2008.
Long-Term
Debt
The Company had a long-term debt agreement with the County of
Monroe Industrial Development Agency (COMIDA) for a
manufacturing facility located in Rochester, New York. The terms
were the same as that of the underlying Industrial Development
Revenue Bond which called for payments of interest only through
July 1, 2014, at which time the Bond was repayable in a
lump sum of $5,000,000. Interest was reset annually based on
bond remarketing, with an option by the Company to elect a fixed
rate, subject to a maximum rate of 13.0% per annum. On
July 1, 2008, the Company repaid the entire debt agreement.
A reconciliation of the Companys effective tax rate to the
U.S. federal statutory rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. Federal income tax statutory rate
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Federal and state tax credits
|
|
|
(1.6
|
)
|
|
|
(5.5
|
)
|
|
|
(4.3
|
)
|
State income taxes, net of federal benefit
|
|
|
(0.6
|
)
|
|
|
1.3
|
|
|
|
1.7
|
|
Effect of foreign operations taxed at various rates
|
|
|
(1.4
|
)
|
|
|
(11.0
|
)
|
|
|
(4.9
|
)
|
Extraterritorial income and qualified production activity tax
benefit
|
|
|
(0.4
|
)
|
|
|
(3.9
|
)
|
|
|
(0.7
|
)
|
Non-deductible goodwill
|
|
|
27.9
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
|
0.2
|
|
|
|
8.4
|
|
|
|
|
|
Other
|
|
|
(0.1
|
)
|
|
|
2.3
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.0
|
)%
|
|
|
26.6
|
%
|
|
|
28.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The components of income before income taxes and the related
provision (benefit) for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(263,078
|
)
|
|
$
|
(8,201
|
)
|
|
$
|
64,228
|
|
Foreign
|
|
|
24,220
|
|
|
|
49,253
|
|
|
|
55,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(238,858
|
)
|
|
$
|
41,052
|
|
|
$
|
120,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
$
|
(26,216
|
)
|
|
$
|
7,098
|
|
|
$
|
29,663
|
|
State
|
|
|
(261
|
)
|
|
|
1,367
|
|
|
|
1,682
|
|
Foreign
|
|
|
7,687
|
|
|
|
11,529
|
|
|
|
12,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,790
|
)
|
|
|
19,994
|
|
|
|
43,939
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Federal
|
|
|
(4,333
|
)
|
|
|
(11,304
|
)
|
|
|
(7,741
|
)
|
State and Foreign
|
|
|
(3,076
|
)
|
|
|
2,245
|
|
|
|
(2,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,409
|
)
|
|
|
(9,059
|
)
|
|
|
(10,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
(26,199
|
)
|
|
$
|
10,935
|
|
|
$
|
33,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of the deferred tax assets and
deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and credits
|
|
$
|
8,131
|
|
|
$
|
7,465
|
|
Inventory and warranty reserves
|
|
|
19,611
|
|
|
|
17,440
|
|
Accounts receivable and other accruals
|
|
|
2,568
|
|
|
|
2,358
|
|
Depreciation and amortization
|
|
|
6,370
|
|
|
|
5,798
|
|
Stock-based compensation
|
|
|
6,602
|
|
|
|
8,976
|
|
Executive supplemental retirement benefits
|
|
|
3,305
|
|
|
|
2,952
|
|
Other
|
|
|
2,547
|
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
49,134
|
|
|
$
|
47,286
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
|
(5,015
|
)
|
|
|
(10,717
|
)
|
Other
|
|
|
(40
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(5,055
|
)
|
|
|
(10,832
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(5,201
|
)
|
|
|
(4,653
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
38,878
|
|
|
$
|
31,801
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the Company had gross
Massachusetts research credit carryforwards of $6,589,000 and
$6,353,000, respectively. These credit carryforwards will expire
at various dates through 2024. In
57
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
addition, at December 31, 2009, the Company has a
U.S. federal capital loss carryforward of $2,332,000 that
will expire in 2013, and has gross state net operating loss
carryforwards of $22,832,000 that will expire at various dates
through 2029.
