Ransomware Event Impact - Ransomware event negatively impacted Q1 2023 revenue by approximately $160 million, with $120 million recovered in Q2 and $30 million in Q3[123] - Net revenues for Q3 2023 in the semiconductor market decreased by $74 million (17%) compared to the prior quarter, with $20 million attributed to delayed orders from the ransomware event[134] - The ransomware event incurred net costs of $2 million for Q3 2023 and $14 million for the nine months ended September 30, 2023, primarily due to third-party consulting services and cybersecurity enhancements[125] - The company has recovered approximately $110 million of revenue from orders delayed by the ransomware event from Q1 2023[134] - Net revenues in the specialty industrial market decreased by $15 million (4%) for the three months ended September 30, 2023, compared to the prior quarter, with delayed orders due to a ransomware event impacting revenue by approximately $10 million[144] - Net product revenues decreased by $67 million for the three months ended September 30, 2023, compared to the prior quarter, with $17 million recovered from the ransomware event[149] Semiconductor Market Performance - Net revenues for Q3 2023 in the semiconductor market decreased by $74 million (17%) compared to the prior quarter, with $20 million attributed to delayed orders from the ransomware event[134] - Net revenues for the nine months ended September 30, 2023, in the semiconductor market decreased by $421 million (27%) compared to the same period in the prior year due to softened demand[135] - Net revenues from VSD decreased by $426 million for the nine months ended September 30, 2023, compared to the same period in the prior year, due to volume decreases in the semiconductor market[154] Electronics and Packaging Market Performance - Net revenues for Q3 2023 in the electronics and packaging market increased by $18 million (8%) compared to the prior quarter, driven by higher chemistry sales and increased PCB and package substrate production[138] - Net revenues for the nine months ended September 30, 2023, in the electronics and packaging market increased by $416 million (151%) compared to the same period in the prior year, primarily due to the Atotech Acquisition[139] Specialty Industrial Market Performance - The specialty industrial market net revenues for Q3 2023 were $322 million, representing 35% of total net revenues[131] - Net revenues in the specialty industrial market decreased by $15 million (4%) for the three months ended September 30, 2023, compared to the prior quarter, with delayed orders due to a ransomware event impacting revenue by approximately $10 million[144] - Net revenues in the specialty industrial market increased by $274 million (42%) for the nine months ended September 30, 2023, compared to the same period in the prior year, driven by the Atotech Acquisition[145] Atotech Acquisition Impact - Net revenues for the nine months ended September 30, 2023, in the electronics and packaging market increased by $416 million (151%) compared to the same period in the prior year, primarily due to the Atotech Acquisition[139] - Net revenues in the specialty industrial market increased by $274 million (42%) for the nine months ended September 30, 2023, compared to the same period in the prior year, driven by the Atotech Acquisition[145] - Net product revenues increased by $263 million for the nine months ended September 30, 2023, compared to the same period in the prior year, driven by the Atotech Acquisition, with MSD net product revenues increasing by $710 million[150] - Net revenues from MSD increased by $737 million for the nine months ended September 30, 2023, compared to the prior year, as MSD was established following the Atotech Acquisition[156] - Research and development expenses increased by $50 million for the nine months ended September 30, 2023, compared to the same period in the prior year, primarily due to the Atotech Acquisition[164] - Selling, general, and administrative expenses increased by $195 million for the nine months ended September 30, 2023, driven by the Atotech Acquisition and ransomware-related costs[169] - Acquisition and integration costs for the nine months ended September 30, 2023, were $14 million, primarily related to the Atotech Acquisition[170] - Amortization of intangible assets decreased by $8 million in Q3 2023 compared to the prior quarter, but increased by $148 million for the nine months ended September 30, 2023, due to the Atotech Acquisition[172] - The Atotech Acquisition was completed on August 17, 2022, with a total net purchase price of $5.7 billion, funded by cash on hand and proceeds from the New Term Loan Facility[190] U.S. Export Regulations Impact - The company expects an annualized reduction of net revenues in the range of $250 million to $350 million due to new U.S. export regulations, with the impact currently expected to be on the lower end of that range[136] Financial Performance and Expenses - Total net revenues for Q3 2023 were $932 million, with semiconductor, electronics and packaging, and specialty industrial markets contributing 39%, 26%, and 35% respectively[131] - Gross