• Achieved new quarterly records for revenue and Non-GAAP net earnings
  • Total quarterly revenue up 28% compared to Q3 2016
  • Achieved new quarterly revenue record for Light and Motion Division

ANDOVER, Mass., Oct. 24, 2017 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported third quarter 2017 financial results.
Quarterly Financial Results
(in millions, except per share data)
  Q3 2017 Q2 2017
GAAP Results    
Net revenues  $486    $481  
Gross margin  46.9 %  45.7 %
Operating margin  22.7 %  19.3 %
Net income $76.0    $120.4  
Diluted EPS $1.38    $2.19  
Non-GAAP Results    
Gross margin  46.9 %  45.9 %
Operating margin  25.5 %  24.0 %
Net earnings   $85.9     $77.7  
Diluted EPS  $1.56    $1.41  

Third Quarter 2017 Financial Results  Revenue was $486 million, an increase of 1% from $481 million in the second quarter of 2017 and an increase of 28% from $381 million in the third quarter of 2016.

Net income was $76.0 million, or $1.38 per diluted share, compared to net income of $120.4 million, which included a net gain of $59.9 million resulting from the sale of the Data Analytics Solutions Business Unit, or $2.19 per diluted share in the second quarter of 2017, and $32.5 million, or $0.60 per diluted share in the third quarter of 2016.

Non-GAAP net earnings, which exclude special charges and credits, were $85.9 million, or $1.56 per diluted share, compared to $77.7 million, or $1.41 per diluted share in the second quarter of 2017, and $47.9 million, or $0.88 per diluted share in the third quarter of 2016.

"We are very pleased with our continued progress in 2017 in achieving our objectives of sustainable and profitable growth," said Gerald Colella, Chief Executive Officer and President.  Mr. Colella added, "This quarter, we again set new records for quarterly revenue and Non-GAAP net earnings which are a direct result of the strategic investments we have made, and will continue to make, in the areas of product development as well as sales and applications support functions.  Looking ahead, we see a wide range of new opportunities to solve customer complex problems across the large and growing markets we serve."

"We also continue to execute on our strategy to delever our balance sheet and significantly reduce our interest cost. During the third quarter, we completed our third successful re-pricing of our Term Loan and voluntarily pre-paid another $125 million of principal. Exiting the third quarter, our debt balance is $448 million down from $780 million at loan origination in April of 2016, our debt to Adjusted EBITDA ratio is below 1 times and we have reduced our non-GAAP interest expense by approximately 60% on an annualized basis," said Seth Bagshaw, Senior Vice President and Chief Financial Officer.

Additional Financial InformationThe Company had $535 million in cash and short-term investments as of September 30, 2017 and during the third quarter of 2017, MKS paid a dividend of $9.5 million or $0.175 per diluted share.

Fourth Quarter 2017 Outlook  Based on current business levels, the Company expects that revenue in the fourth quarter of 2017 may range from $480 to $520 million.

At these volumes, GAAP net income could range from $1.34 to $1.59 per diluted share and non-GAAP net earnings could range from $1.52 to $1.76 per diluted share.

Conference Call DetailsA conference call with management will be held on Wednesday, October 25, 2017 at 8:30 a.m. (Eastern Time).  To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers, and an operator will connect you.  Participants will need to provide the operator with the Conference ID of 90032404, which has been reserved for this call.  A live and archived webcast of the call will be available on the company's website at www.mksinst.com.   

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

Use of Non-GAAP Financial ResultsNon-GAAP amounts exclude amortization of acquired intangible assets, an asset impairment, costs associated with completed and announced acquisitions, acquisition integration costs, restructuring charges, certain excess and obsolete inventory charges, fees and expenses related to re-pricing of our Term Loan, amortization of debt issuance costs, net proceeds from an insurance policy, costs associated with the sale of a business, the tax effect of a legal entity restructuring, other discrete tax benefits and charges, and the related tax effect of these adjustments.  These non-GAAP measures are not in accordance with generally accepted accounting principles in the United States of America (GAAP).  MKS' management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.  Annualized GAAP interest expense based upon $780 million principal outstanding and using the LIBOR based interest rate spread in effect on April 29, 2016, was $44.0 million.  Annualized GAAP interest expense based upon $448 million in principal currently outstanding and LIBOR plus 200 basis points would be $19.5 million. Pro-forma revenue amounts assume the acquisition of Newport Corporation had occurred as of the beginning of 2016.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