At December 31, 2009, as a result of the acquisition of YDI
in 2007, the Company has a U.S. federal net operating loss
carryforward of $5,490,000 and a U.S. federal general
business credit carryforward of $810,000. The Companys
intention is to carryforward both these tax attributes, subject
to the limitations of the Internal Revenue Code. The loss and
credit carryforwards expire at various dates through 2027.
Although the Company believes that its tax positions are
consistent with applicable U.S. federal, state and
international laws, certain tax reserves are maintained at
December 31, 2009 should these positions be challenged by
the applicable tax authority and additional tax assessed on
audit.
A reconciliation of the beginning and ending amount of gross
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
14,678
|
|
|
$
|
16,123
|
|
Increase (decrease) for prior years
|
|
|
(41
|
)
|
|
|
49
|
|
Increases for the current year
|
|
|
1,693
|
|
|
|
1,680
|
|
Reductions related to settlements with taxing authorities
|
|
|
(7,245
|
)
|
|
|
(1,533
|
)
|
Reductions related to expiration of statute of limitations
|
|
|
|
|
|
|
(1,641
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
9,085
|
|
|
$
|
14,678
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the total amount of gross
unrecognized tax benefits, which excludes interest and
penalties, was approximately $9,085,000. The decrease from
December 31, 2008 was primarily attributable to the close
of the 2005 and 2006 U.S. federal tax audits. At
December 31, 2009, if these benefits were recognized in a
future period, the timing of which is not estimable, the net
unrecognized tax benefit of $6,500,000, excluding interest and
penalties, would impact the Companys effective tax rate.
The Company accrues interest and penalties, if applicable, for
any uncertain tax positions. Any interest and penalty expense is
a component of income tax expense. At December 31, 2009 and
2008, the Company had $651,000 and $1,730,000, respectively,
accrued for interest on net unrecognized tax benefits.
Over the next 12 months it is reasonably possible that the
Company may recognize $1,900,000 to $2,400,000 of previously
unrecognized tax benefits related to various U.S. federal,
state and foreign tax positions as a result of the conclusion of
various audits and the expiration of the statute of limitations.
The following tax years, in the major tax jurisdictions noted,
are open for assessment or refund: U.S. Federal: 2006 to
2008, Germany: 2001 to 2008, Korea: 2004 to 2008, Japan: 2004 to
2008 and the United Kingdom: 2007 and 2008. As of
December 31, 2009 and currently, there are ongoing audits
in various tax jurisdictions for various tax years.
On a quarterly basis, the Company evaluates both positive and
negative evidence that bears on the realizability of net
deferred tax assets and assesses the need for a valuation
allowance. The future benefit to be derived from its deferred
tax assets is dependent upon its ability to generate sufficient
future taxable income to realize the assets. During 2009, the
Company increased its valuation allowance by $548,000 for state
tax credit carryforwards, as the Company has determined it is
more likely than not that the deferred tax assets related to
these attributes will not be realized. In addition, the Company
recorded a net benefit to income tax expense of $5,725,000,
excluding interest and penalties, primarily due to discrete
reserve releases primarily related to the close of the 2005 and
2006 U.S. federal tax audits.
58
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
During 2007, the Company amended prior U.S. federal tax
returns to reflect revised estimates for qualifying research and
development costs that allowed the company to claim additional
research tax credits. As a result of this claim, the Company
recorded a benefit to income tax expense of $1,800,000.
During 2006, the Company received a notification letter from the
Israeli Ministry of Industry Trade and Labor (MITL)
indicating that its Israeli operations were in compliance with
requirements relating to the tax holiday granted to its
manufacturing operations in Israel in 2001. This tax holiday is
anticipated to expire in 2011 and is subject to meeting
continued investment, employment and other requirements under
the guidelines of the MITL. This tax holiday resulted in income
tax savings of $348,000, $217,000 and $3,393,000 for the years
2009, 2008 and 2007, respectively.
