The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The terms “MKS” and the “Company” refer to MKS Instruments, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The interim financial data as of March 31, 2021, and for the three months ended March 31, 2021 are unaudited; however, in the opinion of MKS, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet presented as of December 31, 2020 has been derived from the consolidated audited financial statements as of that date. The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by United States generally accepted accounting principles (“U.S. GAAP”). The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the MKS Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on February 23, 2021.
The preparation of these unaudited condensed consolidated 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 unaudited condensed consolidated 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, inventory valuation, warranty costs, stock-based compensation, intangible assets, goodwill, other long-lived assets and other acquisition expenses and income taxes. 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.
2)
|
Recently Issued or Adopted Accounting Pronouncements
|
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The standard was effective upon issuance and generally can be applied through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” The amendments in this update clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Company is in the process of evaluating the requirements of this standard and has not yet determined the impact of adoption on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740).” This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This standard is effective for annual periods, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this ASU during the first quarter of 2021 and the adoption of this ASU did not have a material impact on its financial position, results of operations and cash flows.
3)
|
Revenue from Contracts with Customers
|
Contract assets as of March 31, 2021 and December 31, 2020 were $3.5 and $3.7, respectively, and are included in other current assets.
7
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
A rollforward of the Company’s deferred revenue and customer advances is as follows:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Beginning balance, January 1(1)
|
|
$
|
36.7
|
|
|
$
|
24.8
|
|
Additions to deferred revenue and customer advances
|
|
|
25.5
|
|
|
|
17.7
|
|
Amount of deferred revenue and customer advances recognized in income
|
|
|
(22.3
|
)
|
|
|
(17.1
|
)
|
Ending balance, March 31(2)
|
|
$
|
39.9
|
|
|
$
|
25.4
|
|
|
(1)
|
Beginning deferred revenue and customer advances as of January 1, 2021 included $18.4 of current deferred revenue, $5.5 of long-term deferred revenue and $12.8 of current customer advances.
|
|
(2)
|
Ending deferred revenue and customer advances as of March 31, 2021 included $17.3 of current deferred revenue, $4.5 of long-term deferred revenue and $18.1 of current customer advances.
|
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers:
|
|
Three Months Ended March 31, 2021
|
|
|
|
Vacuum &
Analysis
|
|
|
Light &
Motion
|
|
|
Equipment &
Solutions
|
|
|
Total
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
379.2
|
|
|
$
|
165.0
|
|
|
$
|
60.8
|
|
|
$
|
605.0
|
|
Services
|
|
|
56.6
|
|
|
|
17.0
|
|
|
|
15.3
|
|
|
|
88.9
|
|
Total net revenues
|
|
$
|
435.8
|
|
|
$
|
182.0
|
|
|
$
|
76.1
|
|
|
$
|
693.9
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
Vacuum &
Analysis
|
|
|
Light &
Motion
|
|
|
Equipment &
Solutions
|
|
|
Total
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
276.2
|
|
|
$
|
149.7
|
|
|
$
|
35.3
|
|
|
$
|
461.2
|
|
Services
|
|
|
43.1
|
|
|
|
15.7
|
|
|
|
15.7
|
|
|
|
74.5
|
|
Total net revenues
|
|
$
|
319.3
|
|
|
$
|
165.4
|
|
|
$
|
51.0
|
|
|
$
|
535.7
|
|
Product revenue, excluding revenue from certain custom products, is recorded at a point in time, while the majority of the service revenue and revenue from certain custom products is recorded over time.
Refer to Note 16 for revenue by reportable segment, geographic area and groupings of similar products.
The following tables show the gross unrealized gains and (losses) aggregated by investment category for available-for-sale investments:
As of March 31, 2021:
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits and certificates of deposit
|
|
$
|
12.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12.8
|
|
Bankers' acceptance drafts
|
|
|
4.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.2
|
|
Commercial paper
|
|
|
60.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60.9
|
|
U.S. treasury obligations
|
|
|
131.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
131.8
|
|
|
|
$
|
209.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
209.7
|
|
8
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
As of March 31, 2021:
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group insurance contracts
|
|
$
|
5.6
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
As of December 31, 2020:
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits and certificates of deposit
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
Bankers' acceptance drafts
|
|
|
3.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.8
|
|
U.S. treasury obligations
|
|
|
223.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
223.2
|
|
|
|
$
|
227.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
227.7
|
|
As of December 31, 2020:
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Estimated
Fair Value
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group insurance contracts
|
|
$
|
5.6
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
The tables above, which show the gross unrealized gains and (losses) aggregated by investment category for available-for-sale investments as of March 31, 2021 and December 31, 2020, reflect the inclusion within short-term investments of investments with contractual maturities greater than one year from the date of purchase. Management has the ability, if necessary, to liquidate any of its investments in order to meet the Company’s liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying balance sheets.
Interest income is accrued as earned. Dividend income is recognized as income on the date the security trades “ex-dividend.” The cost of marketable securities sold is determined by the specific identification method. Realized gains or losses are reflected in income and were not material for the three months ended March 31, 2021 and March 31, 2020.
5)
|
Fair Value Measurements
|
In accordance with the provisions of fair value accounting, a fair value measurement assumes that the 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 or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
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 or securities or derivative contracts that are valued using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
|
9
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
|
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.
|
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such assets and liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Assets and liabilities of the Company are measured at fair value on a recurring basis as of March 31, 2021 and are summarized as follows:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Description
|
|
March 31, 2021
|
|
|
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1.3
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
|
|
57.2
|
|
|
|
—
|
|
|
|
57.2
|
|
|
|
—
|
|
U.S. treasury obligations
|
|
|
48.4
|
|
|
|
—
|
|
|
|
48.4
|
|
|
|
—
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits and certificates of deposit
|
|
|
12.8
|
|
|
|
—
|
|
|
|
12.8
|
|
|
|
—
|
|
Bankers' acceptance drafts
|
|
|
4.2
|
|
|
|
—
|
|
|
|
4.2
|
|
|
|
—
|
|
Commercial paper
|
|
|
60.9
|
|
|
|
—
|
|
|
|
60.9
|
|
|
|
—
|
|
U.S. treasury obligations
|
|
|
131.8
|
|
|
|
—
|
|
|
|
131.8
|
|
|
|
—
|
|
Group insurance contracts
|
|
|
6.5
|
|
|
|
—
|
|
|
|
6.5
|
|
|
|
—
|
|
Derivatives – foreign exchange forward contracts
|
|
|
2.2
|
|
|
|
—
|
|
|
|
2.2
|
|
|
|
—
|
|
Derivatives – interest rate hedge-non-current
|
|
|
5.1
|
|
|
|
—
|
|
|
|
5.1
|
|
|
|
|
|
Funds in investments and other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli pension assets
|
|
|
18.2
|
|
|
|
—
|
|
|
|
18.2
|
|
|
|
—
|
|
Deferred compensation plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds and exchange traded funds
|
|
|
1.4
|
|
|
|
—
|
|
|
|
1.4
|
|
|
|
—
|
|
Total assets
|
|
$
|
350.0
|
|
|
$
|
1.3
|
|
|
$
|
348.7
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – foreign exchange forward contracts
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
Derivatives – interest rate hedge - non-current
|
|
|
10.6
|
|
|
|
—
|
|
|
|
10.6
|
|
|
|
—
|
|
Total liabilities
|
|
$
|
12.5
|
|
|
$
|
—
|
|
|
$
|
12.5
|
|
|
$
|
—
|
|
Reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1)
|
|
$
|
106.9
|
|
|
$
|
1.3
|
|
|
$
|
105.6
|
|
|
$
|
—
|
|
Short-term investments
|
|
|
209.7
|
|
|
|
—
|
|
|
|
209.7
|
|
|
|
—
|
|
Other current assets
|
|
|
2.2
|
|
|
|
—
|
|
|
|
2.2
|
|
|
|
—
|
|
Total current assets
|
|
$
|
318.8
|
|
|
$
|
1.3
|
|
|
$
|
317.5
|
|
|
$
|
—
|
|
Long-term investments
|
|
$
|
6.5
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
Other assets
|
|
|
24.7
|
|
|
|
—
|
|
|
|
24.7
|
|
|
|
—
|
|
Total long-term assets
|
|
$
|
31.2
|
|
|
$
|
—
|
|
|
$
|
31.2
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
Other liabilities
|
|
$
|
10.6
|
|
|
$
|
—
|
|
|
$
|
10.6
|
|
|
$
|
—
|
|
|
(1)
|
The cash and cash equivalent amounts presented in the table above do not include cash of $592.9 as of March 31, 2021.