Company Contact: Seth H. BagshawSenior Vice President, Chief Financial Officer and TreasurerTelephone: 978.645.5578

Investor Relations Contacts:  Monica GouldThe Blueshirt GroupTelephone:  212.871.3927Email:  monica@blueshirtgroup.com 

Lindsay Grant SavareseThe Blueshirt GroupTelephone:  212.331.8417Email:  lindsay@blueshirtgroup.com

 

 
MKS Instruments, Inc.    
Unaudited Consolidated Statements of Operations    
(In thousands, except per share data)    
                         
                         
                         
                Three Months Ended 
                September 30,   September 30,   June 30,
                  2017       2016       2017  
                         
Net revenues:                        
Products               $ 434,710     $  335,156     $  431,950  
Services                   51,557         45,504         48,807  
Total net revenues               486,267       380,660       480,757  
Cost of revenues:                      
Products                   223,738       183,789       229,304  
Services                   34,534         28,486         31,870  
Total cost of revenues               258,272       212,275       261,174  
                         
Gross profit                 227,995       168,385       219,583  
                         
Research and development                 32,548         32,268         33,680  
Selling, general and administrative               71,839         68,016         71,979  
Acquisition and integration costs               2,466         2,641         790  
Restructuring                   10         -          2,064  
Asset impairment                 -          -          6,719  
Amortization of intangible assets               10,977         12,452         11,468  
Income from operations                 110,155         53,008         92,883  
                         
Interest income                   873         404         507  
Interest expense                 7,172         12,007         6,997  
Gain on sale of business                 -          -          74,856  
Other (expense) income, net               (2,485 )       843         (3,277 )
Income from operations before income taxes           101,371       42,248       157,972  
Provision for income taxes                  25,377         9,699         37,532  
Net income               $ 75,994     $ 32,549     $ 120,440  
                         
Net income per share:                      
Basic               $   1.40     $   0.61     $   2.22  
Diluted               $   1.38     $   0.60     $   2.19  
                         
Cash dividends per common share           $   0.175     $   0.17     $   0.175  
                         
Weighted average shares outstanding:                   
Basic                   54,282         53,574         54,178  
Diluted                   55,101         54,315         55,001  
                         
The following supplemental Non-GAAP earnings information is presented  to aid in understanding MKS' operating results:            
                         
Net income       $   75,994     $   32,549     $   120,440  
             
Adjustments:            
Acquisition and integration costs (Note 1)       2,466         2,641         790  
Acquisition inventory step-up (Note 2)       -          4,971         -   
Expenses related to sale of a business (Note 3)             -          -          436  
Excess and obsolete inventory charge (Note 4)             -          -          1,160  
Fees and expenses relating to re-pricing of term loan (Note 5)       492         -          -   
Amortization of debt issuance costs (Note 6)             2,314         2,838         694  
Restructuring (Note 7)                 10         -          2,064  
Asset impairment (Note 8)               -          -          6,719  
Gain on sale of business (Note 9)               -          -        (74,856 )
Net proceeds from an insurance policy (Note 10)           -          (1,323 )       -   
Amortization of intangible assets         10,977         12,452         11,468  
Windfall tax benefit on stock-based compensation (Note 11)         (594 )       -          (3,169 )
Taxes related to sale of business (Note 12)             -          -          15,007  
Taxes related to legal entity restructuring (Note 13)           -          1,532         -   
Pro-forma tax adjustments         (5,789 )       (7,790 )       (3,047 )
               
Non-GAAP net earnings (Note 14)     $   85,870     $   47,870     $   77,706  
               
Non-GAAP net earnings per share (Note 14)   $   1.56     $   0.88     $   1.41  
             
Weighted average shares outstanding       55,101         54,315         55,001  
             
Income from operations   $  110,155     $   53,008     $   92,883  
             
Adjustments:            
Acquisition and integration costs (Note 1)       2,466         2,641         790  
Acquisition inventory step-up (Note 2)       -          4,971         -   
related to sale of a business (Note 3)       -          -          436  
Excess and obsolete inventory charge (Note 4)       -          -          1,160  
Fees and expenses relating to re-pricing of term loan (Note 5)       492         -          -   
Restructuring (Note 7)       10         -          2,064  
Asset impairment (Note 8)       -          -          6,719  
Amortization of intangible assets       10,977         12,452         11,468  
             