margin for products decreased to 45.4% for the three months ended September 30, 2023, from 46.9% in the prior quarter, due to lower revenue volumes and higher inventory charges[157] - Gross margin for MSD increased to 54.1% for the three months ended September 30, 2023, from 50.0% in the prior quarter, driven by favorable product mix and lower overhead costs[163] - Selling, general, and administrative expenses decreased by $5 million in Q3 2023 compared to the prior quarter, primarily due to lower compensation and travel costs[168] - Restructuring charges for the nine months ended September 30, 2023, were $13 million, mainly due to severance costs from global cost-saving initiatives[171] - Non-cash goodwill impairments totaled $1,827 million in Q2 2023, with $826 million for the EL reporting unit, $428 million for the GMF reporting unit, and $372 million for the ESB reporting unit[175] - Interest expense increased by $5 million in Q3 2023 compared to the prior quarter, primarily due to higher interest rates on borrowings related to the Atotech Acquisition[178] - Net cash provided by operating activities was $138 million for the nine months ended September 30, 2023, despite a net loss of $1,772 million, driven by non-cash charges and working capital changes[187] - Net cash used in investing activities was $50 million for the nine months ended September 30, 2023, primarily due to $53 million in capital expenditures[188] - Net cash used in financing activities was $116 million for the nine months ended September 30, 2023, including $67 million for payments on the New Term Loan Facility and $44 million in dividend payments[188] - The company declared a cash dividend of $0.22 per share for each of the first three quarters of 2023, totaling $44 million for the nine months ended September 30, 2023[189] Research and Development - Research and development expenses increased by $50 million for the nine months ended September 30, 2023, compared to the same period in the prior year, primarily due to the Atotech Acquisition[164] - Research and development efforts focus on improving instruments, components, chemistry, subsystems, systems, and process control solutions, with projects typically lasting 3 to 36 months[165] - New products are being developed to address industry trends such as the transition to 5G, larger substrate sizes in flat panel displays, and the shift to electric vehicles[166] Financing and Debt - The New Term Loan Facility includes three tranches: a USD 1 billion loan (USD Tranche A), a USD 3.6 billion loan (USD Tranche B), and a EUR 600 million loan (Euro Tranche B)[191] - As of September 30, 2023, the outstanding principal amount of the New Term Loan Facility was $5.0 billion with a weighted average interest rate of 7.9%[211] - The company made a voluntary prepayment of $100 million on the USD Tranche A on October 31, 2023[213] - The company has lines of credit and financing facilities in Japan, providing for aggregate borrowings of up to $13 million, with no borrowings as of September 30, 2023[214] - The company uses derivative instruments, such as foreign exchange forward contracts and interest rate swaps, to manage foreign currency and interest rate exposure[215] - The company converted USD LIBOR-based interest rate caps and swaps to Term SOFR, effective June 30, 2023, with no material impact on results of operations[217] Market Risk and Contractual Obligations - No material changes in the company's exposure to market risk from December 31, 2022 to September 30, 2023[219] - No changes outside the ordinary course of business to the company's contractual obligations as disclosed in the Annual Report[218] International Revenues - International revenues accounted for 66% of total net revenues for the nine months ended September 30, 2023, up from 56% in the prior year, primarily due to the Atotech Acquisition[146]

MKS Instruments, Inc. (NASDAQ:MKSI) Q3 2023 Earnings Conference Call November 2, 2023 8:00 AM ET Company Participants David Ryzhik – Vice President-Investor Relations John Lee – President and Chief Executive Officer Seth Bagshaw – Executive Vice President and Chief Financial Officer Conference Call Participants Krish Sankar – TD Cowen Joe Quatrochi – Wells Fargo Steve Barger – Keybanc Capital Markets James Ricchiuti – Needham & Company Sidney Ho – Deutsche Bank Operator Good day and thank you for standing b ...

Income Before Provision for GAAP 40 Acquisition and integration costs (Note 3) Acquisition inventory step-up (Note 2) Restructuring (Note 4) 43 Tax effect of Non-GAAP adjustments (Note 10) Non-GAAP 18.0% in millions Appendix – GAAP to Non-GAAP Reconciliations in millions Appendix – Reconciliation of Net Leverage Ratios Depreciation 25 25 26 27 103 Restructuring 1 11 1 1 14 Ransomware incident 2 4 7 — 14 Excess and obsolete charge from discontinued product line 13 — — — 13 Gain on sale of long-lived assets ( ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 FORM 10-Q or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-23621 MKS INSTRUMENTS, INC. (Exact name of registrant as specified in its charter) | Massachusetts | 04-2277512 | | --- | --- | | (St ...