|
10
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
Assets and liabilities of the Company are measured at fair value on a recurring basis as of December 31, 2020 and are summarized as follows:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
Description
|
|
December 31, 2020
|
|
|
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1.3
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
|
|
0.3
|
|
|
$
|
—
|
|
|
|
0.3
|
|
|
|
—
|
|
U.S. treasury obligations
|
|
|
62.1
|
|
|
|
—
|
|
|
|
62.1
|
|
|
|
—
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits and certificates of deposit
|
|
|
0.7
|
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
Bankers' acceptance drafts
|
|
|
3.8
|
|
|
|
—
|
|
|
|
3.8
|
|
|
|
—
|
|
U.S. treasury obligations
|
|
|
223.2
|
|
|
|
—
|
|
|
|
223.2
|
|
|
|
—
|
|
Group insurance contracts
|
|
|
6.5
|
|
|
|
—
|
|
|
|
6.5
|
|
|
|
—
|
|
Funds in investments and other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli pension assets
|
|
|
18.8
|
|
|
|
—
|
|
|
|
18.8
|
|
|
|
—
|
|
Deferred compensation plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds and exchange traded funds
|
|
|
1.7
|
|
|
|
—
|
|
|
|
1.7
|
|
|
|
—
|
|
Total assets
|
|
$
|
318.4
|
|
|
$
|
1.3
|
|
|
$
|
317.1
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – foreign exchange forward contracts
|
|
$
|
6.5
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
Derivatives – interest rate hedge - non-current
|
|
|
14.0
|
|
|
|
—
|
|
|
|
14.0
|
|
|
|
—
|
|
Total liabilities
|
|
$
|
20.5
|
|
|
$
|
—
|
|
|
$
|
20.5
|
|
|
$
|
—
|
|
Reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(1)
|
|
$
|
63.7
|
|
|
$
|
1.3
|
|
|
$
|
62.4
|
|
|
$
|
—
|
|
Short-term investments
|
|
|
227.7
|
|
|
|
—
|
|
|
|
227.7
|
|
|
|
—
|
|
Total current assets
|
|
$
|
291.4
|
|
|
$
|
1.3
|
|
|
$
|
290.1
|
|
|
$
|
—
|
|
Long-term investments
|
|
$
|
6.5
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
Other assets
|
|
|
20.5
|
|
|
|
—
|
|
|
|
20.5
|
|
|
|
—
|
|
Total long-term assets
|
|
$
|
27.0
|
|
|
$
|
—
|
|
|
$
|
27.0
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
6.5
|
|
|
$
|
—
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
Other liabilities
|
|
$
|
14.0
|
|
|
$
|
—
|
|
|
$
|
14.0
|
|
|
$
|
—
|
|
|
(1)
|
The cash and cash equivalent amounts presented in the table above do not include cash of $544.6 as of December 31, 2020.
|
Money Market Funds
Money market funds are cash and cash equivalents and are classified within Level 1 of the fair value hierarchy.
Available-For-Sale Investments
As of March 31, 2021 and December 31, 2020, available-for-sale investments consisted of time deposits, certificates of deposit, bankers’ acceptance drafts, commercial paper, U.S. treasury obligations and group insurance contracts.
The Company measures its debt and equity investments at fair value. The Company’s available-for-sale investments are classified within Level 2 of the fair value hierarchy.
11
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
Israeli Pension Assets
Israeli pension assets represent investments in mutual funds, government securities and other time deposits. These investments are set aside for the retirement benefit of the employees of the Company’s Israeli subsidiaries. These funds are classified within Level 2 of the fair value hierarchy.
Derivatives
As a result of the Company’s global operating activities, the Company is exposed to market risks from changes in foreign currency exchange rates and variable interest rates, which may adversely affect its operating results and financial position. When deemed appropriate, the Company minimizes its risks from foreign currency exchange rate and interest rate fluctuations through the use of derivative financial instruments. The principal market in which the Company executes its foreign currency contracts and interest rate swaps is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants are typically large commercial banks. The foreign exchange forward contracts and interest rate hedge are valued using broker quotations or market transactions and are classified within Level 2 of the fair value hierarchy.
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 foreign exchange forward contracts, to manage certain foreign currency exposure, and interest rate swaps to manage interest rate exposure.
By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions, for which 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.
Foreign Exchange Forward Contracts
The Company hedges a portion of its forecasted foreign currency-denominated intercompany sales of inventory, over a maximum period of eighteen months, using foreign exchange forward contracts accounted for as cash-flow hedges related to British, Euro, Japanese, South Korean and Taiwanese 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 other comprehensive income (“OCI”) in stockholders’ equity. These changes in fair value will subsequently be reclassified into earnings, 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 in earnings in the period it occurs. The cash flows resulting from forward exchange contracts are classified in the condensed 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.
As of March 31, 2021 and December 31, 2020, the Company had outstanding foreign exchange forward contracts with gross notional values of $169.3 and $176.2, respectively. The following tables provide a summary of the primary net hedging positions and corresponding fair values held as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
Currency Hedged (Buy/Sell)
|
|
Gross Notional
Value
|
|
|
Fair Value (1)
|
|
U.S. dollar/Japanese yen
|
|
$
|
58.7
|
|
|
$
|
1.6
|
|
U.S. dollar/South Korean won
|
|
|
58.2
|
|
|
|
(0.8
|
)
|
U.S. dollar/euro
|
|
|
12.8
|
|
|
|
(0.1
|
)
|
U.S. dollar/U.K. pound sterling
|
|
|
6.5
|
|
|
|
(0.2
|
)
|
U.S. dollar/Taiwan dollar
|
|
|
33.1
|
|
|
|
(0.2
|
)
|
Total
|
|
$
|
169.3
|
|
|
$
|
0.3
|
|
12
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
|
|
December 31, 2020
|
|
Currency Hedged (Buy/Sell)
|
|
Gross Notional
Value
|
|
|
Fair Value (1)
|
|
U.S. dollar/Japanese yen
|
|
$
|
61.5
|
|
|
$
|
(1.1
|
)
|
U.S. dollar/South Korean won
|
|
|
62.2
|
|
|
|
(3.1
|
)
|
U.S. dollar/euro
|
|
|
13.1
|
|
|
|
(0.6
|
)
|
U.S. dollar/U.K. pound sterling
|
|
|
6.1
|
|
|
|
(0.3
|
)
|
U.S. dollar/Taiwan dollar
|
|
|
33.3
|
|
|
|
(1.4
|
)
|
Total
|
|
$
|
176.2
|
|
|
$
|
(6.5
|
)
|
|
(1)
|
Represents receivable (payable) amount included in the condensed consolidated balance sheet.