Non-GAAP income from operations (Note 15)   $ 124,100     $  73,072     $ 115,520  
             
Non-GAAP operating margin percentage (Note 15)     25.5 %     19.2 %     24.0 %
           
Gross profit   $  227,995     $ 168,385     $  219,583  
Acquisition inventory step-up (Note 2)       -          4,971         -   
Excess and obsolete inventory charge (Note 4)       -          -          1,160  
           
Non-GAAP gross profit (Note 16)   $  227,995     $  173,356     $  220,743  
             
Non-GAAP gross profit percentage (Note 16)     46.9 %     45.5 %     45.9 %
           
Interest expense   $   7,172     $   12,007     $   6,997  
Amortization of debt issuance costs (Note 6)     2,314       2,838       694  
             
Non-GAAP interest expense   $   4,858     $   9,169     $   6,303  
           
Net Income   $  75,994     $  32,549     $  120,440  
Interest expense (income), net       6,299         11,603         6,490  
Provision for income taxes       25,377         9,699         37,532  
Depreciation       9,153         9,597         9,120  
Amortization       10,977         12,452         11,468  
EBITDA (Note 17)   $ 127,800     $ 75,900     $  185,050  
Stock-based compensation        4,846         5,157         6,207  
Acquisition and integration costs (Note 1)       2,466         2,641         790  
Acquisition inventory step-up (Note 2)       -          4,971         -   
Expenses related to sale of a business (Note 3)       -          -          436  
Excess and obsolete inventory charge (Note 4)       -          -          1,160  
Fees and expenses relating to re-pricing of term loan (Note 5)       492         -          -   
Restructuring (Note 7)       10         -          2,064  
Asset impairment (Note 8)       -          -          6,719  
Gain on sale of business (Note 9)      -          -        (74,856 )
Net proceeds from an insurance policy (Note 10)           -          (1,323 )       -   
Other adjustments       836         834         822  
Adjusted EBITDA (Note 18)   $  136,450     $  88,180     $  128,392  
           
Note 1: We recorded $2.5 million, $0.8 million and $2.6 million of acquisition and integration costs during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded $5.0 million in cost of sales during the three months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
 
Note 3: We recorded $0.4 million during the three months ended June 30, 2017, related to the sale of a business, which was completed in April of 2017.
 
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing sites.
 
Note 5: We recorded $0.5 million of fees and expenses during the three months ended September 30, 2017, related to the re-pricing of our Term Loan Credit Agreement.
 
Note 6: We recorded $2.3 million, $0.7 million and $2.8 million of additional interest expense during the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: We recorded $2.1 million of restructuring costs during the three months ended June 30, 2017, related to the consolidation of two manufacturing plants.
 
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the three months ended June 30, 2017, in conjunction with the consolidation of two manufacturing plants.
 
Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 on the sale of our Data Analytics Solutions business.
 
Note 10: We recorded net proceeds of $1.3 million during the three months ended September 30, 2016 from a company owned life insurance policy.
 
Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 12: We recorded $15.0 million of taxes during the three months ended June 30, 2017 related to the sale of our Data Analytics Solutions business.
 
Note 13: We recorded a tax expense of $1.5 million during the three months ended September 30, 2016 related to a legal entity restructuring.
 
Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
 
Note 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
 
Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge.
 
Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
 
Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.

 
                       
MKS Instruments, Inc.  
Unaudited Consolidated Statements of Operations  
(In thousands, except per share data)  
                       
                       
                   
                Nine Months Ended  
                September 30,  
                  2017       2016    
                       
Net revenues:                      
Products               $   1,259,582     $   774,248    
Services                   144,595         115,954    
Total net revenues                 1,404,177         890,202    
Cost of revenues:                    
Products                   658,102         433,134    
Services                   92,950         74,857    
Total cost of revenues                 751,052         507,991    
                       