Through December 31, 2009, the Company has not provided
deferred income taxes on the undistributed earnings of its
foreign subsidiaries because such earnings were intended to be
permanently reinvested outside the U.S. Determination of
the potential deferred income tax liability on these
undistributed earnings is not practicable because such
liability, if any, is dependent on circumstances existing if and
when remittance occurs. At December 31, 2009, the Company
had $258,294,000 of undistributed earnings in its foreign
subsidiaries.
|
|
14)
|
Net
Income (Loss) Per Share
|
Basic earnings per share (EPS) is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the
period. The computation of diluted EPS is similar to the
computation of basic EPS except that the denominator is
increased to include the number of additional common shares that
would have been outstanding (using the treasury stock method),
if securities containing potentially dilutive common shares
(stock options and restricted stock units) had been converted to
such common shares, and if such assumed conversion is dilutive.
The following is a reconciliation of basic to diluted net income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss)
|
|
$
|
(212,659
|
)
|
|
$
|
30,117
|
|
|
$
|
86,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income (loss) per common share
basic
|
|
|
49,318,000
|
|
|
|
49,717,000
|
|
|
|
56,349,000
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and employee stock purchase plan
|
|
|
|
|
|
|
1,037,000
|
|
|
|
824,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income (loss) per common share
diluted
|
|
|
49,318,000
|
|
|
|
50,754,000
|
|
|
|
57,173,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic
|
|
$
|
(4.31
|
)
|
|
$
|
0.61
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share diluted
|
|
$
|
(4.31
|
)
|
|
$
|
0.59
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 2008 and 2007, stock options and
restricted stock units relating to an aggregate of approximately
4,096,705, 6,383,828 and 6,472,406 shares, respectively,
were outstanding. For 2009, all potentially dilutive common
shares were excluded from the dilutive computation as the effect
of including such securities in the computation would be
anti-dilutive due to the Companys net loss for the year.
For the years ended December 31, 2008 and December 31,
2007, 3,152,261 and 3,684,435 shares, respectively, were
not included in the computation of diluted earnings per share
because the exercise price exceeded the average price per share
for the period.
59
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Stock
Repurchase Program
On February 12, 2007, MKS Board of Directors approved
a share repurchase program (the Program) for the
repurchase of up to $300,000,000 of its outstanding stock over
the subsequent two years. The repurchases were made from time to
time on the open market or through privately negotiated
transactions. The timing and amount of any shares repurchased
under the Program was dependent upon a variety of factors,
including price, corporate and regulatory requirements, capital
availability, and other market conditions. During 2007, the
Company repurchased 4,779,000 shares of common stock for
$101,157,000 for an average price of $21.17 per share. During
2008, the Company repurchased 5,667,000 shares of common
stock for $115,723,000 for an average price of $20.42 per share.
The Program expired on February 11, 2009 with no additional
share repurchases in 2009. In total, the Company repurchased
10,446,000 shares of common stock for $216,880,000 for an
average price of $20.76 per share
Stock
Option Exchange Program
Pursuant to the Companys tender offer to exchange
outstanding stock options, during the third quarter 2009,
options to purchase 1,330,000 shares of common stock were
exchanged for 189,000 restricted stock units with a one year
vesting period. Participants exchanged their eligible option
awards for restricted stock units of an approximate equal fair
value and, as such, no incremental compensation expense was
recognized as a result of the exchange.
Stock
Purchase Plans
The Companys Third Amended and Restated 1999 Employee
Stock Purchase Plan (the Purchase Plan) authorizes
the issuance of up to an aggregate of 1,950,000 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 employees option is exercised is the
lower of (1) 85% of the closing price of the Common Stock
on the NASDAQ Global Market on the day that each offering
commences or (2) 85% of the closing price on the day that
each offering terminates. During 2009 and 2008, the Company
issued 106,841 and 201,341 shares, respectively, of Common
Stock to employees who participated in the Purchase Plan at an
exercise price of $11.08 per share in 2009 and $15.28 and $12.16
per share in 2008, respectively. As of December 31, 2009,
there were 697,263 shares reserved for future issuance
under the Purchase Plan. During 2009, the Company suspended the
June 1 and December 1 Purchase Plan cycles and as a result, no
shares were issued for these cycles.