|
Interest Rate Swap Agreements
The Company entered into various interest rate swap agreements that exchange the variable LIBOR interest rate to a fixed rate in order to manage the exposure to interest rate fluctuations associated with the variable LIBOR interest rate paid on the outstanding balance of the 2019 Incremental Term Loan Facility, as described further in Note 10. The table below summarizes the various interest rate hedges entered into by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Swap
|
|
Trade Date
|
|
Effective Date
|
|
Maturity
|
|
Fixed
Rate
|
|
|
Notional
Amount at
Effective
Date
|
|
|
Notional
Amount
|
|
|
Fair
Value
Asset
(Liability)
|
|
|
Fair
Value
Asset
(Liability)
|
|
1
|
|
April 3, 2019
|
|
April 5, 2019
|
|
March 31, 2023
|
|
|
2.309
|
%
|
|
$
|
300.0
|
|
|
$
|
300.0
|
|
|
|
(10.6
|
)
|
|
|
(12.4
|
)
|
2
|
|
October 29, 2020
|
|
October 26, 2021
|
|
February 28, 2025
|
|
|
0.485
|
%
|
|
$
|
200.0
|
|
|
$
|
—
|
|
|
|
3.1
|
|
|
|
(0.7
|
)
|
3
|
|
October 29, 2020
|
|
March 31, 2022
|
|
February 28, 2025
|
|
|
0.623
|
%
|
|
$
|
100.0
|
|
|
$
|
—
|
|
|
|
2.0
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
(5.5
|
)
|
|
$
|
(14.0
|
)
|
The interest rate swaps are recorded at fair value on the balance sheet and changes in the fair value are recognized in OCI. To the extent that these arrangements are no longer effective hedges, any ineffectiveness measured in the hedging relationships is recorded immediately in earnings in the period it occurs.
The following table provides a summary of the fair value amounts of the Company’s derivative instruments:
Derivatives Designated as Hedging Instruments
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts(1)
|
|
$
|
2.2
|
|
|
$
|
—
|
|
Interest rate hedge(2)
|
|
|
5.1
|
|
|
|
—
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts(1)
|
|
|
(1.9
|
)
|
|
|
(6.5
|
)
|
Interest rate hedge(2)
|
|
|
(10.6
|
)
|
|
|
(14.0
|
)
|
Total net derivative liability designated as hedging instruments
|
|
$
|
(5.2
|
)
|
|
$
|
(20.5
|
)
|
|
(1)
|
The derivative asset of $2.2 and derivative liability of $1.9 related to the foreign exchange forward contracts are classified in other current assets and other current liabilities in the condensed consolidated balance sheet as of March 31, 2021. The derivative liability of $6.5 related to the foreign exchange forward contracts is classified in other current liabilities in the condensed consolidated balance sheet as of December 31, 2020. These foreign exchange forward contracts are subject to a master netting agreement with one financial institution. However, the Company has elected to record these contracts on a gross basis in the balance sheet.
|
|
(2)
|
The interest rate hedge asset of $5.1 is classified in other non-current assets in the condensed consolidated balance sheet as of March 31, 2021. The interest rate hedge liabilities of $10.6 and $14.0 are classified in other non-current liabilities in the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020, respectively.
|
13
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The net amount of existing gains as of March 31, 2021 that is expected to be reclassified from OCI into earnings within the next 12 months is immaterial.
The following table provides a summary of the gains (losses) on derivatives designated as cash flow hedging instruments:
|
|
Three Months Ended
March 31,
|
|
Derivatives Designated as Cash Flow Hedging Instruments
|
|
2021
|
|
|
2020
|
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in accumulated OCI(1)
|
|
$
|
11.0
|
|
|
$
|
(6.0
|
)
|
Net (loss) gain reclassified from accumulated OCI into income(2)
|
|
$
|
(1.5
|
)
|
|
$
|
0.7
|
|
|
(1)
|
Net change in the fair value of the effective portion classified in accumulated OCI.
|
|
(2)
|
Effective portion classified in cost of products for the three months ended March 31, 2021 and 2020. The tax effect of the gains or losses reclassified from accumulated OCI into income is immaterial.
|
The following table provides a summary of the (loss) gain on derivatives not designated as cash flow hedging instruments:
|
|
Three Months Ended
March 31,
|
|
Derivatives Not Designated as Cash Flow Hedging Instruments
|
|
2021
|
|
|
2020
|
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
Net (loss) gain recognized in income(1)
|
|
$
|
(0.8
|
)
|
|
$
|
0.2
|
|
|
(1)
|
The Company enters into foreign exchange forward contracts to hedge against changes in the balance sheet for certain subsidiaries to mitigate the risk associated with certain foreign currency transactions in the ordinary course of business. These derivatives are not designated as cash flow hedging instruments and gains or losses from these derivatives are recorded in other (expense) income in the periods in which they occur.
|
Inventories consist of the following:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Raw materials
|
|
$
|
336.7
|
|
|
$
|
321.3
|
|
Work-in-process
|
|
|
78.4
|
|
|
|
76.7
|
|
Finished goods
|
|
|
100.1
|
|
|
|
103.4
|
|
|
|
$
|
515.2
|
|
|
$
|
501.4
|
|
The Company has various operating leases for real estate and non-real estate items. The non-real estate leases are mainly comprised of automobiles but also include office equipment and other lower-valued items. The Company does not have any finance leases. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.
Some of the Company’s real estate lease agreements include Company options to either extend and/or terminate the lease. The cost of these options is included in our operating lease liabilities to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 to 10 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements made to the property, whether the physical space is difficult to replace, underlying contractual obligations, and specific characteristics unique to that particular lease that would make it reasonably certain that the Company would exercise such an option.
14
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The Company has existing leases that include variable lease and non-lease components that are not included in the right-of-use asset and lease liability, and are reflected as expenses in the periods incurred. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index (e.g., the Consumer Price Index).
The elements of lease expense were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Lease cost:
|
|
|
|
|
|
|
|
|
Operating lease cost(1)
|
|
$
|
7.7
|
|
|
$
|
7.3
|
|
Short-term lease
|
|
|
1.1
|
|
|
|
1.2
|
|
Total lease cost
|
|
$
|
8.8
|
|
|
$
|
8.5
|
|
|
(1)
|
Operating lease cost includes an immaterial amount of variable expenses and sublease rental income.
|
The weighted average discount rate and the weighted average remaining lease term were 2.9% and 14.8 years, respectively, as of March 31, 2021. The weighted average discount rate and weighted average remaining lease term were 3.2% and 13.5 years, respectively, as of March 31, 2020. Operating cash flows used for operating leases for the three months ended March 31, 2021 and 2020 were $3.8 and $5.1, respectively. Operating cash flows used for operating leases for the three months ended March 31, 2021 of $3.8 was net of $2.8 in tenant improvement allowance receipts.
Future lease payments under non-cancelable leases as of March 31, 2021 are detailed as follows:
2021 (remaining)
|
|
$
|
14.4
|
|
2022
|
|
|
22.0
|
|
2023
|
|
|
19.3
|
|
2024
|
|
|
18.1
|
|
2025
|
|
|
17.1
|
|
Thereafter
|
|
|
166.6
|
|
Total lease payments
|
|
|
257.5
|
|
Less: imputed interest
|
|
|
52.0
|
|
Total operating lease liabilities
|
|
$
|
205.5
|
|
The remaining 2021 lease payment amount of $14.4 is net of tenant improvement allowances of $3.6. Amounts presented above do not include payments relating to immaterial leases excluded from the balance sheet as part of transition elections adopted upon implementation of ASU 2016-02,“Leases”, on January 1, 2019, as well as operating leases with terms of less than twelve months.