Gross profit                   653,125         382,211    
                       
Research and development                 99,510         77,709    
Selling, general and administrative               218,038         161,545    
Acquisition and integration costs               4,698         25,190    
Restructuring                   2,596         24    
Asset impairment                  6,719         -     
Amortization of intangible assets               34,946         22,990    
Income from operations                 286,618         94,753    
                       
Interest income                   1,896         1,858    
Interest expense                 23,001         20,526    
Gain on sale of business                 74,856         -     
Other (expense) income, net               (3,741 )       2,336    
Income from continuing operations before income taxes           336,628         78,421    
Provision for income taxes                  75,134         19,099    
Net income               $   261,494     $   59,322    
                       
Net income per share:                    
Basic               $   4.84     $   1.11    
Diluted               $   4.75     $   1.10    
                       
Cash dividends per common share           $   0.525     $   0.51    
                       
Weighted average shares outstanding:                 
Basic                   54,076         53,423    
Diluted                   55,020         53,895    
                       
The following supplemental Non-GAAP earnings information is presented            
to aid in understanding MKS' operating results:              
                       
Net income               $   261,494     $   59,322    
                       
Adjustments:                      
Acquisition and integration costs (Note 1)             4,698         25,190    
Acquisition inventory step-up (Note 2)             -          15,090    
Expenses related to sale of a business (Note 3)             859         -     
Excess and obsolete inventory charge (Note 4)             1,160         -     
Fees and expenses relating to re-pricing of term loan (Note 5)         492         713    
Amortization of debt issuance costs (Note 6)             5,422         4,467    
Restructuring (Note 7)                 2,596         24    
Asset impairment (Note 8)               6,719         -     
Gain on sale of business (Note 9)               (74,856 )       -     
Net proceeds from an insurance policy (Note 10)           -          (1,323 )  
Amortization of intangible assets               34,946         22,990    
Windfall tax benefit on stock-based compensation (Note 11)         (10,413 )       -     
Taxes related to sale of business (Note 12)             15,007         -     
Taxes related to legal entity restructuring (Note 13)           -          1,532    
Pro-forma tax adjustments               (15,499 )       (21,279 )  
                       
Non-GAAP net earnings (Note 14)            $   232,625     $   106,726    
                       
Non-GAAP net earnings per share (Note 14)         $   4.23     $   1.98    
                       
Weighted average shares outstanding               55,020         53,895    
                       
Income from operations             $   286,618     $   94,753    
                       
Adjustments:                      
Acquisition and integration costs (Note 1)             4,698         25,190    
Acquisition inventory step-up (Note 2)             -          15,090    
Expenses related to sale of a business (Note 3)             859         -     
Excess and obsolete inventory charge (Note 4)             1,160         -     
Fees and expenses relating to re-pricing of term loan (Note 5)         492         713    
Restructuring (Note 7)                 2,596         24    
Asset impairment (Note 8)               6,719         -     
Amortization of intangible assets               34,946         22,990    
                       
Non-GAAP income from operations (Note 15)         $   338,088     $   158,760    
                       
Non-GAAP operating margin percentage (Note 15)         24.1 %     17.8 %  
                       
Gross profit   $   653,125     $   382,211    
Acquisition inventory step-up (Note 2)       -          15,090    
Excess and obsolete inventory charge (Note 4)       1,160         -     
         
Non-GAAP gross profit (Note 16)   $   654,285     $   397,301    
         
Non-GAAP gross profit percentage (Note 16)     46.6 %     44.6 %  
                       
Interest expense             $   23,001     $   20,526    
Amortization of debt issuance costs (Note 6)             5,422         4,467    
                       
Non-GAAP interest  expense           $   17,579     $   16,059    
                       
Net Income   $   261,494     $   59,322    
Interest expense (income), net       21,105         18,668    
Provision for income taxes       75,134         19,099    
Depreciation       27,605         20,767    
Amortization       34,946         22,990    
EBITDA (Note 17)   $   420,284     $   140,846    
Stock-based compensation        19,835         19,826    
Acquisition and integration costs (Note 1)       4,698         25,190    
Acquisition inventory step-up (Note 2)       -          15,090    
Expenses related to sale of a business (Note 3)       859         -     
Excess and obsolete inventory charge (Note 4)       1,160         -     
Fees and expenses relating to re-pricing of term loan (Note 5)       492         713    
Restructuring (Note 7)       2,596         24    
Asset impairment (Note 8)               6,719         -     
Gain on sale of business (Note 9)               (74,856 )       -     
Net proceeds from an insurance policy (Note 10)           -          (1,323 )  
Other adjustments       2,405         1,495    
Adjusted EBITDA (Note 18)   $   384,192     $   201,861    
                       