MKS Instruments, Inc. (NASDAQ:MKSI) Q2 2023 Earnings Conference Call August 3, 2023 8:00 AM ET Company Participants David Ryzhik - VP of IR John Lee - President and CEO Seth Bagshaw - EVP, CFO & Treasurer Conference Call Participants James Ricchiuti - Needham & Company Krish Sankar - TD Cowen Steve Barger - Keybanc Capital Markets Joseph Quatrochi - Wells Fargo Securities Operator Good day and thank you for standing by. Welcome to the MKS Instruments' Second Quarter 2023 Earnings Conference Call. At this ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-23621 MKS INSTRUMENTS, INC. (Exact name of registrant as specified in its charter) | Massachusetts | 04-2277512 | | --- | --- | | (S ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File number 0-23621 MKS INSTRUMENTS, INC. (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-22775 ...

| --- | --- | --- | --- | --- | --- | |---------------------------------------|-------|-------|-------|-------|-----------------------------------------| | | | | | | | | | | | | | | | | | | | | | | Third Quarter 2022 Financial Results | | | | | MKS Instruments, Inc. November 3, 2022 | | | | | | | | Safe Harbor for Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 19 ...

MKS Instruments, Inc. (NASDAQ:MKSI) Q3 2022 Earnings Conference Call November 3, 2022 8:30 AM ET Company Participants David Ryzhik - Vice President, Investor Relations John Lee - President and Chief Executive Officer Seth Bagshaw - Senior Vice President and Chief Financial Officer Conference Call Participants Sidney Ho - Deutsche Bank Jim Ricchiuti - Needham & Company Krish Sankar - Cowen & Co. Joe Quatrochi - Wells Fargo Operator Good day ladies and gentlemen, and thank you for standing by. Welcome to MKS ...

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS (Unaudited)](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, detailing the company's financial position and performance [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%93%20June%2030,%202022%20and%20December%2031,%202021) The condensed consolidated balance sheets show the company's financial position at June 30, 2022, and December 31, 2021, reflecting an increase in total assets and stockholders' equity, while total liabilities slightly decreased | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------- | | Total assets | $4,749 | $4,540 | $209 | | Cash and cash equivalents | $1,065 | $966 | $99 | | Trade accounts receivable, net | $481 | $443 | $38 | | Inventories | $689 | $577 | $112 | | Total liabilities | $1,620 | $1,653 | $(33) | | Total stockholders' equity | $3,129 | $2,887 | $242 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%E2%80%93%20Three%20and%20six%20months%20ended%20June%2030,%202022%20and%202021) The statements of operations show a slight increase in net revenues for both the three and six months ended June 30, 2022, compared to the prior year, while net income decreased in the three-month period but increased over the six-month period | Metric | Three Months Ended June 30, 2022 (in millions) | Three Months Ended June 30, 2021 (in millions) | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | | :---------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net revenues | $765 | $750 | $1,507 | $1,444 | | Gross profit | $338 | $355 | $672 | $677 | | Income from operations | $164 | $186 | $336 | $342 | | Net income | $130 | $146 | $273 | $269 | | Diluted Net income per share | $2.32 | $2.63 | $4.89 | $4.83 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20%E2%80%93%20Three%20and%20six%20months%20ended%20June%2030,%202022%20and%202021) The statements of stockholders' equity illustrate the changes in equity components, including net income, stock-based compensation, and cash dividends, resulting in an increase in total stockholders' equity from December 31, 2021, to June 30, 2022 | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------- | | Total Stockholders' Equity | $3,129 | $2,887 | $242 | | Retained Earnings | $2,240 | $1,991 | $249 | | Additional Paid-In Capital | $923 | $907 | $16 | | Accumulated Other Comprehensive Loss | $(34) | $(11) | $(23) | - The company declared a cash dividend of **$0.22 per common share** in both the first and second quarters of 2022, totaling **$24 million** for the six months ended June 30, 2022[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Six%20months%20ended%20June%2030,%202022%20and%202021) Cash flows from operating activities significantly decreased for the six months ended June 30, 2022, compared to the prior year, primarily due to increased working capital, while investing activities saw a reduced cash outflow and financing activities remained relatively stable | Cash Flow Activity | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | Change (in millions) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------- | | Net cash provided by operating activities | $146 | $292 | $(146) | | Net cash used in investing activities | $(1) | $(100) | $99 | | Net cash used in financing activities | $(31) | $(41) | $10 | | Increase in cash and cash equivalents | $99 | $147 | $(48) | | Cash and cash equivalents at end of period | $1,065 | $755 | $310 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements [1) Basis of