9)
|
Goodwill and Intangible Assets
|
Goodwill
The Company’s methodology for allocating the purchase price relating to purchase acquisitions is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. The Company assigns assets acquired (including goodwill) and liabilities assumed to one or more reporting units as of the date of acquisition. Typically acquisitions relate to a single reporting unit and thus do not require the allocation of goodwill to multiple reporting units. If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process.
Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results.
15
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The changes in the carrying amount of goodwill and accumulated impairment loss during the three months ended March 31, 2021 and year ended December 31, 2020 were as follows:
|
|
Three Months Ended March 31, 2021
|
|
|
Twelve Months Ended December 31, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Impairment
Loss
|
|
|
Net
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Impairment
Loss
|
|
|
Net
|
|
Beginning balance at January 1
|
|
$
|
1,211.8
|
|
|
$
|
(145.4
|
)
|
|
$
|
1,066.4
|
|
|
$
|
1,202.8
|
|
|
$
|
(144.3
|
)
|
|
$
|
1,058.5
|
|
Impairment of goodwill(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.1
|
)
|
|
|
(1.1
|
)
|
Foreign currency translation
|
|
|
(4.3
|
)
|
|
|
—
|
|
|
|
(4.3
|
)
|
|
|
9.0
|
|
|
|
—
|
|
|
|
9.0
|
|
Ending balance at March 31, 2021 and December 31, 2020
|
|
$
|
1,207.5
|
|
|
$
|
(145.4
|
)
|
|
$
|
1,062.1
|
|
|
$
|
1,211.8
|
|
|
$
|
(145.4
|
)
|
|
$
|
1,066.4
|
|
|
(1)
|
During the twelve months ended December 31, 2020, the Company recorded $1.1 of goodwill impairment charges related to the pending closure of a facility in Europe.
|
Intangible Assets
Components of the Company’s intangible assets are comprised of the following:
As of March 31, 2021:
|
|
Gross
|
|
|
Accumulated
Impairment
Charges
|
|
|
Accumulated
Amortization
|
|
|
Foreign
Currency
Translation
|
|
|
Net
|
|
Completed technology
|
|
$
|
446.4
|
|
|
$
|
(0.1
|
)
|
|
$
|
(216.4
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
229.8
|
|
Customer relationships
|
|
|
308.2
|
|
|
|
(1.4
|
)
|
|
|
(109.8
|
)
|
|
|
0.3
|
|
|
|
197.3
|
|
Patents, trademarks, trade names and other
|
|
|
120.9
|
|
|
|
—
|
|
|
|
(49.4
|
)
|
|
|
(0.2
|
)
|
|
|
71.3
|
|
|
|
$
|
875.5
|
|
|
$
|
(1.5
|
)
|
|
$
|
(375.6
|
)
|
|
$
|
—
|
|
|
$
|
498.4
|
|
As of December 31, 2020:
|
|
Gross
|
|
|
Accumulated
Impairment
Charges
|
|
|
Accumulated
Amortization
|
|
|
Foreign
Currency
Translation
|
|
|
Net
|
|
Completed technology
|
|
$
|
446.4
|
|
|
$
|
(0.1
|
)
|
|
$
|
(209.8
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
236.4
|
|
Customer relationships
|
|
|
308.2
|
|
|
|
(1.4
|
)
|
|
|
(104.8
|
)
|
|
|
1.7
|
|
|
|
203.7
|
|
Patents, trademarks, trade names and other
|
|
|
120.9
|
|
|
|
—
|
|
|
|
(48.6
|
)
|
|
|
(0.2
|
)
|
|
|
72.1
|
|
|
|
$
|
875.5
|
|
|
$
|
(1.5
|
)
|
|
$
|
(363.2
|
)
|
|
$
|
1.4
|
|
|
$
|
512.2
|
|
Aggregate amortization expense related to acquired intangible assets for the three months ended March 31, 2021 and 2020 was $12.4 and $16.3, respectively. Aggregate net amortization expense related to acquired intangible assets for future years is as follows:
Year
|
|
Amount
|
|
2021 (remaining)
|
|
$
|
35.6
|
|
2022
|
|
$
|
45.5
|
|
2023
|
|
$
|
45.1
|
|
2024
|
|
$
|
44.2
|
|
2025
|
|
$
|
43.2
|
|
2026
|
|
$
|
132.8
|
|
Thereafter
|
|
$
|
96.1
|
|
The Company excluded $55.9 of indefinite-lived trademarks and trade names that were not subject to amortization from the table above.
16
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
Senior Secured Term Loan Credit Facility
In connection with the completion of the acquisition of Newport Corporation (“Newport”) in 2016 (the “Newport Merger”), the Company entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders from time to time party thereto (the “Lenders”), that provided a senior secured term loan credit facility in the original principal amount of $780.0 (the “2016 Term Loan Facility”), subject to increase at the Company’s option and subject to receipt of lender commitments in accordance with the Term Loan Credit Agreement (the 2016 Term Loan Facility, together with the 2019 Incremental Term Loan Facility and 2019 Term Loan Refinancing Facility (each as defined below), the “Term Loan Facility”). Prior to the effectiveness of Amendment No. 6 (as defined below), the 2016 Term Loan Facility had a maturity date of April 29, 2023. As of March 31, 2021, borrowings under the Term Loan Facility bear interest per annum at one of the following rates selected by the Company: (a) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the “prime rate” quoted in The Wall Street Journal, (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%, and (4) a floor of 1.75%, plus, in each case, an applicable margin; or (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a LIBOR rate floor of 0.0%, plus an applicable margin. The Company has elected the interest rate as described in clause (b) of the foregoing sentence. The Term Loan Credit Agreement provides that, unless an alternate rate of interest is agreed, all loans will be determined by reference to the base rate if the LIBOR rate cannot be ascertained, if regulators impose material restrictions on the authority of a lender to make LIBOR rate loans, or for other reasons. The 2016 Term Loan Facility was issued with original issue discount of 1.00% of the principal amount thereof.
The Company subsequently entered into four separate repricing amendments to the 2016 Term Loan Facility, which decreased the applicable margin for LIBOR borrowings from 4.0% to 1.75%, with a LIBOR rate floor of 0.75%. As a consequence of the pricing of the 2019 Incremental Term Loan Facility (defined below), the applicable margin for the 2016 Term Loan Facility was increased to 2.00% (from 1.75%) with respect to LIBOR borrowings and 1.00% (from 0.75%) with respect to base rate borrowings.
The Company incurred $28.7 of deferred finance fees, original issue discount and repricing fees related to the term loans under the 2016 Term Loan Facility, which are included in long-term debt in the accompanying condensed consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method.