Note 1: We recorded $4.7 million and $25.2 million of acquisition and integration costs during the nine months ended September 30, 2017 and 2016, respectively, related to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded $15.1 million in cost of sales during the nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
 
Note 3: We recorded $0.9 million during the nine months ended September 30, 2017, which is comprised of legal and consulting and compensation related expenses related to the sale of a business, which was completed in April of 2017.
 
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the nine months ended September 30, 2017 related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.
 
Note 5: We recorded $0.5 million and $0.7 million of fees and expenses during the nine months ended September 30, 2017 and 2016, respectively, related to re-pricings of our Term Loan Credit Agreement.
 
Note 6: We recorded $5.4 million and $4.5 million of additional interest expense during the nine months ended September 30, 2017 and 2016, respectively, related to the amortization of debt issuance costs affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: We recorded $2.6 million of restructuring costs during the nine months ended September 30, 2017, related to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.
 
Note 8: We recorded a $6.7 million asset impairment charge, primarily related to the write-off of goodwill and intangible assets during the nine months ended September 30, 2017, in connection with the consolidation of two manufacturing plants.
 
Note 9: We recorded a $74.9 million gain during the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.
 
Note 10: We recorded net proceeds of $1.3 million during the nine months ended September 30, 2016 from a company owned life insurance policy.
 
Note 11: We recorded a windfall tax benefit on the vesting of stock-based compensation of $10.4 million, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 12: We recorded $15.0 million of taxes during the nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.
 
Note 13: We recorded a tax expense of $1.5 million during the nine months ended September 30, 2016 related to a legal entity restructuring.
 
Note 14: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, amortization of debt issuance costs, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy, amortization of intangible assets, a windfall tax benefit related to stock-based compensation expense, taxes related to the sale of a business, taxes related to a legal entity restructuring and the related tax effect of these adjustments to reflect the expected full year effective tax rate in the related period.
 
Note 15: The Non-GAAP income from operations and Non-GAAP operating margin percentages exclude acquisition and integration costs, an inventory step-up adjustment to fair value, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge and amortization of intangible assets.
 
Note 16: The Non-GAAP gross profit amounts and Non-GAAP gross profit percentages exclude an inventory step-up adjustment and an excess and obsolete inventory charge.
 
Note 17: EBITDA excludes net interest, income taxes, depreciation and amortization of intangible assets.
 
Note 18: Adjusted EBITDA excludes stock-based compensation, acquisition and integration costs, expenses related to the sale of a business, an excess and obsolete inventory charge, fees and expenses related to the re-pricing of a term loan credit agreement, restructuring costs, an asset impairment charge, a gain on the sale of a business, net proceeds from an insurance policy and other adjustments as defined in our Term Loan Credit Agreement.

 
MKS Instruments, Inc.  
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate  
(In thousands)  
                       
    Three Months Ended September 30, 2017   Three Months Ended June 30, 2017
  Income BeforeIncome Taxes   Provision (benefit)for Income Taxes   Effective Tax Rate   Income BeforeIncome Taxes   Provision (benefit)or Income Taxes   EffectiveTax Rate 
                                       
GAAP   $   101,371     $   25,377       25.0 %   $   157,972     $   37,532     23.8 %
                         
Adjustments:                        
Acquisition and integration costs (Note 1)       2,466         -              790         -       
Expenses related to sale of a business (Note 3)       -          -              436         -       
Excess and obsolete inventory charge (Note 4)       -          -              1,160         -       
 Fees and expenses relating to re-pricing of term loan (Note 5)       492         -              -          -       
Amortization of debt issuance costs (Note 6)       2,314         -              694         -       
Restructuring (Note 7)       10         -              2,064         -       
Asset impairment (Note 8)       -          -              6,719         -       
Gain on sale of business (Note 9)       -          -              (74,856 )       -       
Amortization of intangible assets       10,977         -              11,468         -       
Windfall tax benefit on stock-based compensation (Note 10)       -          594             -          3,169      
Taxes related to sale of business (Note 11)       -          -          -          (15,007 )  
Tax effect of pro-forma adjustments       -          5,789             -          3,047      
                         