The Companys Second Amended and Restated International
Employee Stock Purchase Plan (the Foreign Purchase
Plan) authorizes the issuance of up to an aggregate of
400,000 shares of Common Stock to participating employees.
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
employees option is exercised is the lower of (1) 85%
of the closing price of the Common Stock on the NASDAQ Global
Market on the day that each offering commences or (2) 85%
of the closing price on the day that each offering terminates.
During 2009 and 2008, the Company issued 19,571 and
41,391 shares, respectively, of Common Stock to employees
who participated in the Foreign Purchase Plan at an exercise
price of $11.08 per share in 2009 and $15.28 and $12.16 per
share in 2008, respectively. As of December 31, 2009, there
were 271,455 shares reserved for future issuance under the
Foreign Purchase Plan. During 2009, the Company suspended the
June 1 and December 1 Foreign Purchase Plan cycles and as a
result, no shares were issued for these cycles.
60
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
Equity
Incentive Plans
The Company has granted options to employees under the 2004
Stock Incentive Plan (the 2004 Plan) and under the
Second Restated 1995 Stock Incentive Plan (the 1995
Plan), and to directors under the 1997 Director Stock
Plan (the 1997 Director Plan) and under the
1996 Director Stock Option Plan (collectively, the
Plans). The Plans are administered by the
Compensation Committee of the Companys board of directors.
The Companys equity incentive Plans are intended to
attract and retain employees and to provide an incentive for
them to assist the Company to achieve long-range performance
goals and to enable them to participate in the long-term growth
of the Company. Employees may be granted restricted stock and
restricted stock units (collectively, restricted
stock), options to purchase shares of the Companys
stock and other equity incentives under the Plans.
The Companys 2004 Plan was adopted by the board of
directors on March 4, 2004 and approved by the stockholders
on May 13, 2004. As of December 31, 2009, there were
13,422,295 shares authorized for issuance under the 2004
Plan, which amount shall increase each year by an amount equal
to 5% of the total outstanding shares of the Companys
common stock outstanding on January 1 of such year, provided
that the maximum aggregate number of shares of common stock
which may be issued under the 2004 Plan is
15,000,000 shares (subject to adjustment for certain
changes in MKS capitalization). The Company may grant
options, restricted stock awards, stock appreciation rights and
other stock-based awards to employees, officers, directors,
consultants and advisors under the 2004 Plan. As of
December 31, 2009, there were 11,148,013 shares
available for future grants under the 2004 Plan.
The Companys 1995 Plan expired in November 2005 and no
further awards may be granted under the 1995 Plan, although
there are still outstanding options which may be exercised under
this plan.
The Companys 1997 Director Plan expired in February
2007 and no further awards may be granted under the
1997 Director Plan, although there are still outstanding
options which may be exercised under this plan.
Stock options are granted at an exercise price equal to 100% of
the fair value of the Companys common stock at the date of
grant. Generally, stock options granted to employees under the
Plans in 2001 and after, vest 25% after one year and 6.25% per
quarter thereafter, and expire 10 years after the grant
date. Generally, stock options granted under the Plans prior to
2001 vest 20% after one year and 5% per quarter thereafter, and
expire 10 years after the grant date. Options granted to
directors generally vest at the earliest of (1) one day
prior to the next annual meeting, (2) 13 months from
date of grant, or (3) the effective date of an acquisition.
Restricted stock awards generally vest three years from the date
of grant. Certain restricted stock awards involve stock to be
issued upon the achievement of performance conditions
(performance shares) under the Companys stock incentive
plans. Such performance shares become available subject to
time-based vesting conditions if, and to the extent that,
financial performance criteria for the applicable period are
achieved. Accordingly, the number of performance shares earned
will vary based on the level of achievement of financial
performance objectives for the applicable period.