On February 1, 2019, in connection with the completion of the acquisition of Electro Scientific Industries, Inc. (the “ESI Merger”), the Company entered into an amendment (“Amendment No. 5”) to the Term Loan Credit Agreement. Amendment No. 5 provided an additional tranche B-5 term loan commitment in the original principal amount of $650.0 (the “2019 Incremental Term Loan Facility”), all of which was drawn down in connection with the closing of the ESI Merger. Pursuant to Amendment No. 5, the Company also effectuated certain amendments to the Term Loan Credit Agreement which made certain of the negative covenants and other provisions less restrictive. Prior to the effectiveness of Amendment No. 6 (as defined below), the 2019 Incremental Term Loan Facility had a maturity date of February 1, 2026 and bore interest at a rate per annum equal to, at the Company’s option, a base rate or LIBOR rate (as described above) plus, in each case, an applicable margin equal to 1.25% with respect to base rate borrowings and 2.25% with respect to LIBOR borrowings. The 2019 Incremental Term Loan Facility was issued with original issue discount of 1.00% of the principal amount thereof.
The Company incurred $11.4 of deferred finance fees and original issue discount fees related to the term loans under the 2019 Incremental Term Loan Facility, which are included in long-term debt in the accompanying condensed consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method.
On September 27, 2019, the Company entered into an amendment (“Amendment No. 6”) to the Term Loan Credit Agreement. Amendment No. 6 refinanced all existing loans outstanding under the 2016 Term Loan Facility and 2019 Incremental Term Loan Facility (“Existing Term Loans”) for a tranche B-6 term loan commitment in the original principal amount of $896.8 (“2019 Term Loan Refinancing Facility”). Each lender of the Existing Term Loans that elected to participate in the 2019 Term Loan Refinancing Facility was deemed to have exchanged the aggregate outstanding principal amount of its Existing Term Loans for an equal aggregate principal amount of tranche B-6 term loans under the 2019 Term Loan Refinancing Facility. On the effective date of Amendment No. 6 and immediately prior to the exchanges described above, the Company made a voluntary prepayment of $50.0, which was applied to the Existing Term Loans on a pro rata basis.
17
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The Company incurred $2.2 of original issue discount fees related to the term loans under the 2019 Term Loan Refinancing Facility, which are included in long-term debt in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method.
As of March 31, 2021, the remaining balance of deferred finance fees and original issue discount of the Term Loan Facility was $8.9. A portion of the deferred finance fees and original issue discount have been accelerated in connection with the various debt prepayments and extinguishments between 2016 and 2020.
The 2019 Term Loan Refinancing Facility matures on February 2, 2026, and bears interest at a rate per annum equal to, at the Company’s option, a base rate or LIBOR rate (as described above) plus, in each case, an applicable margin equal to 0.75% with respect to base rate borrowings and 1.75% with respect to LIBOR borrowings. The 2019 Term Loan Refinancing Facility was issued with original issue discount of 0.25% of the principal amount thereof.
The Company is required to make scheduled quarterly payments each equal to 0.25% of the original principal amount of the 2019 Term Loan Refinancing Facility with the balance due on February 2, 2026.
As of March 31, 2021, after total principal prepayments of $575.0 and regularly scheduled principal payments of $23.9, the total outstanding principal balance of the Term Loan Facility was $831.1 and the interest rate was 1.9%.
Under the Term Loan Credit Agreement, the Company is required to prepay outstanding term loans, subject to certain exceptions, with portions of its annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrence or issuance of certain debt.
All obligations under the Term Loan Facility are guaranteed by certain of the Company’s domestic subsidiaries and are collateralized by substantially all of the Company’s assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.
The Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the Term Loan Facility will be entitled to take various actions, including the acceleration of amounts due under the Term Loan Facility and all actions generally permitted to be taken by a secured creditor. At March 31, 2021, the Company was in compliance with all covenants under the Term Loan Credit Agreement.
Interest Rate Swap Agreements
The Company entered into various interest rate swap agreements as described further in Note 6 that exchange the variable LIBOR interest rate to a fixed rate in order to manage the exposure to interest rate fluctuations associated with the variable LIBOR interest rate paid on the outstanding balance of the 2019 Incremental Term Loan Facility.
Senior Secured Asset-Based Revolving Credit Facility
On February 1, 2019, in connection with the completion of the ESI Merger, the Company entered into an asset-based revolving credit agreement with Barclays Bank PLC, as administrative agent and collateral agent, the other borrowers from time to time party thereto, and the lenders and letters of credit issuers from time to time party thereto (the “ABL Credit Agreement”), that provides a senior secured asset-based revolving credit facility of up to $100.0, subject to a borrowing base limitation (the “ABL Facility”). On April 26, 2019, the Company entered into a First Amendment to the ABL Credit Agreement which amended the borrowing base calculation for eligible inventory prior to an initial field examination and appraisal requirements. The borrowing base for the ABL Facility at any time equals the sum of: (a) 85% of certain eligible accounts; plus (b) prior to certain notice and field examination and appraisal requirements, the lesser of (i) 20% of net book value of eligible inventory in the United States and (ii) 30% of the borrowing base, and after the satisfaction of such requirements, the lesser of (i) the lesser of (A) 65% of the lower of cost or market value of certain eligible inventory and (B) 85% of the net orderly liquidation value of certain eligible inventory and (ii) 30% of the borrowing base; minus (c) reserves established by the administrative agent, in each case, subject to additional limitations and examination requirements for eligible accounts and eligible inventory acquired in an acquisition after February 1, 2019. The ABL Facility includes borrowing capacity in the form of letters of credit up to $25.0.
Borrowings under the ABL Facility bear interest at a rate per annum equal to, at the Company’s option, any of the following, plus, in each case, an applicable margin: (a) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the “prime rate” quoted in The Wall Street Journal, (3) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% and (4) a floor of 0.00%; and (b) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, with a floor of 0.00%. The initial applicable margin for borrowings under the ABL Facility is 0.50% with respect to base rate borrowings and 1.50% with respect to LIBOR borrowings. Commencing with the completion of the first fiscal quarter ending after the closing of the ABL Facility, the applicable margin for borrowings thereunder is subject to upward or downward adjustment each fiscal quarter, based on the average historical excess availability during the preceding quarter.
18
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
In addition to paying interest on any outstanding principal under the ABL Facility, the Company is required to pay a commitment fee in respect of the unutilized commitments thereunder equal to 0.25% per annum. The Company must also pay customary letter of credit fees and agency fees.
Under the ABL Facility, we are required to prepay amounts outstanding under the ABL Facility (1) if amounts outstanding under the ABL Facility exceed the lesser of (a) the commitment amount and (b) the borrowing base, in an amount required to reduce such shortfall, (2) if amounts outstanding under the ABL Facility in any currency other than U.S. dollars exceed the sublimit for such currency, in an amount required to reduce such shortfall, and (3) during any period in which we have excess availability less than the greater of (a) 10.0% of the lesser of (x) the commitment amount and (y) the borrowing base and (b) $8.5 for 3 consecutive business days, until the time when we have excess availability equal to or greater than the greater of (A) 10.0% of the lesser of (i) the commitment amount and (ii) the borrowing base and (B) $8.5 for 30 consecutive days, or during the continuance of an event of default, with immediately available funds in its blocked accounts.
There is no scheduled amortization under the ABL Facility. The principal amount outstanding under the ABL Facility is due and payable in full on the fifth anniversary of the closing date.
All obligations under the ABL Facility are guaranteed by certain of the Company’s domestic subsidiaries and are collateralized by substantially all of the Company’s assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.
From the time when the Company has excess availability less than the greater of (a) 10.0% of the lesser of (1) the commitment amount and (2) the borrowing base and (b) $8.5 until the time when the Company has excess availability equal to or greater than the greater of (a) 10.0% of the lesser of (1) the commitment amount and (2) the borrowing base and (b) $8.5 for 30 consecutive days, or during the continuance of an event of default, the ABL Credit Agreement requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement) tested on the last day of each fiscal quarter of at least 1.0 to 1.0.