Non-GAAP   $   117,630     $   31,760       27.0 %   $   106,447     $   28,741     27.0 %
                         
                         
    Three Months Ended September 30, 2016            
    Income Before   Provision (benefit)   Effective             
    Income Taxes   for Income Taxes   Tax Rate            
                         
GAAP   $   42,248     $   9,699       23.0 %            
                         
Adjustments:                        
Acquisition and integration costs (Note 1)       2,641         -                   
Acquisition inventory step-up (Note 2)       4,971         -                   
Amortization of debt issuance costs (Note 6)       2,838         -                   
Net proceeds from an insurance policy (Note 12)       (1,323 )       -                   
Amortization of intangible assets       12,452         -                   
Taxes related to legal entity restructuring (Note 13)       -          (1,532 )                
Tax effect of pro-forma adjustments       -          7,790                  
                         
Non-GAAP   $   63,827     $   15,957       25.0 %            
                         
                         
    Nine Months Ended September 30, 2017   Nine Months Ended September 30, 2016
  Income BeforeIncome Taxes   Provision (benefit)for Income Taxes   Effective Tax Rate   Income BeforeIncome Taxes   Provision (benefit)for Income Taxes   EffectiveTax Rate
         
GAAP   $   336,628     $   75,134       22.3 %   $   78,421     $   19,099     24.4 %
                         
Adjustments:                        
Acquisition and integration costs (Note 1)       4,698         -              25,190         -       
Acquisition inventory step-up (Note 2)       -          -              15,090         -       
Expenses related to sale of a business (Note 3)       859         -              -          -       
Excess and obsolete inventory charge (Note 4)       1,160         -              -          -       
Fees and expenses relating to re-pricing of term loan (Note 5)       492         -              713         -       
Amortization of debt issuance costs (Note 6)       5,422         -              4,467         -       
Restructuring (Note 7)       2,596         -              24         -       
Asset impairment (Note 8)       6,719         -              -          -       
Gain on sale of business (Note 9)       (74,856 )       -              -          -       
Amortization of intangible assets       34,946         -              22,990         -       
Windfall tax benefit on stock-based compensation (Note 10)       -          10,413             -          -       
Taxes related to sale of business (Note 11)       -          (15,007 )           -          -       
Net proceeds from an insurance policy (Note 12)       -          -              (1,323 )       -       
Taxes related to legal entity restructuring (Note 13)       -          -              -          (1,532 )    
Tax effect of pro-forma adjustments       -          15,499             -          21,279      
                         
Non-GAAP   $   318,664     $   86,039       27.0 %   $   145,572     $   38,846     26.7 %
                                               
Note 1: Acquisition and integration costs during the three and nine months ended September 30, 2017, the three months ended June 30, 2017 and the three and nine months ended September 30, 2016, relate to the Newport Corporation acquisition, which closed during the second quarter of 2016.
 
Note 2: We recorded $5.0 million and $15.1 million in cost of sales during the three and nine months ended September 30, 2016 related to the step-up of inventory to fair value as a result of the Newport Corporation acquisition.
 
Note 3: We recorded $0.4 million during the three months ended June 30, 2017 and $0.9 million during the nine months ended September 30, 2017, related to the sale of a business, which was completed in April of 2017.
 
Note 4: We recorded $1.2 million of excess and obsolete inventory charges in cost of sales during the three months ended June 30, 2017 and nine months ended September 30, 2017, related to the discontinuation of a product line in connection with the consolidation of two manufacturing plants.
 
Note 5: We recorded $0.5 million during the three and nine months ended September 30, 2017 and $0.7 million during the nine months ended September 30, 2016, of fees and expenses related to the re-pricing of our Term Loan Credit Agreement.
 
Note 6: Amortization of debt issuance costs for the three and nine months ended September 30, 2017 and 2016, respectively, and the three months ended June 30, 2017, are affiliated with our Term Loan Credit Agreement and ABL Facility.
 
Note 7: Restructuring costs for the three and nine months ended September 30, 2017 and the three months ended June 30, 2017 relate to the consolidation of two manufacturing plants, a restructuring of one of our international facilities and the consolidation of sales offices.
 
