• 2017 was a record year in revenue and GAAP and Non-GAAP EPS · Annual revenue increased 30% compared to pro-forma 2016 to a record $1.9 billion · Annual semiconductor revenue increased 45% on a pro-forma basis to a record $1.1 billion · Annual revenue in advanced markets increased 14% on a pro-forma basis to a record $820 million·  Light and Motion set new quarterly and annual revenue records and in Q4'17 exceeded $200 million in revenue for the first time
  • Our 2018 January Operating Model shows a 33% increase in Non-GAAP EPS compared to the October 2017 Operating Model  

ANDOVER, Mass., Jan. 31, 2018 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (NASDAQ:MKSI), a global provider of technologies that enable advanced processes and improve productivity, today reported fourth quarter and full year 2017 financial results.
GAAP Financial Results 1
  Q4   Full Year
  2017   2016   2017   2016
Net revenues ($ millions) $512   $405   $1,916   $1,295
Operating margin 23.4%   15.4%   21.2%   12.1%
Net income ($ millions) $77.6   $45.5   $339.1   $104.8
Diluted EPS $1.41   $0.83   $6.16   $1.94
 
Non-GAAP Financial Results 1
  Q4   Full Year
  2017   2016   2017   2016
Net revenues ($ millions) $512   $405   $1,916   $1,295
Operating margin 25.9%   20.6%   24.6%   18.7%
Net earnings ($ millions) $94.6   $57.2   $328.2   $164.0
Diluted EPS $1.71   $1.05   $5.96   $3.03
1 The full year 2016 results include the results of Newport Corporation (now the Light and Motion segment) since its acquisition on April 29, 2016.
 

Fourth Quarter Financial Results  

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

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

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

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

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

Additional Financial Information

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

Full Year Results

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

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

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

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

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

First Quarter 2018 Outlook  

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

January 2018 Operating Model

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

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

About MKS Instruments

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

Use of Non-GAAP Financial Results

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

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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