The ABL Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the ABL Facility will be entitled to take various actions, including the acceleration of amounts due under the ABL Facility and all actions permitted to be taken by a secured creditor. The Company has not borrowed against the ABL Facility to date.
Lines of Credit and Borrowing Arrangements
The Company’s Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. The lines of credit and financing facility provided for aggregate borrowings as of March 31, 2021 of up to an equivalent of $30.4 U.S. dollars. Total borrowings outstanding under these arrangements were $0.3 and $5.5 at March 31, 2021 and December 31, 2020, respectively.
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
Japanese lines of credit
|
|
$
|
0.3
|
|
|
$
|
5.4
|
|
Japanese receivables financing facility
|
|
|
—
|
|
|
|
0.1
|
|
Term Loan Facility
|
|
|
9.0
|
|
|
|
9.0
|
|
|
|
$
|
9.3
|
|
|
$
|
14.5
|
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Term Loan Facility, net(1)
|
|
$
|
813.2
|
|
|
$
|
815.0
|
|
Other debt
|
|
|
0.1
|
|
|
|
—
|
|
|
|
$
|
813.3
|
|
|
$
|
815.0
|
|
|
(1)
|
Net of deferred financing fees, original issuance discount and repricing fees in the aggregate of $8.9 and $9.4 as of March 31, 2021 and December 31, 2020, respectively.
|
19
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The Company recognized interest expense of $6.4 and $8.9 for the three months ended March 31, 2021 and 2020, respectively.
Contractual maturities of the Company’s debt obligations as of March 31, 2021 are as follows:
Year
|
|
Amount
|
|
2021 (remaining)
|
|
$
|
7.0
|
|
2022
|
|
|
9.0
|
|
2023
|
|
|
9.0
|
|
2024
|
|
|
9.0
|
|
2025
|
|
|
9.0
|
|
2026
|
|
|
9.0
|
|
Thereafter
|
|
$
|
779.5
|
|
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 Company’s warranty obligations are affected by shipment volume, 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 Company’s estimates, revisions to the estimated warranty liability would be required.
Product warranty activities were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning of period
|
|
$
|
18.4
|
|
|
$
|
14.9
|
|
Provision for product warranties
|
|
|
10.7
|
|
|
|
6.7
|
|
Direct and other charges to warranty liabilities
|
|
|
(7.5
|
)
|
|
|
(6.3
|
)
|
End of period(1)
|
|
$
|
21.6
|
|
|
$
|
15.3
|
|
|
(1)
|
As of March 31, 2021, short-term product warranties of $18.4 and long-term product warranties of $3.2 were included within other current liabilities and other non-current liabilities, respectively, within the accompanying condensed consolidated balance sheet. As of March 31, 2020, short-term product warranties of $12.2 and long-term product warranties of $3.1 were included within other current liabilities and other non-current liabilities, respectively, within the accompanying condensed consolidated balance sheet.
|
The Company’s effective tax rates for the three months ended March 31, 2021 and 2020 were 17.5% and 15.0%, respectively. The effective tax rate and related income tax expense for the three months ended March 31, 2021 was lower than the U.S. statutory tax rate due to the U.S. deduction for foreign derived intangible income and the geographic mix of income earned by the Company’s international subsidiaries being taxed at rates lower than the U.S. statutory tax rate, offset by the U.S. global intangible low-taxed income inclusion and additional withholding taxes on inter-company distributions due to the United Kingdom’s departure from the European Union.
The Company’s effective tax rate and related income tax expense for the three months ended March 31, 2020, was lower than the U.S. statutory tax rate due to the U.S. deduction for foreign derived intangible income, the federal tax credit for research activities and the geographic mix of income earned by the Company’s international subsidiaries being taxed at rates lower than the U.S. statutory tax rate, offset by the U.S. global intangible low-taxed income inclusion.
As of March 31, 2021 and December 31, 2020, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was $46.5 and $47.0, respectively. The Company accrues interest expense, and if applicable, penalties, for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense. As of March 31, 2021 and December 31, 2020, the Company had accrued interest on unrecognized tax benefits of approximately $0.7 and $0.7, respectively.
20
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
Over the next 12 months it is reasonably possible that the Company may recognize approximately $4.0 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. state and foreign tax positions, primarily as a result of the expiration of certain statutes of limitations.
The Company and its subsidiaries are subject to examination by U.S. federal, state and foreign tax authorities. The U.S. federal statute of limitations remains open for tax years 2017 through the present. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2015 through present. The Company has certain federal credit carry-forwards and state tax loss and credit carry-forwards that are open to examination for tax years 2000 through the present.
The following table sets forth the computation of basic and diluted net income per share:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
122.3
|
|
|
$
|
69.1
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Shares used in net income per common share – basic
|
|
|
55,275,000
|
|
|
|
54,918,000
|
|
Effect of dilutive securities
|
|
|
362,000
|
|
|
|
318,000
|
|
Shares used in net income per common share – diluted
|
|
|
55,637,000
|
|
|
|
55,236,000
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.21
|
|
|
$
|
1.26
|
|
Diluted
|
|
$
|
2.20
|
|
|
$
|
1.25
|
|
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 (restricted stock units (“RSUs”) and stock appreciation rights (“SARs”)) had been converted to such common shares, and if such assumed conversion is dilutive.
For the three months ended March 31, 2021, there were no weighted-average restricted stock units that would have had an anti-dilutive effect on EPS and were excluded from the computation of diluted weighted-average shares. For the three months ended March 31, 2020, there were approximately 36,100 weighted-average restricted stock units that would have had an anti-dilutive effect on EPS and were excluded from the computation of diluted weighted-average shares.
14)
|
Stock-Based Compensation
|
The Company grants RSUs to employees and directors under the 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan is administered by the Compensation Committee of the Company’s Board of Directors. The 2014 Plan is intended to attract and retain employees and directors, and to provide an incentive for these individuals to assist the Company to achieve long-range performance goals and to enable these individuals to participate in the long-term growth of the Company.
The total stock-based compensation expense included in the Company’s condensed consolidated statements of operations and comprehensive income was as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cost of revenues
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
Research and development
|
|
|
1.1
|
|
|
|
1.1
|
|
Selling, general and administrative
|
|
|
7.9
|
|
|
|
5.9
|
|
Acquisition and integration costs
|
|
|
—
|
|
|
|
0.5
|
|
Total pre-tax stock-based compensation expense
|
|
$
|
10.0
|
|
|
$
|
8.5
|
|
21
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
At March 31, 2021, the total compensation expense related to unvested stock-based awards granted to employees and directors under the 2014 Plan that had not been recognized was $36.7. The Company determines the fair value of RSUs based on the closing market price of the Company’s common stock on the date of the award and estimates the fair value of SARs and employee stock purchase plan rights using the Black-Scholes valuation model. Such values are recognized as expense on a straight-line basis for time-based awards and using the accelerated graded vesting method for performance-based awards, both over the requisite service periods.