61
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The following table presents the activity for restricted stock
under the Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Non-vested
|
|
|
Weighted
|
|
|
Non-vested
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average Grant
|
|
|
Restricted
|
|
|
Average Grant
|
|
|
|
Stock
|
|
|
Date Fair Value
|
|
|
Stock
|
|
|
Date Fair Value
|
|
|
Non-vested restricted stock beginning of period
|
|
|
1,824,990
|
|
|
$
|
21.87
|
|
|
|
1,349,350
|
|
|
$
|
21.98
|
|
Granted
|
|
|
682,156
|
|
|
$
|
15.27
|
|
|
|
709,313
|
|
|
$
|
21.51
|
|
Vested
|
|
|
(666,247
|
)
|
|
$
|
21.91
|
|
|
|
(110,640
|
)
|
|
$
|
22.45
|
|
Forfeited or expired
|
|
|
(259,016
|
)
|
|
$
|
17.25
|
|
|
|
(123,033
|
)
|
|
$
|
20.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock end of period
|
|
|
1,581,883
|
|
|
$
|
19.77
|
|
|
|
1,824,990
|
|
|
$
|
21.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the activity for options under the
Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding beginning of period
|
|
|
4,558,838
|
|
|
$
|
23.44
|
|
|
|
5,123,056
|
|
|
$
|
22.74
|
|
|
|
7,614,655
|
|
|
$
|
21.62
|
|
Exercised
|
|
|
(134,118
|
)
|
|
$
|
14.54
|
|
|
|
(425,256
|
)
|
|
$
|
14.32
|
|
|
|
(2,233,303
|
)
|
|
$
|
18.58
|
|
Forfeited or expired
|
|
|
(1,909,898
|
)
|
|
$
|
26.18
|
|
|
|
(138,962
|
)
|
|
$
|
25.58
|
|
|
|
(258,296
|
)
|
|
$
|
25.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of period
|
|
|
2,514,822
|
|
|
$
|
21.67
|
|
|
|
4,558,838
|
|
|
$
|
23.44
|
|
|
|
5,123,056
|
|
|
$
|
22.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
2,514,197
|
|
|
$
|
21.67
|
|
|
|
4,535,282
|
|
|
$
|
23.46
|
|
|
|
4,810,516
|
|
|
$
|
23.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information with respect to
options outstanding and exercisable under the Plans at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life (In
|
|
|
Value (In
|
|
|
Number of
|
|
|
Exercise
|
|
|
Value (In
|
|
|
|
Shares
|
|
|
Price
|
|
|
Years)
|
|
|
Thousands)
|
|
|
Shares
|
|
|
Price
|
|
|
Thousands)
|
|
|
$12.59 $13.87
|
|
|
17,547
|
|
|
$
|
13.32
|
|
|
|
2.48
|
|
|
$
|
72
|
|
|
|
17,547
|
|
|
$
|
13.32
|
|
|
$
|
72
|
|
$14.09 $18.73
|
|
|
1,084,869
|
|
|
$
|
16.23
|
|
|
|
3.48
|
|
|
|
1,344
|
|
|
|
1,084,244
|
|
|
$
|
16.23
|
|
|
|
1,344
|
|
$20.02 $29.00
|
|
|
1,189,246
|
|
|
$
|
24.50
|
|
|
|
2.73
|
|
|
|
|
|
|
|
1,189,246
|
|
|
$
|
24.50
|
|
|
|
|
|
$29.93 $50.81
|
|
|
223,160
|
|
|
$
|
33.66
|
|
|
|
1.79
|
|
|
|
|
|
|
|
223,160
|
|
|
$
|
33.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,514,822
|
|
|
$
|
21.67
|
|
|
|
2.97
|
|
|
$
|
1,416
|
|
|
|
2,514,197
|
|
|
$
|
21.67
|
|
|
$
|
1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options
exercisable was 2.96 years at December 31, 2009.
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value, based on the Companys
closing stock price of $17.40 as of December 31, 2009,
which would have been received by the option holders had all
option holders exercised their options as of that date. The
total number of
in-the-money
options exercisable as of December 31, 2009 was 973,000.
62
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
The total cash received from employees as a result of employee
stock option exercises during the years 2009 and 2008 was
approximately $1,950,000 and $6,088,000, respectively. In
connection with these exercises, the tax benefits realized by
the Company for the years 2009 and 2008 were approximately
$93,000 and $645,000, respectively.
The Company settles employee stock option exercises and
restricted stock vesting with newly issued common shares.