Presentation](index=7&type=section&id=1)%20Basis%20of%20Presentation) This section outlines the basis for preparing the interim financial statements and updates to division names - The interim financial data as of June 30, 2022, is unaudited and includes normal recurring adjustments necessary for a fair statement of results[16](index=16&type=chunk) - MKS updated the names of its three divisions in the first quarter of 2022: Vacuum & Analysis Division to Vacuum Solutions Division (VSD), Light & Motion Division to Photonics Solutions Division (PSD), and Equipment & Solutions Division to Equipment Solutions Division (ESD)[18](index=18&type=chunk) [2) Revenue from Contracts with Customers](index=7&type=section&id=2)%20Revenue%20from%20Contracts%20with%20Customers) This section details the company's net revenues by division and changes in deferred revenue and customer advances Total Net Revenues by Division | Division | Three Months Ended June 30, 2022 (in millions) | Three Months Ended June 30, 2021 (in millions) | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Vacuum Solutions Division | $507 | $458 | $981 | $894 | | Photonics Solutions Division | $228 | $193 | $456 | $375 | | Equipment Solutions Division | $30 | $99 | $70 | $175 | | **Total Net Revenues** | **$765** | **$750** | **$1,507** | **$1,444** | Deferred Revenue and Customer Advances | Metric | June 30, 2022 (in millions) | June 30, 2021 (in millions) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Beginning balance, January 1 | $40 | $37 | | Additions to deferred revenue | $91 | $76 | | Recognized in income | $(78) | $(72) | | Ending balance, June 30 | $53 | $41 | [3) Investments](index=8&type=section&id=3)%20Investments) This section provides information on the company's available-for-sale investments, including short-term and long-term categories Available-for-Sale Investments | Investment Category | June 30, 2022 (Fair Value, in millions) | December 31, 2021 (Fair Value, in millions) | | :-------------------------------- | :-------------------------------------- | :---------------------------------------- | | Short-term investments | $2 | $76 | | Long-term investments (Group insurance contracts) | $6 | $6 | [4) Fair Value Measurements](index=9&type=section&id=4)%20Fair%20Value%20Measurements) This section presents assets measured at fair value, categorized by valuation input levels, for June 30, 2022, and December 31, 2021 Assets Measured at Fair Value (June 30, 2022) | Description | Total Fair Value (in millions) | Level 1 (in millions) | Level 2 (in millions) | | :------------------------------------ | :----------------------------- | :-------------------- | :-------------------- | | Money market funds | $306 | $306 | $— | | Available-for-sale investments | $2 | $— | $2 | | Derivatives | $42 | $— | $42 | | Pension and deferred compensation plan assets | $21 | $— | $21 | | **Total assets** | **$377** | **$306** | **$71** | Assets Measured at Fair Value (December 31, 2021) | Description | Total Fair Value (in millions) | Level 1 (in millions) | Level 2 (in millions) | | :------------------------------------ | :----------------------------- | :-------------------- | :-------------------- | | Money market funds | $55 | $55 | $— | | U.S. treasury obligations | $175 | $— | $175 | | Available-for-sale investments | $76 | $— | $76 | | Derivatives | $15 | $— | $15 | | Pension and deferred compensation plan assets | $20 | $— | $20 | | **Total assets** | **$347** | **$55** | **$292** | [5) Derivatives](index=11&type=section&id=5)%20Derivatives) This section describes the company's use of foreign exchange forward contracts and interest rate swaps for risk management, detailing their notional values and fair values - The Company uses foreign exchange forward contracts and interest rate swaps for risk management, not for trading or speculative purposes[33](index=33&type=chunk)[35](index=35&type=chunk) Foreign Exchange Forward Contracts (Cash-Flow Hedges) | Currency Hedged | Gross Notional Value (June 30, 2022, in millions) | Fair Value (June 30, 2022, in millions) | | :------------------------ | :------------------------------------------ | :------------------------------------ | | U.S. dollar/Japanese yen | $66 | $5 | | U.S. dollar/South Korean won | $111 | $5 | | U.S. dollar/euro | $17 | $1 | | U.S. dollar/Taiwan dollar | $45 | $2 | | **Total** | **$246** | **$13** | Interest Rate Swap Agreements | Notional Amount (June 30, 2022, in millions) | Fair Value Asset (June 30, 2022, in millions) | Fair Value Asset (December 31, 2021, in millions) | | :------------------------------------------- | :------------------------------------------ | :------------------------------------------------ | | $500 | $29 | $4 | - Net gains recognized in accumulated Other Comprehensive Income (OCI) from foreign exchange forward contracts were **$8 million** for the three months ended June 30, 2022, and **$26 million** for the six months ended June 30, 2022[41](index=41&type=chunk) - Net gains on derivatives not designated as hedging instruments were **$1 million** for the three months ended June 30, 2022, and **$7 million** for the six months ended June 30, 2022[43](index=43&type=chunk) [6) Inventories](index=14&type=section&id=6)%20Inventories) This section provides a breakdown of inventory