The following table presents the activity for RSUs under the 2014 Plan:
|
|
Three Months Ended March 31, 2021
|
|
|
|
Outstanding RSUs
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
RSUs – beginning of period
|
|
|
606,085
|
|
|
$
|
93.26
|
|
Accrued dividend shares
|
|
|
79
|
|
|
$
|
153.00
|
|
Granted
|
|
|
101,668
|
|
|
$
|
170.60
|
|
Vested
|
|
|
(78,506
|
)
|
|
$
|
97.20
|
|
Forfeited
|
|
|
(7,381
|
)
|
|
$
|
102.00
|
|
RSUs – end of period
|
|
|
621,945
|
|
|
$
|
105.31
|
|
The following table presents the activity for SARs under the 2014 Plan:
|
|
Three Months Ended March 31, 2021
|
|
|
|
Outstanding SARs
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
SARs – beginning of period
|
|
|
51,589
|
|
|
$
|
30.64
|
|
Exercised
|
|
|
(15,921
|
)
|
|
$
|
29.92
|
|
SARs – end of period
|
|
|
35,668
|
|
|
$
|
30.96
|
|
Share Repurchase Program
On July 25, 2011, the Company’s Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $200 of its outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means. The timing and quantity of any shares repurchased depends upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities. These repurchases may be commenced, suspended or discontinued at any time without prior notice. The Company has repurchased approximately 2,588,000 shares of common stock for approximately $127 pursuant to the program since its adoption. During the three months ended March 31, 2021 and 2020, there were no repurchases of common stock.
Cash Dividends
Holders of the Company’s common stock are entitled to receive dividends when they are declared by the Company’s Board of Directors. In addition, the Company accrues dividend equivalents on the RSUs the Company assumed in the ESI Merger when dividends are declared by the Company’s Board of Directors. During the three months ended March 31, 2021, the Company’s Board of Directors declared a cash dividend of $0.20 per share, which totaled $11.1. During the three months ended March 31, 2020, the Company’s Board of Directors declared a cash dividend of $0.20 per share, which totaled $11.0.
Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s Board of Directors. In addition, under the Term Loan Facility and ABL Facility, the Company may be restricted from paying dividends under certain circumstances.
22
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
16)
|
Business Segment, Geographic Area, and Significant Customer Information
|
The Company is a global provider of instruments, systems, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes to improve process performance and productivity for its customers. The Company’s products are derived from its core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, vacuum technology, lasers, photonics, optics, precision motion control, vibration control and laser-based manufacturing systems solutions. The Company also provides services relating to the maintenance and repair of its products, installation services and training. The Company’s primary served markets include semiconductor, industrial technologies, life and health sciences, and research and defense.
The Company’s Chief Operating Decision Maker (“CODM”), which is the Company’s Chief Executive Officer, utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess performance.
Reportable Segments
The Vacuum & Analysis segment provides a broad range of instruments, components and subsystems which are derived from the Company’s core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery and vacuum technology.
The Light & Motion segment provides a broad range of instruments, components and subsystems which are derived from the Company’s core competencies in lasers, photonics, optics, precision motion control and vibration control.
The Equipment & Solutions segment provides a range of products including laser-based systems for PCB manufacturing, which includes flexible interconnect PCB processing systems and high density interconnect solutions for rigid PCB manufacturing and substrate processing and multi-layer ceramic capacitor test systems.
The Company derives its segment results directly from the manner in which results are reported in its management reporting system. The accounting policies that the Company uses to derive reportable segment results are substantially the same as those used for external reporting purposes. The Company groups its similar products within its three reportable segments.
The following table sets forth net revenues by reportable segment:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Vacuum & Analysis
|
|
$
|
435.8
|
|
|
$
|
319.3
|
|
Light & Motion
|
|
|
182.0
|
|
|
|
165.4
|
|
Equipment & Solutions
|
|
|
76.1
|
|
|
|
51.0
|
|
|
|
$
|
693.9
|
|
|
$
|
535.7
|
|
23
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
The following table sets forth a reconciliation of segment gross profit to consolidated net income:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Gross profit by reportable segment:
|
|
|
|
|
|
|
|
|
Vacuum & Analysis
|
|
$
|
205.0
|
|
|
$
|
140.8
|
|
Light & Motion
|
|
|
82.1
|
|
|
|
75.6
|
|
Equipment & Solutions
|
|
|
35.0
|
|
|
|
23.2
|
|
Total gross profit by reportable segment
|
|
|
322.1
|
|
|
|
239.6
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
47.2
|
|
|
|
42.4
|
|
Selling, general and administrative
|
|
|
95.9
|
|
|
|
87.2
|
|
Acquisition and integration costs
|
|
|
6.2
|
|
|
|
2.2
|
|
Restructuring and other
|
|
|
4.9
|
|
|
|
0.4
|
|
Amortization of intangible assets
|
|
|
12.4
|
|
|
|
16.3
|
|
Asset impairment
|
|
|
—
|
|
|
|
1.2
|
|
Income from operations
|
|
|
155.5
|
|
|
|
89.9
|
|
Interest income
|
|
|
0.2
|
|
|
|
0.7
|
|
Interest expense
|
|
|
6.4
|
|
|
|
8.9
|
|
Other expense, net
|
|
|
1.1
|
|
|
|
0.4
|
|
Income before income taxes
|
|
|
148.2
|
|
|
|
81.3
|
|
Provision for income taxes
|
|
|
25.9
|
|
|
|
12.2
|
|
Net income
|
|
$
|
122.3
|
|
|
$
|
69.1
|
|
The following table sets forth capital expenditures by reportable segment for the three months ended March 31, 2021 and 2020:
Capital expenditures:
|
|
Vacuum &
Analysis
|
|
|
Light &
Motion
|
|
|
Equipment &
Solutions
|
|
|
Total
|
|
Three Months Ended March 31, 2021
|
|
$
|
8.6
|
|
|
$
|
11.6
|
|
|
$
|
6.3
|
|
|
$
|
26.5
|
|
Three Months Ended March 31, 2020
|
|
$
|
4.1
|
|
|
$
|
4.0
|
|
|
$
|
1.9
|
|
|
$
|
10.0
|
|
The following table sets forth depreciation and amortization by reportable segment for the three months ended March 31, 2021 and 2020:
Depreciation and amortization:
|
|
Vacuum &
Analysis
|
|
|
Light &
Motion
|
|
|
Equipment &
Solutions
|
|
|
Total
|
|
Three Months Ended March 31, 2021
|
|
$
|
5.8
|
|
|
$
|
9.0
|
|
|
$
|
9.0
|
|
|
$
|
23.8
|
|
Three Months Ended March 31, 2020
|
|
$
|
4.9
|
|
|
$
|
13.4
|
|
|
$
|
10.1
|
|
|
$
|
28.4
|
|
Total income tax expense is not presented by reportable segment because the necessary information is not available nor used by the CODM.