Note 8: We recorded a $6.7 million asset impairment charge, during the three months ended June 30, 2017 and the nine months ended September 30, 2017, primarily related to the write-off of goodwill and intangible assets, in conjunction with the consolidation of two manufacturing plants.
 
Note 9: We recorded a $74.9 million gain during the three months ended June 30, 2017 and the nine months ended September 30, 2017 on the sale of our Data Analytics Solutions business.
 
Note 10: We recorded a windfall tax benefit on the vesting of stock-based compensation of $0.6 million and $3.2 million during the three months ended September 30, 2017 and June 30, 2017, respectively, and $10.4 million for the nine months ended September 30, 2017, relating to the implementation of a new accounting standard issued by the Financial Statement Accounting Standards Board (Accounting Standards Update 2016-09).
 
Note 11: We recorded $15.0 million of taxes during the three months ended June 30, 2017 and nine months ended September 30, 2017 related to the sale of our Data Analytics Solutions business.
 
Note 12: We recorded net proceeds of $1.3 million during the three and nine months ended September 30, 2016 from a company owned life insurance policy.
 
Note 13: We recorded a tax expense of $1.5 million during the three and nine months ended September 30, 2016 related to a legal entity restructuring.  
                         
                         
                         
MKS Instruments, Inc.  
Reconciliation of Q4-17 Guidance - GAAP Net Income to Non-GAAP Net Earnings    
(In thousands, except per share data)    
                         
    Three Months Ended December 31, 2017        
    Low Guidance   High Guidance        
    $ Amount   $ Per Share   $ Amount   $ Per Share        
                         
GAAP net income   $   74,100     $   1.34     $   87,700     $   1.59          
                         
Amortization     10,900         0.20       10,900         0.20          
                         
Integration costs     400         0.01       400         0.01          
                         
Restructuring costs     800         0.01       800         0.01          
                         
Deferred financing costs     1,000         0.02       1,000         0.02          
                         
Tax effect of adjustments (Note 1)     (3,500 )       (0.06 )     (3,600 )       (0.07 )        
                         
Non-GAAP net earnings   $   83,700     $   1.52     $   97,200     $   1.76          
                         
Q4 -17 forecasted shares         55,200           55,200          
                         
Note 1: The Non-GAAP adjustments are tax effected at the applicable statutory rates and the difference between the GAAP and Non-GAAP tax rates.        
                         

 
                   
MKS Instruments, Inc.    
Unaudited Consolidated Balance Sheet    
(In thousands)    
                   
                   
                   
                   
          September 30,   December 31,    
            2017       2016      
                   
ASSETS                  
                   
Cash and cash equivalents     $   305,977     $   228,623      
Restricted cash           117         5,287      
Short-term investments         228,631         189,463      
Trade accounts receivable, net         280,302         248,757      
Inventories           319,460         275,869      
Other current assets           60,716         50,770      
                   
  Total current assets         1,195,203         998,769      
                   
Property, plant and equipment, net       166,928         174,559      
Goodwill             589,099         588,585      
Intangible assets, net         376,334         408,004      
Long-term investments         10,593         9,858      
Other assets           32,188         32,467      
                   
Total assets       $   2,370,345     $   2,212,242      
                   
                   
LIABILITIES AND STOCKHOLDERS' EQUITY          
                   
Short-term debt       $   4,020     $   10,993      
Accounts payable           77,842         69,337      
Accrued compensation         75,725         67,728      
Income taxes payable         38,609         22,794      
Deferred revenue           17,812         14,463      
Other current liabilities         68,604         51,985      
  Total current liabilities       282,612         237,300      
                   
Long-term debt, net           435,731         601,229      
Non-current deferred taxes         71,110         66,446      
Non-current accrued compensation       50,080         44,714      
Other liabilities           23,107         20,761      
  Total liabilities         862,640         970,450      
                   
Stockholders' equity:                
Common stock           113         113      
Additional paid-in capital         782,597         777,482      
Retained earnings           727,835         494,744      
Accumulated other comprehensive loss       (2,840 )       (30,547 )    
  Total stockholders' equity       1,507,705         1,241,792      
                   
Total liabilities and stockholders' equity   $   2,370,345     $   2,212,242      
                   

 

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