components, including raw materials, work-in-process, and finished goods, and their changes over time Inventories Breakdown | Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :--------------- | :-------------------------- | :-------------------------- | | Raw materials | $490 | $394 | | Work-in-process | $92 | $83 | | Finished goods | $107 | $100 | | **Total** | **$689** | **$577** | - Total inventories increased by **$112 million** from December 31, 2021, to June 30, 2022, primarily driven by a **$96 million** increase in raw materials[44](index=44&type=chunk) [7) Leases](index=14&type=section&id=7)%20Leases) This section details the company's lease costs, operating lease liabilities, future lease payments, and weighted average lease terms and discount rates Total Lease Cost | Period | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $8 | $7 | | Six Months Ended June 30 | $16 | $16 | - As of June 30, 2022, the total operating lease liabilities were **$198 million**, with future lease payments of **$246 million**[48](index=48&type=chunk) - The weighted average remaining lease term was **14.1 years** with a weighted average discount rate of **3.0%** as of June 30, 2022[46](index=46&type=chunk) [8) Goodwill and Intangible Assets](index=15&type=section&id=8)%20Goodwill%20and%20Intangible%20Assets) This section presents the net values of goodwill and intangible assets, discusses impairment evaluations, and reports amortization expenses Goodwill and Intangible Assets, Net | Asset Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :--------------------- | :-------------------------- | :-------------------------- | | Goodwill | $1,220 | $1,228 | | Intangible assets, net | $544 | $576 | - The Equipment Solutions Division (ESD) underwent an impairment evaluation due to softening industry demand for flexible PCB via drilling equipment, with fair value exceeding carrying value by **10%** as of June 30, 2022[51](index=51&type=chunk) - Aggregate amortization expense for acquired intangible assets was **$30 million** for the six months ended June 30, 2022, an increase from **$25 million** in the prior year[54](index=54&type=chunk) [9) Debt](index=16&type=section&id=9)%20Debt) This section outlines the company's outstanding debt, including term loan facilities and revolving credit facilities, and compliance with covenants Outstanding Debt | Debt Category | June 30, 2022 (in millions) | December 31, 2021 (in millions) | | :------------------ | :-------------------------- | :-------------------------- | | Short-term debt | $11 | $9 | | Long-term debt, net | $804 | $808 | | **Total Debt** | **$815** | **$817** | - The outstanding principal amount of the Senior Secured Term Loan Credit Facility was **$820 million** as of June 30, 2022, bearing an interest rate of **2.8%** and maturing on February 2, 2026[57](index=57&type=chunk)[59](index=59&type=chunk) - The company has a Senior Secured Asset-Based Revolving Credit Facility of up to **$100 million**, with no borrowings outstanding as of June 30, 2022[63](index=63&type=chunk)[64](index=64&type=chunk) - The company was in compliance with all covenants under the Term Loan Credit Agreement as of June 30, 2022[62](index=62&type=chunk) [10) Product Warranties](index=18&type=section&id=10)%20Product%20Warranties) This section details the changes in product warranty liabilities, including provisions and charges, for the six months ended June 30 Product Warranty Activities (Six Months Ended June 30) | Activity | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Beginning of period | $21 | $18 | | Provision for product warranties | $12 | $22 | | Charges to warranty liability | $(14) | $(16) | | End of period | $19 | $24 | [11) Income Taxes](index=19&type=section&id=11)%20Income%20Taxes) This section presents the effective tax rates, factors influencing them, and information on unrecognized tax benefits Effective Tax Rates | Period | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 17.0% | 15.1% | | Six Months Ended June 30 | 16.6% | 16.2% | - Effective tax rates were lower than the U.S. statutory rate primarily due to the U.S. deduction for foreign derived intangible income (FDII) and the geographic mix of income earned by international subsidiaries, offset by the U.S. global intangible low-taxed income (GILTI) inclusion[77](index=77&type=chunk)[78](index=78&type=chunk) - Gross unrecognized tax benefits totaled **$38 million** as of June 30, 2022, down from **$43 million** at December 31, 2021. The company expects to recognize approximately **$1 million** of these benefits over the next 12 months[79](index=79&type=chunk)[80](index=80&type=chunk) [12) Net Income Per Share](index=20&type=section&id=12)%20Net%20Income%20Per%20Share) This section provides basic and diluted net income per share for the three and six months ended June 30, 2022, and 2021 Net Income Per Share | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic EPS | $2.33 | $2.64 | $4.90 | $4.86 | | Diluted EPS | $2.32 | $2.63 | $4.89 | $4.83 | [13) Stock-Based Compensation](index=20&type=section&id=13)%20Stock-Based%20Compensation) This section details pre-tax stock-based compensation expense, unrecognized compensation expense, and changes in stock incentive plans Total Pre-Tax Stock-Based Compensation Expense | Period | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $13 | $9 | | Six Months Ended June 30 | $21 | $19 | - As of June 30, 2022, total unrecognized compensation expense related to unvested stock-based awards was **$54 million**[87](index=87&type=chunk) - The company transitioned from the 2014 Stock Incentive Plan to the 2022 Stock Incentive Plan for granting Restricted Stock Units (RSUs) following shareholder approval on May 10, 2022[85](index=85&type=chunk) [14) Stockholders' Equity](index=21&type=section&id=14)%20Stockholders'%20Equity) This section discusses share repurchase programs and quarterly cash dividends declared by the Board of Directors - No share repurchases were made under the **$200 million** share repurchase program during the three and six months ended June 30, 2022, or 2021[89](index=89&type=chunk) - The Board of Directors declared a quarterly cash dividend of **$0.22 per share** for both the first and second quarters of 2022, totaling **$24 million** for the six months[90](index=90&type=chunk) - A quarterly cash dividend of **$0.22 per share** was declared on July 25, 2022, payable on September 9, 2022[91](index=91&type=chunk) [15) Acquisition (Photon Control)](index=21&type=section&id=15)%20Acquisition) This section provides details on the acquisition of Photon Control, including the purchase price and allocation of acquired assets and liabilities - The acquisition of Photon Control was completed on July 15, 2021, for a total purchase price of **$302 million** in cash, net of cash acquired[92](index=92&type=chunk)[93](index=93&type=chunk) Photon Control Purchase Price Allocation | Asset Category | Fair Value (in millions) | | :---------------------- | :----------------------- | | Intangible assets | $121 | | Goodwill | $168 | | Current assets | $51 | | Other non-current assets | $9 | | Current liabilities | $(14) | | Non-current deferred taxes | $(32) | | Other long-term liabilities | $(1) | | **Total purchase price, net** | **$268** | - Acquired intangible assets included **$110 million** in completed technology (9-year useful life), **$9 million** in customer relationships (10-year useful life), and **$2 million** in backlog (1.5-year useful life)[95](index=95&type=chunk) [16) Business Segment, Geographic Area, and Significant Customer Information](index=22&type=section&id=16)%20Business%20Segment,%20Geographic%20Area,%20and%20Significant%20Customer%20Information) This section outlines the company's reportable segments, net revenues by segment and geographic area, and identifies significant customers - MKS operates through three reportable segments: Vacuum Solutions Division (VSD), Photonics Solutions Division (PSD), and Equipment Solutions Division (ESD), serving semiconductor, advanced electronics, and specialty industrial markets[97](index=97&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) Net Revenues by Reportable Segment (Six Months Ended June 30) | Segment | 2022 (in millions) | 2021 (in millions) | Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Vacuum Solutions Division | $981 | $894 | $87 | 9.7% | | Photonics Solutions Division | $456 | $375 | $81 | 21.6% | | Equipment Solutions Division | $70 | $175 | $(105) | (60.0%) | | **Total Net Revenues** | **$1,507** | **$1,444** | **$63** | **4.4%** | Net Revenues by Geographic Area (Six Months Ended June 30) | Region | 2022 (in millions) | 2021 (in millions) | Change (in millions) | % Change | | :------------- | :----------------- | :----------------- | :------------------- | :--------- | | North America | $736 | $574 | $162 | 28.2% | | South Korea | $177 | $202 | $(25) | (12.4%) | | China | $140 | $183 | $(43) | (23.5%) | | Other Asia | $330 | $370 | $(40) | (10.8%) | | Europe | $124 | $115 | $9 | 7.8% | | **Total** | **$1,507** | **$1,444** | **$63** | **4.4%** | - Major customers for the six months ended June 30, 2022, included Lam Research Corporation (**16% of net revenues**) and Applied Materials, Inc. (**12% of net revenues**)[112](index=112&type=chunk) [17) Restructuring and Other](index=26&type=section&id=17)%20Restructuring%20and%20Other) This section details restructuring charges, primarily severance costs from global cost-saving initiatives and facility closures - Restructuring charges for the three and six months ended June 30, 2022, were **$3 million** and **$5 million**, respectively, primarily due to severance costs from a global cost-saving initiative and the closure of two facilities in Europe[113](index=113&type=chunk) Restructuring Activities (Six Months Ended June 30) | Activity | 2022 (in millions) | 2021 (in millions) | | :-------------------------- | :----------------- | :----------------- | | Beginning of period | $3 | $1 | | Charged to expense | $5 | $5 | | Payments and adjustments | $(6) | $(5) | | End of period | $2 | $1 | [18) Commitments and Contingencies](index=26&type=section&id=18)%20Commitments%20and%20Contingencies) This section covers legal proceedings, the pending Atotech acquisition, and related debt financing commitments - The Nevada Supreme Court affirmed summary judgment in favor of the defendants on March 30, 2022, in the Newport Corporation class action lawsuit[117](index=117&type=chunk) - The company entered into a definitive agreement on July 1, 2021, to acquire Atotech Limited for **$16.20 cash** and **0.0552 shares of MKS common stock** per Atotech share[119](index=119&type=chunk) - An amendment to the Implementation Agreement on April 1, 2022, extended the 'Long Stop Date' for the Atotech Acquisition to September 30, 2022, and secured new debt financing commitments totaling **$5.75 billion** (**$4.25B Term Loan B**, **$1.0B Term Loan A**, **$500M Revolving Credit Facility**)[121](index=121&type=chunk)[123](index=123&type=chunk) [19) Subsequent Events](index=28&type=section&id=19)%20Subsequent%20Events) This section reports on the final regulatory approval and anticipated closing date for the Atotech Acquisition - The Atotech Acquisition received unconditional merger approval from China's State Administration for Market Regulation on July 28, 2022, completing all required regulatory clearances[127](index=127&type=chunk) - The Atotech Acquisition is anticipated to close on August 17, 2022, subject to sanction by the Royal Court of Jersey and customary closing conditions[127](index=127&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.](index=29&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) This section provides management's perspective on the company's financial condition, operational results, and liquidity [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes in the company's critical accounting policies since December 31, 2021 - There have been no material changes in the company's critical accounting policies since December 31, 2021[132](index=132&type=chunk) [Overview](index=29&type=section&id=Overview) This section provides a general description of MKS Instruments, Inc. as a global provider of advanced manufacturing solutions - MKS Instruments, Inc. is a global provider of instruments, systems, subsystems, and process control solutions for advanced manufacturing processes, serving the semiconductor, advanced electronics, and specialty industrial markets[133](index=133&type=chunk) [Pending Acquisition of Atotech](index=30&type=section&id=Pending%20Acquisition%20of%20Atotech) This section details the pending acquisition of Atotech Limited, including the purchase terms, financing, and regulatory status - The acquisition of Atotech Limited, a process chemicals technology company, is pending, with a definitive agreement to pay **$16.20 per share** in cash and **0.0552 shares of MKS common stock**[134](index=134&type=chunk) - The 'Long Stop Date' for the acquisition was extended to September 30, 2022, and new debt financing commitments were secured, including a **$4.25 billion Term Loan B**, a **$1.0 billion Term Loan A**, and a **$500 million Revolving Credit Facility**[135](index=135&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - All required regulatory clearances for the Atotech Acquisition have been received, and the closing is anticipated on August 17, 2022[141](index=141&type=chunk) [Segments](index=30&type=section&id=Segments) This section describes the company's three reportable segments and their updated naming conventions - The company's three reportable segments are the Vacuum Solutions Division (VSD), Photonics Solutions Division (PSD), and Equipment Solutions Division (ESD), with updated naming conventions as of Q1 2022[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) [Markets](index=31&type=section&id=Markets) This section discusses changes in revenue presentation by end market and analyzes net revenues across Semiconductor, Advanced Electronics, and Specialty Industrial sectors - The company changed its revenue presentation to better represent end markets, separating 'Advanced Markets' into 'Advanced Electronics' and 'Specialty Industrial' markets, while 'Semiconductor' remained unchanged[146](index=146&type=chunk) Net Revenues by Market (Six Months Ended June 30) | Market | 2022 (in millions) | % Total (2022) | 2021 (in millions) | % Total (2021) | Change (in millions) | % Change | | :----------------- | :----------------- | :------------- | :----------------- | :------------- | :------------------- | :--------- | | Semiconductor | $1,003 | 67% | $843 | 58% | $160 | 19% | | Advanced Electronics | $159 | 10% | $252 | 18% | $(93) | (37%) | | Specialty Industrial | $345 | 23% | $349 | 24% | $(4) | (1%) | | **Total Net Revenues** | **$1,507** | **100%** | **$1,444** | **100%** | **$63** | **4%** | - Semiconductor market net revenues increased by **19%** year-over-year for the six months ended June 30, 2022, driven by volume increases across VSD and PSD, despite supply constraints[150](index=150&type=chunk) - Advanced Electronics market net revenues decreased by **37%** year-over-year for the six months ended June 30, 2022, due to decreased demand for flexible PCB via drilling equipment and softness in smartphone demand[152](index=152&type=chunk) - International revenues accounted for approximately **52%** of total net revenues for the six months ended June 30, 2022, with a significant portion from China and South Korea[158](index=158&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section analyzes key financial ratios, revenue trends, gross margin changes, and expenses, including R&D, acquisition costs, and effective tax rates Key Financial Ratios (Percentage of Total Net Revenues) | Metric | Three Months Ended June 30, 2022 | Three Months Ended March 31, 2022 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Products | 86.8% | 87.4% | 87.1% | 87.4% | | Services | 13.2% | 12.6% | 12.9% | 12.6% | | Gross profit | 44.2% | 45.0% | 44.6% | 46.9% | | Income from operations | 21.4% | 23.1% | 22.3% | 23.7% | | Net income | 16.9% | 19.3% | 18.1% | 18.6% | - Total net revenues increased by **$23 million** quarter-over-quarter and **$63 million** year-over-year for the six months ended June 30, 2022, driven by product volume in the semiconductor market, partially offset by declines in advanced electronics[163](index=163&type=chunk)[164](index=164&type=chunk) - Total gross margin decreased by **0.8 percentage points** quarter-over-quarter and **2.3 percentage points** year-over-year for the six months ended June 30, 2022, primarily due to higher material and logistics costs and unfavorable overhead absorption[169](index=169&type=chunk) - Research and development expenses increased by **$8 million** for the six months ended June 30, 2022, mainly due to higher compensation-related costs and increased headcount[174](index=174&type=chunk) - Acquisition and integration costs were **$10 million** for the six months ended June 30, 2022, primarily related to the pending Atotech acquisition[178](index=178&type=chunk) - The effective tax rate for the six months ended June 30, 2022, was **16.6%**, lower than the U.S. statutory rate due to the geographic mix of income and FDII benefits, but potentially subject to material increase if proposed tax legislation is enacted[185](index=185&type=chunk)[186](index=186&type=chunk)[190](index=190&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section reviews the company's cash position, operating, investing, and financing cash flows, and plans for funding the Atotech acquisition - Cash and cash equivalents and short-term marketable investments totaled **$1.1 billion** at June 30, 2022, up from **$1.0 billion** at December 31, 2021[191](index=191&type=chunk) - Net cash provided by operating activities was **$146 million** for the six months ended June 30, 2022, a decrease from **$292 million** in the prior year, primarily due to increased inventory and trade accounts receivable[192](index=192&type=chunk) - Net cash used in investing activities was **$1 million** for the six months ended June 30, 2022, significantly lower than **$100 million** in the prior year, with **$83 million** in purchases of property, plant and equipment, including a **$42 million** facility expansion in South Korea[193](index=193&type=chunk) - The company intends to fund the cash portion of the Atotech acquisition with available cash on hand and committed term loan debt financing, including new facilities totaling **$5.75 billion**[196](index=196&type=chunk) - As of June 30, 2022, the outstanding principal amount of the Term Loan Facility was **$820 million** at an interest rate of **2.8%**, with no borrowings outstanding under the **$100 million** ABL Facility[200](index=200&type=chunk)[205](index=205&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=41&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section states that there were no material changes in the company's exposure to market risk as of June 30, 2022, compared to December 31, 2021 - No material changes in the company's exposure to market risk were identified as of June 30, 2022, compared to December 31, 2021[217](index=217&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=41&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[218](index=218&type=chunk) [Changes in Internal Control over Financial Reporting](index=41&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section states that no material changes occurred in the company's internal control over financial reporting during the quarter - There were no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2022[219](index=219&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=42&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to the notes to the condensed consolidated financial statements for a description of the company's material legal proceedings - A description of the company's material legal proceedings is provided in Note 18 to the Condensed Consolidated Financial Statements[221](index=221&type=chunk) [ITEM 1A. RISK FACTORS](index=42&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section directs readers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors affecting the business - Information regarding risk factors affecting the company's business is discussed in the Annual Report on Form 10-K for the year ended December 31, 2021[222](index=222&type=chunk) [ITEM 6. EXHIBITS](index=43&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed as part of the Form 10-Q, including key agreements and corporate documents - Exhibits include the Amendment to Implementation Agreement for Atotech Limited, the Commitment Letter for new debt financing, and the 2022 Stock Incentive Plan[224](index=224&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) This section contains the required signatures, certifying the filing of the Form 10-Q - The report was signed on August 3, 2022, by Seth H. Bagshaw, Senior Vice President, Chief Financial Officer and Treasurer[230](index=230&type=chunk)