The following table sets forth segment assets by reportable segment:
March 31, 2021
|
|
Vacuum &
Analysis
|
|
|
Light &
Motion
|
|
|
Equipment &
Solutions
|
|
|
Corporate,
Eliminations &
Other
|
|
|
Total
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
247.4
|
|
|
$
|
132.9
|
|
|
$
|
61.5
|
|
|
$
|
(21.0
|
)
|
|
$
|
420.8
|
|
Inventory, net
|
|
|
290.5
|
|
|
|
157.4
|
|
|
|
69.9
|
|
|
|
(2.6
|
)
|
|
|
515.2
|
|
Total segment assets
|
|
$
|
537.9
|
|
|
$
|
290.3
|
|
|
$
|
131.4
|
|
|
$
|
(23.6
|
)
|
|
$
|
936.0
|
|
24
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
December 21, 2020
|
|
Vacuum &
Analysis
|
|
|
Light &
Motion
|
|
|
Equipment &
Solutions
|
|
|
Corporate,
Eliminations &
Other
|
|
|
Total
|
|
Segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
229.1
|
|
|
$
|
122.6
|
|
|
$
|
51.7
|
|
|
$
|
(10.7
|
)
|
|
$
|
392.7
|
|
Inventory, net
|
|
|
273.3
|
|
|
|
166.1
|
|
|
|
63.7
|
|
|
|
(1.7
|
)
|
|
|
501.4
|
|
Total segment assets
|
|
$
|
502.4
|
|
|
$
|
288.7
|
|
|
$
|
115.4
|
|
|
$
|
(12.4
|
)
|
|
$
|
894.1
|
|
The following is a reconciliation of segment assets to consolidated total assets:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Total segment assets
|
|
$
|
936.0
|
|
|
$
|
894.1
|
|
Cash and cash equivalents and short-term investments
|
|
|
909.5
|
|
|
|
836.0
|
|
Other current assets
|
|
|
77.0
|
|
|
|
74.3
|
|
Property, plant and equipment, net
|
|
|
297.0
|
|
|
|
284.3
|
|
Right-of-use asset
|
|
|
182.7
|
|
|
|
184.4
|
|
Goodwill and intangible assets, net
|
|
|
1,560.5
|
|
|
|
1,578.6
|
|
Other assets and long-term investments
|
|
|
55.2
|
|
|
|
52.1
|
|
Consolidated total assets
|
|
$
|
4,017.9
|
|
|
$
|
3,903.8
|
|
Geographic Area
Information about the Company’s operations by geographic area is presented in the tables below. Net revenues from unaffiliated customers are based on the location in which the sale originated. Intercompany sales between geographic areas are at tax transfer prices and have been eliminated from consolidated net revenues.
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
282.8
|
|
|
$
|
231.5
|
|
South Korea
|
|
|
97.9
|
|
|
|
76.0
|
|
China
|
|
|
81.3
|
|
|
|
49.7
|
|
Taiwan
|
|
|
59.4
|
|
|
|
25.3
|
|
Japan
|
|
|
48.0
|
|
|
|
40.0
|
|
Other Asia
|
|
|
70.1
|
|
|
|
58.9
|
|
Europe
|
|
|
54.4
|
|
|
|
54.3
|
|
|
|
$
|
693.9
|
|
|
$
|
535.7
|
|
Long-lived assets:(1)
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
United States
|
|
$
|
379.7
|
|
|
$
|
364.0
|
|
Europe
|
|
|
37.3
|
|
|
|
94.8
|
|
Asia
|
|
|
101.3
|
|
|
|
45.1
|
|
|
|
$
|
518.3
|
|
|
$
|
503.9
|
|
|
(1)
|
Long-lived assets include property, plant and equipment, net, right-of-use assets, and certain other assets, and exclude goodwill, intangible assets and long-term tax-related accounts.
|
25
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
Goodwill associated with each of the Company’s reportable segments is as follows:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Reportable segment:
|
|
|
|
|
|
|
|
|
Vacuum & Analysis
|
|
$
|
195.7
|
|
|
$
|
196.2
|
|
Light & Motion
|
|
|
391.9
|
|
|
|
395.3
|
|
Equipment & Solutions
|
|
|
474.5
|
|
|
|
474.9
|
|
Total goodwill
|
|
$
|
1,062.1
|
|
|
$
|
1,066.4
|
|
Major Customers
The following customers represented greater than 10% of the Company’s net revenues as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Lam Research Corporation
|
|
|
13
|
%
|
|
|
10
|
%
|
Applied Materials, Inc.
|
|
|
11
|
%
|
|
|
11
|
%
|
17)
|
Restructuring and Other
|
Restructuring
The Company recorded restructuring charges of $2.8 during the three months ended March 31, 2021, primarily related to severance costs due to a global cost saving initiative.
The Company recorded restructuring charges of $0.2 during the three months ended March 31, 2020, primarily related to the closure of a facility in Europe.
Restructuring activities were as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning of period
|
|
$
|
0.3
|
|
|
$
|
3.7
|
|
Charged to expense
|
|
|
2.8
|
|
|
|
0.2
|
|
Payments and adjustments
|
|
|
(1.1
|
)
|
|
|
(1.0
|
)
|
End of period
|
|
$
|
2.0
|
|
|
$
|
2.9
|
|
Other
The Company recorded charges of $2.1 and $0.7 during the three months ended March 31, 2021 and 2020, respectively, related to duplicate facility costs.
The Company received an insurance reimbursement of $0.5 during the three months ended March 31, 2020 for costs recorded on a legal settlement from a contractual obligation assumed as part of the Newport Merger.
26
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
18)
|
Commitments and Contingencies
|
In 2016, two putative class actions lawsuit captioned Dixon Chung v. Newport Corp., et al., Case No. A-16-733154-C, and Hubert C. Pincon v. Newport Corp., et al., Case No. A-16-734039-B, were filed in the District Court, Clark County, Nevada on behalf of a putative class of stockholders of Newport for claims related to the merger agreement (“Newport Merger Agreement”) between the Company, Newport, and a wholly-owned subsidiary of the Company (“Merger Sub”). The lawsuits named as defendants the Company, Newport, Merger Sub, and certain then current and former members of Newport’s board of directors. Both complaints alleged that Newport directors breached their fiduciary duties to Newport’s stockholders by agreeing to sell Newport through an inadequate and unfair process, which led to inadequate and unfair consideration, by agreeing to unfair deal protection devices and by omitting material information from the proxy statement. The complaints also alleged that the Company, Newport and Merger Sub aided and abetted the directors’ alleged breaches of their fiduciary duties. The District Court consolidated the actions, and plaintiffs later filed an amended complaint captioned In re Newport Corporation Shareholder Litigation, Case No. A-16-733154-B, in the District Court, Clark County, Nevada, on behalf of a putative class of Newport’s stockholders for claims related to the Newport Merger Agreement. The amended complaint alleged Newport’s former board of directors breached their fiduciary duties to Newport’s stockholders and that the Company, Newport and Merger Sub had aided and abetted these breaches and sought monetary damages, including pre- and post-judgment interest. In June 2017, the District Court granted defendants’ motion to dismiss and dismissed the amended complaint against all defendants but granted plaintiffs leave to amend.
On July 27, 2017, plaintiffs filed a second amended complaint containing substantially similar allegations but naming only Newport’s former directors as defendants. On August 8, 2017, the District Court dismissed the Company and Newport from the action. The second amended complaint seeks monetary damages, including pre- and post-judgment interest. The District Court granted a motion for class certification on September 27, 2018, appointing Mr. Pincon and Locals 302 and 612 of the International Union of Operating Engineers - Employers Construction Industry Retirement Trust as class representatives. On June 11, 2018, plaintiff Dixon Chung was voluntarily dismissed from the litigation. On August 9, 2019, plaintiffs filed a motion for leave to file a third amended complaint, which was denied on October 10, 2019. On August 23, 2019, defendants filed a motion for summary judgment. On January 23, 2020, the District Court entered its findings of fact, conclusions of law, and order granting defendants’ motion for summary judgment. On February 18, 2020, plaintiffs filed a notice of appeal from the District Court’s order granting defendants’ motion for summary judgment, as well as from the District Court’s prior orders granting defendants’ motion for a bench trial and denying plaintiffs’ motion for leave to file an amended complaint. On November 30, 2020, plaintiffs filed their opening brief in the Nevada Supreme Court in support of their appeal from the District Court’s orders. On January 29, 2021, defendants filed their answering brief, and on March 30, 2021, plaintiffs filed their reply brief. The Nevada Supreme Court has not yet reached a decision on the appeal.
The Company is also subject to various legal proceedings and claims that have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters, and the matters noted above, will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
27