Accumulated
Other Comprehensive Income
The balance of accumulated other comprehensive income (loss) was
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
|
Cumulative
|
|
|
Designated as
|
|
|
Gain
|
|
|
Other
|
|
|
|
Translation
|
|
|
Cash Flow
|
|
|
(Loss) on
|
|
|
Comprehensive
|
|
|
|
Adjustments
|
|
|
Hedges
|
|
|
Investments
|
|
|
Income (Loss)
|
|
|
Balance at December 31, 2007
|
|
$
|
13,210
|
|
|
$
|
(87
|
)
|
|
$
|
64
|
|
|
$
|
13,187
|
|
Foreign currency translation adjustment, net of taxes of $0
|
|
|
(6,171
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,171
|
)
|
Changes in value of financial instruments designated as cash
flow hedges, net of tax of $299
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
390
|
|
Change in unrealized (loss) on investments, net of tax benefit
of $143
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
7,039
|
|
|
$
|
303
|
|
|
$
|
(123
|
)
|
|
$
|
7,219
|
|
Foreign currency translation adjustment, net of taxes of $0
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
3,062
|
|
Changes in value of financial instruments designated as cash
flow hedges, net of tax of $83
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
267
|
|
Change in unrealized gain on investments, net of tax benefit of
$29 -
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
10,101
|
|
|
$
|
570
|
|
|
$
|
(31
|
)
|
|
$
|
10,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16)
|
Stock-Based
Compensation
|
The Company recognized the full impact of its share-based
payment plans in the consolidated statements of operations for
the years 2009, 2008 and 2007. As of December 31, 2009 and
2008, the Company capitalized
63
MKS
INSTRUMENTS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(Tables
in thousands, except share and per share data)
$471,000 of such cost on its consolidated balance sheets. The
following table reflects the effect of recording stock-based
compensation for the years 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock-based compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
$
|
158
|
|
|
$
|
1,936
|
|
|
$
|
3,516
|
|
Restricted stock
|
|
|
8,218
|
|
|
|
12,210
|
|
|
|
8,481
|
|
Employee stock purchase plan
|
|
|
469
|
|
|
|
1,128
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
8,845
|
|
|
|
15,274
|
|
|
|
12,918
|
|
Tax effect on stock-based compensation
|
|
|
1,258
|
|
|
|
(226
|
)
|
|
|
(5,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income or net loss
|
|
$
|
10,103
|
|
|
$
|
15,048
|
|
|
$
|
7,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on earnings or loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax effect within the consolidated statements of
operations of recording stock-based compensation for the years
2009, 2008 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
1,298
|
|
|
$
|
2,272
|
|
|
$
|
1,564
|
|
Research and development expense
|
|
|
2,026
|
|
|
|
3,698
|
|
|
|
3,275
|
|
Selling, general and administrative expense
|
|
|
5,521
|
|
|
|
9,304
|
|
|
|
8,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax stock-based compensation expense
|
|
$
|
8,845
|
|
|
$
|
15,274
|
|
|
$
|
12,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Assumptions
The Company determines the fair value of restricted stock based
on the number of shares granted and the closing market price of
the Companys common stock on the date of the award, and
estimates the fair value of stock options and employee stock
purchase rights using the Black-Scholes valuation model. Such
values are recognized as expense on a straight-line basis over
the requisite service periods, net of estimated forfeitures. The
estimation of stock-based awards that will ultimately vest
requires significant judgment. The Company considers many
factors when estimating expected forfeitures, including types of
awards and historical experience. Actual results, and future
changes in estimates, may differ substantially from the
Companys current estimates.
There were no options granted during 2009, 2008 and 2007. The
total intrinsic value of options exercised during 2009, 2008 and
2007 was approximately $327,000, $3,802,000 and $16,462,000,
respectively.
The weighted average fair value per share of employee stock
purchase rights granted in 2009, 2008 and 2007 was $4.44, $4.62
and $4.88, respectively. The fair value of the employees
purchase rights was estimated using the Black-Scholes
option-pricing model with the following weighted average
assumptions: