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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Six Shattuck Road, Andover, Massachusetts 01810
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 975-2350
----------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
Number of shares outstanding of the issuer's common stock as of July 31, 2002:
51,242,229
MKS INSTRUMENTS, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001
Consolidated Statements of Income -
Three and six months ended June 30, 2002 and 2001
Consolidated Statements of Cash Flows - Six months ended
June 30, 2002 and 2001
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MKS INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, 2002 December 31, 2001
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 76,892 $ 120,869
Short-term investments......................................................... 28,015 16,625
Trade accounts receivable, net................................................. 54,773 35,778
Inventories.................................................................... 88,094 56,954
Deferred tax asset............................................................. 20,236 16,426
Other current assets........................................................... 16,173 16,353
---------- ---------
Total current assets....................................................... 284,183 263,005
Property, plant and equipment, net............................................. 86,181 69,634
Goodwill....................................................................... 258,891 31,113
Acquired intangible assets, net................................................ 75,276 21,172
Long-term investments.......................................................... 16,092 11,029
Other assets................................................................... 13,148 15,236
--------- ---------
Total assets............................................................... $ 733,771 $ 411,189
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ......................................................... $ 8,440 $ 9,238
Current portion of long-term debt ............................................. 4,729 5,074
Current portion of capital lease obligations .................................. 417 503
Accounts payable............................................................... 23,675 9,668
Accrued compensation........................................................... 7,135 6,116
Other accrued expenses......................................................... 25,841 15,551
--------- ---------
Total current liabilities.................................................. 70,237 46,150
Long-term debt..................................................................... 12,878 10,916
Long-term portion of capital lease obligations..................................... 192 341
Deferred tax liability............................................................. 20,895 ---
Other liabilities.................................................................. 1,562 911
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,000,000 shares
authorized; none issued and outstanding.................................... --- ---
Common Stock, no par value, 200,000,000 shares authorized;
51,258,774 and 37,998,699 issued and outstanding at
June 30, 2002 and December 31, 2001, respectively.......................... 113 113
Additional paid-in capital..................................................... 575,147 285,252
Retained earnings.............................................................. 51,679 68,160
Accumulated other comprehensive income (loss).................................. 1,068 (654)
--------- ---------
Total stockholders' equity................................................. 628,007 352,871
--------- ---------
Total liabilities and stockholders' equity................................. $ 733,771 $ 411,189
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
3
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales........................................................ $85,932 $ 72,656 $144,999 $183,544
Cost of sales.................................................... 56,217 46,838 96,064 114,531
------- -------- -------- --------
Gross profit..................................................... 29,715 25,818 48,935 69,013
Research and development......................................... 12,053 9,453 21,185 20,604
Selling, general and administrative.............................. 20,721 17,576 37,779 36,633
Amortization of goodwill and acquired intangible assets.......... 4,137 2,745 6,342 4,985
Goodwill impairment charge....................................... --- --- --- 3,720
Merger expenses.................................................. --- --- --- 7,708
Purchase of in-process research and development.................. 2,290 2,340 8,390 2,340
------- -------- -------- --------
Loss from operations............................................. (9,486) (6,296) (24,761) (6,977)
Interest expense................................................. 252 371 581 773
Interest income.................................................. 608 1,380 1,363 3,174
------- -------- -------- --------
Loss before income taxes......................................... (9,130) (5,287) (23,979) (4,576)
Provision (benefit) for income taxes ............................ (4,436) (1,105) (7,498) 1,711
------- -------- -------- --------
Net loss......................................................... $(4,694) $ (4,182) $(16,481) $ (6,287)
Net loss per share:
Basic and diluted............................................ $ (0.09) $ (0.11) $ (0.34) $ (0.17)
======= ======== ======== ========
Weighted average common shares outstanding:
Basic and diluted............................................ 51,152 37,475 48,720 37,172
======= ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
4
MKS INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
---- ----
Cash flows from operating activities:
Net loss............................................................................ $ (16,481) $ (6,287)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization................................................... 13,522 10,552
Goodwill impairment charge...................................................... --- 3,720
Purchase of in-process research and development................................. 8,390 2,340
Other........................................................................... 464 21
Changes in operating assets and liabilities net of effects of businesses
acquired:
Trade accounts receivable.................................................... (13,324) 36,390
Inventories.................................................................. (8,458) 2,109
Other current assets......................................................... 3,063 (1,916)
Accrued expenses and other current liabilities............................... (3,048) (22,281)
Accounts payable............................................................. 7,345 (9,818)
---------- ---------
Net cash provided by (used in) operating activities................................. (8,527) 14,830
---------- ---------
Cash flows from investing activities:
Maturities and sales of short-term and long-term investments.................... 33,354 9,790
Purchases of short-term and long-term investments............................... (49,970) (8,718)
Purchases of property, plant and equipment...................................... (3,940) (9,539)
Increase in other assets........................................................ (511) (2,413)
Purchases of businesses, net of cash acquired................................... (16,298) (6,991)
---------- ---------
Net cash used in investing activities............................................... (37,365) (17,871)
---------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings............................................. 6,968 21,647
Payments on short-term borrowings............................................... (9,193) (24,382)
Principal payments on long-term debt............................................ (3,616) (1,371)
Proceeds from long-term debt.................................................... --- 833
Proceeds from exercise of stock options......................................... 7,518 3,248
Principal payments under capital lease obligations.............................. (231) (409)
---------- ---------
Net cash provided by (used in) financing activities................................. 1,446 (434)
---------- ---------
Effect of exchange rate changes on cash and cash equivalents........................ 469 (430)
---------- ---------
Decrease in cash and cash equivalents............................................... (43,977) (3,905)
Cash and cash equivalents at beginning of period.................................... 120,869 123,082
Effect of excluded results of ASTeX (Note 1)........................................ --- (3,142)
---------- ---------
Cash and cash equivalents at end of period.......................................... $ 76,892 $ 116,035
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest..................................................................... $ 442 $ 651
========== =========
Income taxes................................................................. $ 1,901 $ 12,092
========== =========
Noncash transactions during the period:
Stock and options issued for acquisitions.................................... $ 282,341 $ 12,110
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands, except per share data)
1) Basis of Presentation
The interim financial data as of June 30, 2002 and for the three and
six months ended June 30, 2002 and 2001 is unaudited; however, in the
opinion of MKS Instruments, Inc., the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results for the interim periods. The terms
"MKS" and the "Company" refer to MKS Instruments, Inc. and its
subsidiaries. The unaudited financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and note disclosures required by
generally accepted accounting principles. The financial statements
should be read in conjunction with the December 31, 2001 audited
financial statements and notes thereto included in the MKS Annual
Report on Form 10-K filed with the Securities and Exchange Commission
on April 1, 2002.
On January 26, 2001, MKS completed its acquisition of Applied Science
and Technology, Inc. ("ASTeX") in a transaction accounted for under the
pooling of interests method of accounting. Under the terms of the
agreement, each outstanding share of ASTeX common stock was exchanged
for 0.7669 newly issued shares of common stock of MKS, resulting in
the issuance of approximately 11.2 million shares of common stock of
MKS, representing approximately 30% of its then outstanding shares.
As a result of conforming dissimilar fiscal year-ends, ASTeX's results
of operations for the six-month period ended December 31, 2000 are
excluded from the consolidated financial statements. As a result, the
statement of cash flows for the six month period ended June 30, 2001
reflects an adjustment of $3,142,000, which represents the ASTeX cash
flow during the excluded period.
2) Use of Estimates
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those
related to revenue recognition, in-process research and development,
merger expenses, intangible assets and goodwill, inventories and
investments. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
3) Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 143, "Accounting
for Obligations Associated with the Retirement of Long-Lived Assets"
("SFAS 143"). The objective of SFAS 143 is to provide accounting
guidance for legal obligations associated with the retirement of
long-lived assets. The retirement obligations included within the scope
of this pronouncement are those that an entity cannot avoid as a result
of either the acquisition, construction or normal operation of a
long-lived asset. Components of larger systems also fall under this
pronouncement, as well as tangible long-lived assets with
indeterminable lives. The provisions of SFAS 143 are effective for
financial statements issued for fiscal years beginning after June 15,
2002. The Company is currently evaluating the expected impact of the
adoption of SFAS 143 on the Company's financial condition, cash flows
and results of operations. The Company will adopt the standard in the
first quarter of fiscal 2003.
6
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses significant issues
relating to the implementation of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and develops a single accounting method under which
long-lived assets that are to be disposed of by sale are measured at
the lower of book value or fair value less cost to sell. Additionally,
SFAS 144 expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be distinguished
from the rest of the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal transaction. SFAS 144 is
effective for financial statements issued for fiscal years beginning
after December 15, 2001. Effective January 1, 2002, the Company adopted
SFAS 144. The adoption of SFAS 144 did not have a material impact on
the Company's financial position and results of operations.
In June 2002, Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146") was issued. This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The provisions of SFAS 146 are effective for
exit or disposal activities that are initiated after December 31, 2002,
with early application encouraged. The Company is currently reviewing
the provisions of SFAS 146 to determine the standard's impact upon
adoption.
4) Goodwill and Intangible Assets
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 requires, among other things,
the discontinuance of goodwill amortization. In addition, the standard
includes provisions upon adoption for the reclassification of certain
existing recognized intangibles such as goodwill, reassessment of the
useful lives of existing recognized intangible assets, and
reclassification of certain intangibles out of previously reported
goodwill.
Intangible Assets
The Company adopted SFAS 142 on January 1, 2002. In accordance with
this statement, the Company reassessed the classification of its
goodwill and intangible assets. This analysis, which was completed
during the quarter ended March 31, 2002, resulted in the
reclassification of workforce related intangible assets of $2,023,000
to goodwill. Also, in accordance with this statement, the Company
reassessed the useful lives of its amortizable intangible assets and
determined that the lives were appropriate.
Acquired amortizable intangible assets consisted of the following as of
June 30, 2002:
Gross Net Weighted
Carrying Accumulated Carrying Average
Amount Amortization Amount Useful Life
------ ------------ ------ -----------
Completed technology.............................. $ 69,394 $ (9,465) $ 59,929 6 years
Customer relationships............................ 6,640 (1,283) 5,357 7 years
Patents, trademarks, tradenames and other......... 12,394 (2,404) 9,990 7 years
-------- --------- --------
$ 88,428 $ (13,152) $ 75,276 6 years
======== ========= ========
7
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
Amortizable intangible assets consisted of the following as of December
31, 2001:
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
------ ------------ ------
Completed technology.............................. $16,564 $(4,402) $12,162
Customer relationships............................ 4,040 (851) 3,189
Patents, trademarks, tradenames and other......... 8,132 (2,311) 5,821
------- ------- -------
$28,736 $(7,564) $21,172
======= ======= =======
Aggregate amortization expense related to acquired intangibles for the
three and six months ended June 30, 2002 was $4,137,000 and $6,342,000,
respectively. Estimated amortization expense related to acquired
intangibles for each of the five succeeding fiscal years is as follows:
Year Amount
- ---- ------
2002 $13,805
2003 14,576
2004 14,251
2005 13,351
2006 11,249
Goodwill
SFAS 142 requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. As of June 30,
2002, the Company completed the transitional goodwill impairment test
and no adjustment to goodwill was necessary. The changes in the
carrying amount of goodwill by reportable segments during the three and
six months ended June 30, 2002 were as follows:
North America Far East Europe Total
------------- -------- ------ -----
Balance at December 31, 2001.............................. $ 29,606 $296 $ 1,211 $ 31,113
Workforce reclassification................................ 2,023 --- --- 2,023
Goodwill acquired during the quarter...................... 203,496 --- 14,678 218,174
-------- ---- ------- --------
Balance at March 31, 2002................................. 235,125 296 15,889 251,310
Finalization of identifiable intangible assets allocation. (6,089) --- --- (6,089)
Finalization of purchase price allocation................. --- --- 4,022 4,022
Goodwill acquired during the quarter...................... --- --- 9,648 9,648
-------- ---- ------- --------
Balance at June 30, 2002.................................. $229,036 $296 $29,559 $258,891
======== ==== ======= ========
The following is the effect on net income and net income per share had
SFAS No. 142 been in effect for the following periods:
Three Months Six Months
Ended Ended
June 30, June 30,
2001 2001
---------- ----------
Reported net loss.................................................................. $ (4,182) $ (6,287)
Add back: impact of goodwill amortization, net of taxes............................ 1,420 2,330
-------- --------
Adjusted net loss.................................................................. $ (2,762) $ (3,957)
======== ========
Basic and diluted net loss per share............................................... $ (0.11) $ (0.17)
Add back: impact of goodwill amortization, net of taxes............................ 0.04 0.06
-------- --------
Adjusted basic and diluted net loss per share...................................... $ (0.07) $ (0.11)
======== ========
8
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
5) Cash and Cash Equivalents and Investments
Cash and Cash equivalents consist of the following:
June 30, December 31,
2002 2001
---- ----
Cash and Money Market Instruments................................................... $ 30,957 $ 101,045
Commercial Paper.................................................................... 24,500 8,094
Federal Government and Government Agency Obligations................................ 16,011 11,730
State and Municipal Government Obligations.......................................... 4,126 ---
Corporate Obligations............................................................... 1,298 ---
-------- ---------
$ 76,892 $ 120,869
======== =========
Short-term available-for-sale investments at market value maturing
within one year consist of the following:
June 30, December 31,
2002 2001
---- ----
Federal Government and Government Agency Obligations................................ $ 22,387 $ 5,442
Corporate Obligations............................................................... 3,219 ---
Certificate of Deposits............................................................. 2,409 ---
Commercial Paper.................................................................... --- 8,083
State and Municipal Government Obligations.......................................... --- 3,100
-------- --------
$ 28,015 $ 16,625
======== ========
Long-term available-for-sale investments at market value with
maturities of 1 to 5 years consist of the following:
June 30, December 31,
2002 2001
---- ----
Federal Government and Government Agency Obligations................................ $ 6,069 $ 1,008
State and Municipal Government Obligations.......................................... 150 7,021
Corporate Obligations............................................................... 9,873 3,000
-------- ---------
$ 16,092 $ 11,029
======== =========
6) Net Loss Per Share
The following table sets forth the computation of basic and diluted net
loss per share:
Three Months Ended June 30,
2002 2001
---- ----
Numerator
Net loss....................................................................... $ (4,694) $ (4,182)
======== ========
Denominator
Shares used in net loss per common share - basic and diluted.................... 51,152 37,475
======== ========
Net loss per common share
Basic and diluted............................................................... $ (0.09) $ (0.11)
======== ========
9
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
Six Months Ended June 30,
2002 2001
---- ----
Numerator
Net loss....................................................................... $ (16,481) $ (6,287)
========= ========
Denominator
Shares used in net loss per common share - basic and diluted.................... 48,720 37,172
========= ========
Net loss per common share
Basic and diluted............................................................... $ (0.34) $ (0.17)
========= =======
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise
price greater than the average market price of the common shares during
the period. All options outstanding during the three and six months
ended June 30, 2002 and 2001 are excluded from the calculation of
diluted net loss per common share because their inclusion would be
anti-dilutive. There were options to purchase approximately 7,203,000
and 5,168,000 shares of the Company's common stock outstanding as of
June 30, 2002 and 2001, respectively.
7) Inventories
Inventories consist of the following:
June 30, December 31,
2002 2001
---- ----
Raw material........................................................................ $ 35,663 $ 21,019
Work in process..................................................................... 23,233 15,362
Finished goods...................................................................... 29,198 20,573
-------- --------
$ 88,094 $ 56,954
======== ========
8) Stockholders' Equity
Total comprehensive loss was as follows:
Three Months Ended June 30,
2002 2001
---- ----
Net loss....................................................................... $(4,694) $(4,182)
Other comprehensive income (loss), net of taxes:
Changes in value of financial instruments designated
as hedges of currency and interest rate exposures........................ 4 (145)
Foreign currency translation adjustment.................................... 2,151 (359)
Unrealized gain (loss) on investments...................................... 118 (1)
------- -------
Other comprehensive income (loss), net of taxes................................ 2,273 (505)
------- -------
Total comprehensive loss....................................................... $(2,421) $(4,687)
======= =======
Six Months Ended June 30,
2002 2001
---- ----
Net loss......................................................................... $(16,481) $(6,287)
Other comprehensive income (loss), net of taxes:
Changes in value of financial instruments designated
as hedges of currency and interest rate exposures.......................... (152) 613
Foreign currency translation adjustment...................................... 1,811 (965)
Unrealized gain (loss) on investments........................................ 63 (314)
-------- -------
Other comprehensive income (loss), net of taxes.................................. 1,722 (666)
-------- -------
Total comprehensive loss......................................................... $(14,759) $(6,953)
======== =======
10
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
9) Income Taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The measurement of
deferred tax assets is reduced by a valuation allowance if, based upon
weighted available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
The Company does not provide for a U.S. income tax liability on
undistributed earnings of its foreign subsidiaries. The earnings of
non-U.S. subsidiaries, which reflect full provision for non-U.S. income
taxes, are indefinitely reinvested in non-U.S. operations or will be
remitted substantially free of additional tax. As of June 30, 2002, the
unrecognized deferred tax liability associated with these unremitted
earnings was approximately $800,000.
10) Segment Information and Significant Customer
Segment information for the three months ended June 30, 2002 and 2001
was as follows:
North America Far East Europe Total
------------- -------- ------ -----
Net sales to unaffiliated customers 2002 $58,294 $18,773 $8,865 $85,932
2001 49,064 12,440 11,152 72,656
Intersegment net sales 2002 16,895 4,530 319 21,744
2001 10,015 358 323 10,696
Income (loss) from operations 2002 (11,090) 1,692 (88) (9,486)
2001 (9,770) 1,462 2,012 (6,296)
Segment information for the six months ended June 30, 2002 and 2001 was
as follows:
North America Far East Europe Total
------------- -------- ------ -----
Net sales to unaffiliated customers 2002 $97,688 $30,109 $17,202 $144,999
2001 130,196 29,803 23,545 183,544
Intersegment net sales 2002 27,029 4,654 656 32,339
2001 28,407 688 715 29,810
Income (loss) from operations 2002 (28,287) 2,592 934 (24,761)
2001 (14,782) 3,347 4,458 (6,977)
The Company had one customer comprising 27% and 16% of net sales for
the three months ended June 30, 2002 and 2001, respectively, and 23%
and 20% for the six months ended June 30, 2002 and 2001, respectively.
11
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
11) Commitments and Contingencies
On November 3, 1999, On-Line Technologies Inc., which was acquired by
the Company in April 2001, brought suit in federal district court in
Connecticut against Perkin-Elmer, Inc. and certain other defendants for
infringement of On-Line's patent related to its FTIR spectrometer
product. The suit seeks injunctive relief and damages for infringement.
Perkin-Elmer, Inc. has filed a counterclaim seeking invalidity of the
patent, costs, and attorneys' fees. The Company believes that the
counterclaim is without merit.
On November 30, 2000, ASTeX, which was acquired by the Company in
January 2001, brought suit in federal district court in Delaware
against Advanced Energy Industries, Inc. ("Advanced Energy") for
infringement of ASTeX's patent related to its Astron product. The
Company is seeking injunctive relief and damages for infringement.
Advanced Energy has filed a counterclaim seeking judgements that the
patent is invalid, unenforceable, and not infringed, in addition to
costs, and attorneys' fees. The Company believes that the counterclaim
is without merit. On May 17, 2002, a jury affirmed the validity of the
Company's patent and found that Advanced Energy infringed the patent.
The jury awarded the Company $4.2 milliopn in damages. On May 31, 2002,
based on the jury's findings, the Court entered a judgement on the
infringement claim and damage amount in favor of the Company and
against Advanced Energy. The Court awarded $4.2 million in damages to
compensate the Company for Advanced Energy's infringing activity.
Advanced Energy filed motions to overturn the verdict. Accordingly, the
Company has not recorded the awarded amount as of June 30, 2002.
The Company cannot be certain of the outcome of the foregoing
litigation, but does plan to assert its claims against other parties
and oppose the counterclaims against it vigorously.
The Company is subject to other legal proceedings and claims, which
have arisen in the ordinary course of business.
In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
12) Acquisitions
On January 31, 2002, MKS completed its acquisition of the ENI Business
of Emerson Electric Co. ("ENI"), a supplier of solid-state radio
frequency (RF) and direct current (DC) plasma power supplies, matching
networks and instrumentation to the semiconductor thin-film processing
industries. The reasons for the acquisition of ENI were based upon the
ability to offer higher value and more integrated application solutions
by combining ENI's solid-state power conversion technology with the
Company's core competency in plasma and reactive gas solutions. The
acquisition has been accounted for under the purchase method of
accounting. The purchase price was approximately $266,530,000 and
consisted of approximately 12,000,0000 shares of MKS common stock
valued at approximately $261,264,000 and transaction expenses of
approximately $5,266,000. The value of MKS common stock was
approximately $21.7720 per share based on the average closing price of
MKS' common stock for the five-day period including the date of the
announcement of the signing of the merger agreement and the two days
preceding and succeeding such date.
12
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
During the three months ended June 30, 2002, the valuation of the
acquired identifiable intangible assets was finalized. The finalization
of the valuation resulted in a $14,100,000 increase in the value of
acquired intangible assets, a $1,400,000 increase in the value of
purchased in-process research and development, a $5,214,000 increase in
deferred tax liabilities related to acquired intangible assets, and a
$6,089,000 reduction in goodwill. The purchase price was allocated to
the assets acquired based upon their estimated fair values and resulted
in an allocation of approximately $197,407,000 to goodwill. The results
of operations are included in the Company's consolidated statement of
income as of and since the date of the purchase. The allocation of the
purchase price to certain fixed assets is preliminary and dependent
upon the completion of a valuation analysis. The preliminary allocation
of the purchase price is as follows:
Current assets................................................... $ 31,038
Other assets..................................................... 2,123
Fixed assets..................................................... 18,882
Completed technology............................................. 39,600
Patents.......................................................... 6,500
Customer relationships........................................... 2,600
In-process research and development.............................. 7,500
Goodwill......................................................... 197,407
Other liabilities................................................ (14,167)
Long term liabilities............................................ (24,953)
----------
$ 266,530
==========
The amounts allocated to acquired intangible assets are being amortized
using the straight-line method over their respective estimated useful
lives: 6 years for completed technology, 8 years for patents, and 8
years for customer relationships. The total weighted average
amortizable life of the acquired intangible assets is 6 years.
In connection with the acquisition of ENI, the Company obtained an
appraisal from an independent appraiser of the fair value of its
intangible assets. This appraisal valued purchased in-process research
and development ("IPR&D") of various projects for the development of
new products and technologies at approximately $7,500,000. Because the
technological feasibility of products under development had not been
established and no future alternative uses existed, the purchased IPR&D
was written off during the six months ended June 30, 2002. The value of
the purchased IPR&D was determined using the income approach, which
discounts expected future cash flows from projects under development to
their net present value. Each project was analyzed to determine the
technological innovations included; the utilization of core technology;
the complexity, cost and time to complete development; any alternative
future use or current technological feasibility; and the stage of
completion. The cash flows derived from the IPR&D projects were
discounted at rates ranging from 25% to 30%. The Company believes these
rates were appropriate given the risks associated with the technologies
for which commercial feasibility had not been established. The
percentage of completion for each in-process project was determined by
identifying the cost incurred to date of the project as a ratio of the
total estimated cost required to bring the project to technical and
commercial feasibility. The percentage of completion for in-process
projects acquired ranged from 65% to 80%, based on management's
estimates of tasks completed and the tasks to be completed to bring the
projects to technological and commercial feasibility. The projects were
generally expected to have durations of up to 12 months. As of June 30,
2002, the actual development timelines and costs were in line with
management's estimates.
In connection with the acquisition of On-Line, the Company obtained an
appraisal from an independent appraiser of the fair value of its
intangible assets. This appraisal valued purchased IPR&D of various
projects for the development of new products and technologies at
approximately $2,340,000. The projects were generally expected to have
durations of 24 to 48 months. Because the technological feasibility of
products under development had not been established and no future
alternative uses existed, the purchased IPR&D was written off during
the quarter ended June 30, 2001. The value of the purchased IPR&D was
determined using the income approach, which discounts expected future
cash flows from projects under development to their net present value.
13
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
Each project was analyzed to determine the technological innovations
included; the utilization of core technology; the complexity, cost and
time to complete development; any alternative future use or current
technological feasibility; and the stage of completion. The cash flows
derived from the in-process technology projects were discounted at a
rate of 25%. The Company believes this rate was appropriate given the
risks associated with the technologies for which commercial feasibility
had not been established. The percentage of completion for each
in-process project was determined by identifying the elapsed time
invested in the project as a ratio of the total time required to bring
the project to technical and commercial feasibility. The percentage of
completion for in-process projects acquired ranged from 55% to 65%,
based on management's estimates of tasks completed and the tasks to be
completed to bring the projects to technological and commercial
feasibility.
Development of in-process technology remains a substantial risk to the
Company due to a variety of factors including the remaining effort to
achieve technical feasibility, rapidly changing customer requirements
and competitive threats from other companies and technologies.
On March 13, 2002, MKS completed its acquisition of Tenta Technology
Ltd. ("Tenta"), a supplier of modular, computer-based process control
systems that are designed for 300mm semiconductor process tool
applications. The reasons for the acquisition of Tenta were based upon
the ability to offer higher value and more integrated application
solutions by integrating Tenta's process controllers with MKS' digital
network products to provide a more complete process control solution.
The acquisition has been accounted for under the purchase method of
accounting. The purchase price was allocated to the net assets acquired
based upon their estimated fair values. The results of operations are
included in the Company's consolidated statement of income as of and
since the date of the purchase.
On April 5, 2002, the Company completed its acquisition of privately
held IPC Fab Automation GmbH ("IPC"), a developer and provider of
web-based hardware and software that enable e-diagnostics and advanced
process control for advanced manufacturing customers. The reasons for
the acquisition of IPC were based upon the ability to offer higher
value and more integrated application solutions by integrating IPC's
connectivity hardware and software with MKS' digital network products
to provide a more complete process control solution. The acquisition
has been accounted for under the purchase method of accounting. The
purchase price was allocated to the net assets acquired based upon
their estimated fair values. The purchase price allocation is
preliminary and dependent upon the completion of an acquired
intangibles valuation report. The results of operations are included in
the Company's consolidated statement of income as of and since the date
of the purchase.
The following unaudited pro forma information presents a summary of the
historical results of operations of the Company as if the ENI, Tenta,
and IPC acquisitions had occurred at the beginning of each period.
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- -----
Net sales................................................ $85,932 $ 99,523 $ 149,446 $ 250,274
Net loss................................................. $(2,404) $ (7,255) $ (10,671) $ (5,890)
Net loss per share:
Basic and diluted..................................... $ (0.05) $ (0.14) $ (0.21) $ (0.12)
The unaudited pro forma results for the three and six months ended June
30, 2002 excludes approximately $1.3 million of non-recurring charges
directly related to the transaction that were incurred by Tenta prior
to the date of the acquisition. Additionally, the charges for purchased
IPR&D were not included in the unaudited pro forma results, because
they were non-recurring and directly related to the transactions.
14
MKS INSTRUMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Tables in thousands, except per share data)
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions
occurred at the beginning of the period, or which may result in the
future.
13) Goodwill Impairment Charge
When the Company acquired the Shamrock product line, it was expected
that sales of the existing system design and development of new system
designs would generate future revenues. The Company had provided
potential customers with purchase quotations for Shamrock systems,
including a significant quotation to a potential customer in January
2001 for the sale of several systems. The customer did not purchase the
systems, and the quotation expired in March 2001. The Company was
unsuccessful in selling any systems of the product line after the
acquisition and, with the expiration of the significant quote in March
2001, the Company evaluated the recoverability of the long-lived
assets, primarily goodwill. As a result, based on discounted cash flow
analysis, the Company recorded an impairment charge for the carrying
value of the related goodwill of approximately $3,720,000 in the
quarter ended March 31, 2001.
14) Merger Costs
On January 26, 2001 MKS completed its acquisition of ASTeX in a
transaction accounted for under the pooling of interests method of
accounting. Under the pooling of interests method of accounting, fees
and expenses related to the merger are expensed in the period of the
merger. During the three months ended March 31, 2001, MKS expensed
approximately $7.7 million of merger related expenses, consisting of
$6.9 million of investment banking, legal, accounting, printing and
other professional fees, and $0.8 million of regulatory and other
costs.
15
MKS INSTRUMENTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2.
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. When used
herein, including this Management's Discussion and Analysis, the words
"believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements reflect management's current opinions and are subject to certain
risks and uncertainties that could cause results to differ materially from those
stated or implied. MKS Instruments, Inc. assumes no obligation to update this
information. Risks and uncertainties include, but are not limited to those
discussed in the section entitled "Factors That May Affect Future Results."
OVERVIEW
MKS develops, manufactures and provides instruments, components and integrated
subsystems used to measure, control, power and monitor critical parameters of
semiconductor and other advanced manufacturing process environments. The Company
estimates that during 2001 approximately 64% of its net sales were to
semiconductor capital equipment manufacturers and semiconductor device
manufacturers.
On January 31, 2002, MKS completed its acquisition of the ENI Business of
Emerson Electric Co. ("ENI"), a supplier of solid-state radio frequency (RF) and
direct current (DC) plasma power supplies, matching networks and instrumentation
to the semiconductor thin-film processing industries. The reasons for the
acquisition of ENI were based upon the ability to offer higher value and more
integrated application solutions by combining ENI's solid-state power conversion
technology with the Company's core competency in plasma and reactive gas
solutions. The acquisition has been accounted for under the purchase method of
accounting. The purchase price was approximately $266,530,000 and consisted of
approximately 12,000,0000 shares of MKS common stock valued at approximately
$261,264,000 and transaction expenses of approximately $5,266,000. The value of
MKS common stock was approximately $21.7720 per share based on the average
closing price of MKS' common stock for the five-day period including the date of
the announcement of the signing of the merger agreement and the two days
preceding and succeeding such date. The purchase price was allocated to the
assets acquired based upon their estimated fair values and resulted in an
allocation of approximately $197,407,000 to goodwill. The results of operations
are included in the Company's consolidated statement of income as of and since
the date of the purchase.
16
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of total
net sales of certain line items included in MKS' consolidated statement of
income data.
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales.............................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................................... 65.4 64.5 66.3 62.4
---- ---- ---- ----
Gross profit........................................................... 34.6 35.5 33.7 37.6
Research and development............................................... 14.0 13.0 14.6 11.2
Selling, general and administrative.................................... 24.1 24.2 26.1 20.0
Amortization of goodwill and acquired intangible assets................ 4.8 3.8 4.3 2.7
Goodwill impairment charge............................................. --- --- --- 2.0
Merger expenses........................................................ --- --- --- 4.2
In-process research and development.................................... 2.7 3.2 5.8 1.3
--- --- --- ---
Loss from operations................................................... (11.0) (8.7) (17.1) (3.8)
Interest income, net................................................... 0.4 1.4 0.6 1.3
--- --- --- ---
Loss before income taxes............................................... (10.6) (7.3) (16.5) (2.5)
Provision (benefit) for income taxes................................... (5.1) (1.5) (5.1) 0.9
---- ---- ---- ---
Net loss............................................................... (5.5)% (5.8)% (11.4)% (3.4)%
==== ==== ===== ====
Net Sales. Net sales increased 18.3% to $85.9 million for the three
months ended June 30, 2002 from $72.7 million for the three months ended June
30, 2001. International net sales were approximately $27.6 million for the three
months ended June 30, 2002 or 32.2% of net sales and $23.6 million for the same
period of 2001 or 32.5% of net sales. The increase in net sales was due to the
revenues of the companies acquired in 2002, the ENI, Tenta, and IPC businesses.
Net sales decreased 21.0% to $145.0 million for the six months ended June 30,
2002 from $183.5 million for the same period of 2001. International net sales
were approximately $47.3 million for the six months ended June 30, 2002 or 32.6%
of net sales and $53.3 million for the same period of 2001 or 29.1% of net
sales. The decrease in net sales was due to the worldwide slowdown in demand for
semiconductors, which resulted in a decline in demand for the Company's products
from the Company's semiconductor capital equipment manufacturer and
semiconductor device manufacturer customers. The decline in net sales was
partially offset by the revenues of the companies acquired in 2002, the ENI,
Tenta, and IPC businesses.
Gross Profit. Gross profit as a percentage of net sales decreased to
34.6% for the three months ended June 30, 2002 from 35.5% for the three months
ended June 30, 2001. Gross profit as a percentage of net sales decreased to
33.7% for the six months ended June 30, 2002 from 37.6% for the same period of
2001. The decrease was primarily due to lower absorption of manufacturing
overhead costs.
Research and Development. Research and development expense increased
27.5% to $12.1 million or 14.0% of net sales for the three months ended June 30,
2002 from $9.5 million or 13.0% of net sales for the three months ended June 30,
2001. The increase was primarily due to increased compensation expense of $ 1.6
million and increased expenses for project materials of $1.0 million. Research
and development expense increased 2.8% to $21.2 million or 14.6% of net sales
for the six months ended June 30, 2002 from $20.6 million or 11.2% of net sales
for the same period of 2001. The increase was due to increased compensation
expense.
Selling, General and Administrative. Selling, general and
administrative expenses increased 17.9% to $20.7 million or 24.1% of net sales
for the three months ended June 30, 2002 from $17.6 million or 24.2% of net
sales for the three months ended June 30, 2001. The increase was due primarily
to increased professional fees of $1.5 million and other selling expenses.
Selling, general and administrative expenses increased 3.1% to $37.8 million or
26.1% of net sales for the six months ended June 30, 2002 from $36.6 million or
20.0% of net sales for the same period of 2001. The increase was due primarily
to increased professional fees.
17
Amortization of Goodwill and Acquired Intangible Assets. Amortization
expense of $4.1 million and $6.3 million for the three and six months ended June
30, 2002, respectively, represents the amortization of the identifiable
intangibles resulting from the acquisitions completed by MKS. In accordance with
SFAS No. 142, the Company ceased to amortize goodwill on January 1, 2002.
Amortization of goodwill was $1.7 million and $2.9 million for the three and six
months ended June 30, 2001, respectively. Amortization of the identifiable
intangibles was $1.0 million and $2.1 million for the three and six months ended
June 30, 2001, respectively.
Goodwill Impairment Charge. When the Company acquired the Shamrock
product line, it was expected that sales of the existing system design and
development of new system designs would generate future revenues. The Company
had provided potential customers with purchase quotations for Shamrock systems,
including a significant quotation to a potential customer in January 2001 for
the sale of several systems. The customer did not purchase the systems, and the
quotation expired in March 2001. The Company was unsuccessful in selling any
systems of the product line after the acquisition and, with the expiration of
the significant quote in March 2001, the Company evaluated the recoverability of
the long-lived assets, primarily goodwill. As a result, based on discounted cash
flow analysis, the Company recorded an impairment charge for the carrying value
of the related goodwill of approximately $3.7 million in the quarter ended March
31, 2001.
Merger Costs. On January 26, 2001 MKS completed its acquisition of
ASTeX in a transaction accounted for under the pooling of interests method of
accounting. Under the pooling of interests method of accounting, fees and
expenses related to the merger are expensed in the period of the merger. During
the six months ended June 30, 2001, MKS expensed approximately $7.7 million of
merger related expenses, consisting of $6.9 million of investment banking,
legal, accounting, printing and other professional fees, and $0.8 million of
regulatory and other costs.
Purchase of In-process Technology. In-process research and development
of $2.3 million for the three months ended June 30, 2002 consisted of $1.4
million related to the increase in the value of the in-process research and
development resulting from the finalization of the ENI purchase price allocation
and $0.9 million from the purchase of Tenta and IPC. In-process research and
development of $8.4 million for the six months ended June 30, 2002 arose from
the acquisitions the Company made in 2002.
In January 2002, the Company acquired ENI in a transaction accounted
for under the purchase method. The purchase price was allocated to the assets
acquired, including intangible assets, based on their estimated fair values. The
intangible assets include approximately $7.5 million for acquired in-process
technology for projects, generally expected to have durations of 12 months, that
did not have future alternative uses. The value of the purchased in-process
technology was determined using the income approach, which discounts expected
future cash flows from projects under development to their net present value.
Each project was analyzed to determine the technological innovations included;
the utilization of core technology; the complexity, cost and time to complete
development; any alternative future use or current technological feasibility;
and the stage of completion. The cash flows derived from the in-process
technology projects were discounted at rates ranging from 25% to 30%. The
Company believes these rates were appropriate given the risks associated with
the technologies for which commercial feasibility had not been established. The
percentage of completion for each in-process project was determined by
identifying the cost incurred to date of the project as a ratio of the total
cost required to bring the project to technical and commercial feasibility. The
percentage completion for in-process projects acquired ranged from 65% to 80%
complete, based on management's estimates of tasks completed and the tasks to be
completed to bring the projects to technological and commercial feasibility. At
the date of the acquisition, the development of these projects had not yet
reached technological feasibility, and the technology in progress had no
alternative future uses. Accordingly, these costs were expensed in the first and
second quarters of 2002.
18
In April 2001, the Company acquired On-Line in a transaction accounted
for as a purchase. The purchase price was allocated to the assets acquired,
including intangible assets, based on their estimated fair values. The
intangible assets include approximately $2.3 million for acquired in-process
technology for various projects, generally expected to have durations of 24 to
48 months, that did not have future alternative uses. The value of the purchased
in-process technology was determined using the income approach, which discounts
expected future cash flows from projects under development to their net present
value. Each project was analyzed to determine the technological innovations
included; the utilization of core technology; the complexity, cost and time to
complete development; any alternative future use or current technological
feasibility; and the stage of completion. The cash flows derived from the
in-process technology projects were discounted at a rate of 25%. The Company
believes this rate was appropriate given the risks associated with the
technologies for which commercial feasibility had not been established. The
percentage of completion for each in-process project was determined by
identifying the elapsed time invested in the project as a ratio of the total
time required to bring the project to technical and commercial feasibility. The
percentage of completion for in-process projects acquired ranged from 55% to
65%, based on management's estimates of tasks completed and the tasks to be
completed to bring the projects to technological and commercial feasibility. At
the date of the acquisition, the development of these projects had not yet
reached technological feasibility, and the technology in progress had no
alternative future uses. Accordingly, these costs were expensed in the second
quarter of 2001.
Interest Income (Expense), Net. During the three and six months ended
June 30, 2002, the Company generated net interest income of $0.4 million and
$0.8 million, respectively, primarily from the invested net proceeds of its
common stock offerings, offset by interest expense on outstanding debt.
Provision (Benefit) for Income Taxes. The effective tax rates for the
three and six months ended June 30, 2002 were 49% and 31%, respectively, and
differed from the statutory rate of 35% due to favorable tax attributes from its
foreign subsidiaries, partially offset by non-deductible charges associated with
acquisitions made in 2002. The effective tax rate for the three and six months
ended June 30, 2001 were 21% and 37%, respectively and differed from the
statutory rate of 35% due to non-deductible charges associated with acquisitions
made in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital requirements through a
combination of cash provided by operations, long-term real estate financing,
capital lease financing and short-term lines of credit.
Operations used cash of $8.5 million for the six months ended June 30, 2002.
The cash flow from operations for the six months ended June 30, 2002 was
impacted by the net loss of $16.5 million, increases in accounts receivable and
inventories of $13.3 million and $8.5 million, respectively, and offset by
non-cash charges for in-process research and development of $8.4 million,
depreciation and amortization of $13.5 million, and an increase in accounts
payable of $7.3 million. Investing activities utilized cash of $37.4 million
for the six months ended June 30, 2002 primarily from purchases of investments
and purchases of businesses. Financing activities provided cash of $1.4
million, primarily from proceeds from employees exercising stock options.
Working capital was $213.9 million as of June 30, 2002, a decrease of $3.0
million from December 31, 2001. MKS entered into a credit agreement on July 31,
2002 whereby MKS has a combined $40.0 million line of credit with two banks. The
credit agreement expires on July 31, 2003 and has no collateral provisions.
MKS believes that its working capital, together with the cash anticipated to be
generated from operations and funds available from existing credit facilities,
will be sufficient to satisfy its estimated working capital and planned capital
expenditure requirements through at least the next 12 months.
19
FACTORS THAT MAY AFFECT FUTURE RESULTS
MKS believes that this document contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties and are based on the beliefs
and assumptions of management of MKS, based on information currently available
to MKS' management. Use of words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "should," "likely" or similar expressions,
indicate a forward-looking statement. Forward-looking statements involve risks,
uncertainties and assumptions. Certain of the information contained in this
Quarterly Report on Form 10-Q consists of forward-looking statements. Important
factors that could cause actual results to differ materially from the
forward-looking statements include the following:
MKS' BUSINESS DEPENDS SUBSTANTIALLY ON CAPITAL SPENDING IN THE SEMICONDUCTOR
INDUSTRY WHICH IS CHARACTERIZED BY PERIODIC FLUCTUATIONS THAT MAY CAUSE A
REDUCTION IN DEMAND FOR MKS' PRODUCTS.
MKS estimates that approximately 64% of its sales during 2001 were to
semiconductor capital equipment manufacturers and semiconductor device
manufacturers, and it expects that sales to such customers will continue to
account for a substantial majority of its sales. MKS' business depends upon the
capital expenditures of semiconductor device manufacturers, which in turn depend
upon the demand for semiconductors. Periodic reductions in demand for the
products manufactured by semiconductor capital equipment manufacturers and
semiconductor device manufacturers may adversely affect MKS' business, financial
condition and results of operations. Historically, the semiconductor market has
been highly cyclical and has experienced periods of overcapacity, resulting in
significantly reduced demand for capital equipment. For example, in 1996 and
1998, the semiconductor capital equipment industry experienced significant
declines, which caused a number of MKS' customers to reduce their orders. More
recently, MKS has experienced a significant reduction in demand from OEM
customers, and lower gross margins due to reduced absorption of manufacturing
overhead at the lower revenue levels. MKS incurred special charges for excess
and obsolete inventory of $14.0 million in the fourth quarter of 2001 and $2.6
million in the second quarter of 2001. The charges were significantly higher
than normal and were primarily caused by a significant reduction in demand
including reduced demand for older technology products. In addition, many
semiconductor manufacturers have operations and customers in Asia, a region
which in recent years has experienced serious economic problems including
currency devaluations, debt defaults, lack of liquidity and recessions. MKS
cannot be certain that semiconductor downturns will not recur. A decline in the
level of orders as a result of any future downturn or slowdown in the
semiconductor capital equipment industry could have a material adverse effect on
MKS' business, financial condition and results of operations.
MKS' QUARTERLY OPERATING RESULTS HAVE VARIED, AND ARE LIKELY TO CONTINUE TO VARY
SIGNIFICANTLY. THIS MAY RESULT IN VOLATILITY IN THE MARKET PRICE FOR MKS'
SHARES.
A substantial portion of MKS' shipments occur shortly after an order is received
and therefore MKS operates with a low level of backlog. As a result, a decrease
in demand for MKS' products from one or more customers could occur with limited
advance notice and could have a material adverse effect on MKS' results of
operations in any particular period. A significant percentage of MKS' expenses
are relatively fixed and based in part on expectations of future net sales. The
inability to adjust spending quickly enough to compensate for any shortfall
would magnify the adverse impact of a shortfall in net sales on MKS' results of
operations. Factors that could cause fluctuations in MKS' net sales include:
- - the timing of the receipt of orders from major customers;
- - shipment delays;
- - disruption in sources of supply;
- - seasonal variations of capital spending by customers;
- - production capacity constraints; and
- - specific features requested by customers.
20
For example, MKS was in the process of increasing its production capacity when
the semiconductor capital equipment market began to experience a significant
downturn in 1996. This downturn had a material adverse effect on MKS' operating
results in the second half of 1996 and the first half of 1997. After an increase
in business in the latter half of 1997, the market experienced another downturn
in 1998, which had a material adverse effect on MKS' 1998 and first quarter 1999
operating results. More recently, the semiconductor capital equipment market
experienced a significant downturn during 2001 and continuing through the second
quarter of 2002. As a result, MKS has experienced a reduction in demand from OEM
customers, which has had a material adverse effect on MKS' operating results.
During 2001 gross margins were negatively affected by special charges for excess
and obsolete inventory of $14.0 million in the fourth quarter of 2001 and $2.6
million in the second quarter of 2001. The charges were significantly higher
than normal and were primarily caused by a significant reduction in demand
including reduced demand for older technology products. As a result of the
factors discussed above, it is likely that MKS will in the future experience
quarterly or annual fluctuations and that, in one or more future quarters, its
operating results will fall below the expectations of public market analysts or
investors. In any such event, the price of MKS' common stock could decline
significantly.
THE LOSS OF NET SALES TO ANY ONE OF MKS' MAJOR CUSTOMERS WOULD LIKELY HAVE A
MATERIAL ADVERSE EFFECT ON MKS.
MKS' top ten customers accounted for approximately 39% of its net sales in 2001,
52% of its net sales in 2000 and 46% of its net sales in 1999. The loss of a
major customer or any reduction in orders by these customers, including
reductions due to market or competitive conditions, would likely have a material
adverse effect on MKS' business, financial condition and results of operations.
During 2001 and 2000, one customer, Applied Materials, accounted for
approximately 18% and 30%, respectively, of MKS' net sales. None of MKS'
significant customers, including Applied Materials, has entered into an
agreement requiring it to purchase any minimum quantity of MKS' products. The
demand for MKS' products from its semiconductor capital equipment customers
depends in part on orders received by them from their semiconductor device
manufacturer customers.
Attempts to lessen the adverse effect of any loss or reduction through the rapid
addition of new customers could be difficult because prospective customers
typically require lengthy qualification periods prior to placing volume orders
with a new supplier. MKS' future success will continue to depend upon:
- - its ability to maintain relationships with existing key customers;
- - its ability to attract new customers; and
- - the success of its customers in creating demand for their capital equipment
products which incorporate MKS' products.
AS PART OF MKS' BUSINESS STRATEGY, MKS HAS ENTERED INTO AND MAY ENTER INTO OR
SEEK TO ENTER INTO BUSINESS COMBINATIONS AND ACQUISITIONS THAT MAY BE DIFFICULT
TO INTEGRATE, DISRUPT ITS BUSINESS, DILUTE STOCKHOLDER VALUE OR DIVERT
MANAGEMENT ATTENTION.
MKS acquired Compact Instrument Technology, LLC ("Compact Instrument") in March
2000, Telvac Engineering, Ltd. ("Telvac") in May 2000, Spectra Instruments, LLC
("Spectra") in July 2000, D.I.P., Inc. ("D.I.P.") in September 2000, Applied
Science and Technology, Inc. ("ASTeX") in January 2001, On-Line Technologies,
Inc. ("On-Line") in April 2001, the ENI Business ("ENI") of Emerson Electric Co.
in January 2002, Tenta Technologies Ltd. ("Tenta") in March 2002, and IPC Fab
Automation GmbH ("IPC") in April 2002. As a part of its business strategy, MKS
may enter into additional business combinations and acquisitions. Acquisitions
are typically accompanied by a number of risks, including the difficulty of
integrating the operations and personnel of the acquired companies, the
potential disruption of MKS' ongoing business and distraction of management,
expenses related to the acquisition and potential unknown liabilities associated
with acquired businesses.
If MKS is not successful in completing acquisitions that it may pursue in the
future, it may be required to reevaluate its growth strategy, and MKS may have
incurred substantial expenses and devoted significant management time and
resources in seeking to complete proposed acquisitions that will not generate
benefits for it.
21
In addition, with future acquisitions, MKS could use substantial portions of its
available cash as all or a portion of the purchase price. MKS could also issue
additional securities as consideration for these acquisitions, which could cause
significant stockholder dilution. MKS' acquisitions of Compact Instrument,
Telvac, Spectra, D.I.P., ASTeX, On-Line, ENI, Tenta, and IPC and any future
acquisitions may not ultimately help MKS achieve its strategic goals and may
pose other risks to MKS.
AN INABILITY TO CONVINCE SEMICONDUCTOR DEVICE MANUFACTURERS TO SPECIFY THE USE
OF MKS' PRODUCTS TO MKS' CUSTOMERS, WHO ARE SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS, WOULD WEAKEN MKS' COMPETITIVE POSITION.
The markets for MKS' products are highly competitive. Its competitive success
often depends upon factors outside of its control. For example, in some cases,
particularly with respect to mass flow controllers, semiconductor device
manufacturers may direct semiconductor capital equipment manufacturers to use a
specified supplier's product in their equipment. Accordingly, for such products,
MKS' success will depend in part on its ability to have semiconductor device
manufacturers specify that MKS' products be used at their semiconductor
fabrication facilities. In addition, MKS may encounter difficulties in changing
established relationships of competitors that already have a large installed
base of products within such semiconductor fabrication facilities.
IF MKS' PRODUCTS ARE NOT DESIGNED INTO SUCCESSIVE NEW GENERATIONS OF ITS
CUSTOMERS' PRODUCTS, MKS WILL LOSE SIGNIFICANT NET SALES DURING THE LIFESPAN OF
THOSE PRODUCTS.
New products designed by semiconductor capital equipment manufacturers typically
have a lifespan of five to ten years. MKS' success depends on its products being
designed into new generations of equipment for the semiconductor industry. MKS
must develop products that are technologically current so that they are
positioned to be chosen for use in each successive new generation of
semiconductor capital equipment. If MKS products are not chosen by its
customers, MKS' net sales may be reduced during the lifespan of its customers'
products. In addition, MKS must make a significant capital investment to develop
products for its customers well before its products are introduced and before it
can be sure that it will recover its capital investment through sales to the
customers in significant volume. MKS is thus also at risk during the development
phase that its products may fail to meet its customers' technical or cost
requirements and may be replaced by a competitive product or alternative
technology solution. If that happens, MKS may be unable to recover MKS'
development costs.
THE SEMICONDUCTOR INDUSTRY IS SUBJECT TO RAPID DEMAND SHIFTS WHICH ARE DIFFICULT
TO PREDICT. AS A RESULT, MKS' INABILITY TO EXPAND ITS MANUFACTURING CAPACITY IN
RESPONSE TO THESE RAPID SHIFTS MAY CAUSE A REDUCTION IN ITS MARKET SHARE.
MKS' ability to increase sales of certain products depends in part upon its
ability to expand its manufacturing capacity for such products in a timely
manner. If MKS is unable to expand its manufacturing capacity on a timely basis
or to manage such expansion effectively, its customers could implement its
competitors' products and, as a result, its market share could be reduced.
Because the semiconductor industry is subject to rapid demand shifts which are
difficult to foresee, MKS may not be able to increase capacity quickly enough to
respond to a rapid increase in demand in the semiconductor industry.
Additionally, capacity expansion could increase MKS' fixed operating expenses
and if sales levels do not increase to offset the additional expense levels
associated with any such expansion, its business, financial condition and
results of operations could be materially adversely affected.
SALES TO FOREIGN MARKETS CONSTITUTE A SUBSTANTIAL PORTION OF MKS' NET SALES;
THEREFORE, MKS' NET SALES AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED
BY DOWNTURNS IN ECONOMIC CONDITIONS IN COUNTRIES OUTSIDE OF THE UNITED STATES.
International sales, which include sales by MKS' foreign subsidiaries, but
exclude direct export sales (which were less than 10% of MKS' total net sales),
accounted for approximately 31% of net sales in 2001, 23% of net sales in 2000
and 25% of net sales in 1999.
22
MKS anticipates that international sales will continue to account for a
significant portion of MKS' net sales. In addition, certain of MKS' key domestic
customers derive a significant portion of their revenues from sales in
international markets. Therefore, MKS' sales and results of operations could be
adversely affected by economic slowdowns and other risks associated with
international sales.
RISKS RELATING TO MKS' INTERNATIONAL OPERATIONS COULD ADVERSELY AFFECT MKS'
OPERATING RESULTS.
MKS has substantial international sales, service and manufacturing operations in
Europe and Asia, which exposes MKS to foreign operational and political risks
that may harm MKS' business. MKS' international operations are subject to
inherent risks, which may adversely affect MKS, including:
- - political and economic instability in countries where MKS has sales,
service and manufacturing operations, particularly in Asia;
- - fluctuations in the value of currencies and high levels of inflation,
particularly in Asia;
- - changes in labor conditions and difficulties in staffing and managing
foreign operations, including, but not limited to, labor unions;
- - greater difficulty in collecting accounts receivable and longer payment
cycles;
- - burdens and costs of compliance with a variety of foreign laws;
- - increases in duties and taxation;
- - imposition of restrictions on currency conversion or the transfer of funds;
- - changes in export duties and limitations on imports or exports;
- - expropriation of private enterprises; and
- - unexpected changes in foreign regulations.
If any of these risks materialize, MKS' operating results may be adversely
affected.
UNFAVORABLE CURRENCY EXCHANGE RATE FLUCTUATIONS MAY LEAD TO LOWER GROSS MARGINS,
OR MAY CAUSE MKS TO RAISE PRICES WHICH COULD RESULT IN REDUCED SALES.
Currency exchange rate fluctuations could have an adverse effect on MKS' net
sales and results of operations and MKS could experience losses with respect to
its hedging activities. Unfavorable currency fluctuations could require MKS to
increase prices to foreign customers which could result in lower net sales by
MKS to such customers. Alternatively, if MKS does not adjust the prices for its
products in response to unfavorable currency fluctuations, its results of
operations could be adversely affected. In addition, sales made by MKS' foreign
subsidiaries are denominated in the currency of the country in which these
products are sold and the currency it receives in payment for such sales could
be less valuable at the time of receipt as a result of exchange rate
fluctuations. MKS enters into forward exchange contracts and local currency
purchased options to reduce currency exposure arising from intercompany sales of
inventory. However, MKS cannot be certain that its efforts will be adequate to
protect it against significant currency fluctuations or that such efforts will
not expose it to additional exchange rate risks.
KEY PERSONNEL MAY BE DIFFICULT TO ATTRACT AND RETAIN.
MKS' success depends to a large extent upon the efforts and abilities of a
number of key employees and officers, particularly those with expertise in the
semiconductor manufacturing and similar industrial manufacturing industries. The
loss of key employees or officers could have a material adverse effect on MKS'
business, financial condition and results of operations. MKS believes that its
future success will depend in part on its ability to attract and retain highly
skilled technical, financial, managerial and marketing personnel. MKS cannot be
certain that it will be successful in attracting and retaining such personnel.
23
MKS' PROPRIETARY TECHNOLOGY IS IMPORTANT TO THE CONTINUED SUCCESS OF ITS
BUSINESS. MKS' FAILURE TO PROTECT THIS PROPRIETARY TECHNOLOGY MAY SIGNIFICANTLY
IMPAIR MKS' COMPETITIVE POSITION.
As of June 30, 2002, MKS owned 127 U.S. patents and 87 foreign patents and had
66 pending U.S. patent applications and 136 pending foreign patent applications.
Although MKS seeks to protect its intellectual property rights through patents,
copyrights, trade secrets and other measures, it cannot be certain that:
- - MKS will be able to protect its technology adequately;
- - competitors will not be able to develop similar technology independently;
- - any of MKS' pending patent applications will be issued;
- - intellectual property laws will protect MKS' intellectual property rights;
or
- - third parties will not assert that MKS' products infringe patent, copyright
or trade secrets of such parties.
PROTECTION OF MKS' INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY LITIGATION.
Litigation may be necessary in order to enforce MKS' patents, copyrights or
other intellectual property rights, to protect its trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement. For example, on November 3, 1999, On-Line Technologies
Inc., which was acquired by MKS in April 2001, brought suit in federal district
court in Connecticut against Perkin-Elmer, Inc. and certain other defendants for
infringement of On-Line's patent related to its FTIR spectrometer product. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on MKS' business, financial condition and
results of operations.
THE MARKET PRICE OF MKS' COMMON STOCK HAS FLUCTUATED AND MAY CONTINUE TO
FLUCTUATE FOR REASONS OVER WHICH MKS HAS NO CONTROL.
The stock market has from time to time experienced, and is likely to continue to
experience, extreme price and volume fluctuations. Recently, prices of
securities of technology companies have been especially volatile and have often
fluctuated for reasons that are unrelated to the operating performance of the
companies. The market price of shares of MKS' common stock has fluctuated
greatly since its initial public offering and could continue to fluctuate due to
a variety of factors. In the past, companies that have experienced volatility in
the market price of their stock have been the objects of securities class action
litigation. If MKS were the object of securities class action litigation, it
could result in substantial costs and a diversion of MKS' management's attention
and resources.
MKS' DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT ITS ABILITY TO
MANUFACTURE PRODUCTS AND SYSTEMS.
MKS relies on sole and limited source suppliers for a few of its components and
subassemblies that are critical to the manufacturing of MKS' products. This
reliance involves several risks, including the following:
- - the potential inability to obtain an adequate supply of required
components;
- - reduced control over pricing and timing of delivery of components; and
- - the potential inability of its suppliers to develop technologically
advanced products to support MKS' growth and development of new systems.
MKS believes that in time MKS could obtain and qualify alternative sources for
most sole and limited source parts. Seeking alternative sources of the parts
could require MKS to redesign its systems, resulting in increased costs and
likely shipping delays. MKS may be unable to redesign its systems, which could
result in further costs and shipping delays. These increased costs would
decrease MKS' profit margins if it could not pass the costs to its customers.
Further, shipping delays could damage MKS' relationships with current and
potential customers and have a material adverse effect on MKS' business and
results of operations.
24
MKS IS SUBJECT TO GOVERNMENTAL REGULATIONS.
MKS is subject to federal, state, local and foreign regulations, including
environmental regulations and regulations relating to the design and operation
of MKS' power supply products. MKS must ensure that these systems meet certain
safety standards, many of which vary across the countries in which MKS' systems
are used. For example, the European Union has published directives specifically
relating to power supplies. MKS must comply with these directives in order to
ship MKS' systems into countries that are members of the European Union. MKS
believes it is in compliance with current applicable regulations, directives and
standards and has obtained all necessary permits, approvals, and authorizations
to conduct MKS' business. However, compliance with future regulations,
directives and standards could require it to modify or redesign certain systems,
make capital expenditures or incur substantial costs. If MKS does not comply
with current or future regulations, directives and standards:
- - MKS could be subject to fines;
- - MKS' production could be suspended; or
- - MKS could be prohibited from offering particular systems in specified
markets.
CERTAIN STOCKHOLDERS HAVE A SUBSTANTIAL INTEREST IN MKS AND MAY BE ABLE TO EXERT
SUBSTANTIAL INFLUENCE OVER MKS' ACTIONS.
As of January 31, 2002, John R. Bertucci, president, chairman and chief
executive officer of MKS, and certain members of his family, in the aggregate,
beneficially owned approximately 29.8% of MKS' outstanding common stock. As a
result, these stockholders, acting together, are able to exert substantial
influence over the actions of MKS. Pursuant to the acquisition of the ENI
Business of Emerson Electric Co. ("Emerson"), MKS issued approximately 24% of
its then outstanding shares of common stock to Emerson. Accordingly, Emerson is
able to exert substantial influence over MKS' actions.
SOME PROVISIONS OF MKS' RESTATED ARTICLES OF ORGANIZATION, AS AMENDED, MKS'
AMENDED AND RESTATED BY-LAWS AND MASSACHUSETTS LAW COULD DISCOURAGE POTENTIAL
ACQUISITION PROPOSALS AND COULD DELAY OR PREVENT A CHANGE IN CONTROL OF MKS.
Anti-takeover provisions could diminish the opportunities for stockholders to
participate in tender offers, including tender offers at a price above the then
current market value of the common stock. Such provisions may also inhibit
increases in the market price of the common stock that could result from
takeover attempts. For example, while MKS has no present plans to issue any
preferred stock, MKS' board of directors, without further stockholder approval,
may issue preferred stock that could have the effect of delaying, deterring or
preventing a change in control of MKS. The issuance of preferred stock could
adversely affect the voting power of the holders of MKS' common stock, including
the loss of voting control to others. In addition, MKS' amended and restated
by-laws provide for a classified board of directors consisting of three classes.
The classified board could also have the effect of delaying, deterring or
preventing a change in control of MKS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning market risk is contained in the Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Consolidated Financial Statements for year ended December 31, 2001, which was
filed on Form 10-K on April 1, 2002. MKS enters into local currency purchased
options and forward exchange contracts to reduce currency exposure arising from
intercompany sales of inventory. The potential fair value loss for a
hypothetical 10% adverse change in currency exchange rates on MKS' local
currency purchased options at June 30, 2002 would be approximately $72,000. The
potential loss was estimated by calculating the fair value of the local currency
purchased options at June 30, 2002 and comparing that with those calculated
using the hypothetical currency exchange rates. The potential fair value loss
for a hypothetical 10% adverse change in the forward currency exchange rate on
MKS' forward exchange contracts at June 30, 2002 would be $224,000. The
potential loss was estimated by calculating the fair value of the forward
exchange contacts at June 30, 2002 and comparing that with those calculated
using the hypothetical forward currency exchange rate.
25
As of June 30, 2002, MKS had $4.0 million in inter-company debt denominated in
Japanese Yen. MKS entered into forward exchange contracts to reduce the currency
exposure arising from this debt. The potential fair value loss for a
hypothetical 10% adverse change in the forward currency exchange rates on MKS'
forward exchange contracts would be $523,000. However, since the forward
contracts hedge the inter-company debt denominated in Yen, any change in the
fair value of the contracts would be offset by opposite changes in the
underlying value of the inter-company debt being hedged. The potential loss was
estimated by calculating the fair value of the forward exchange contracts at
June 30, 2002 and comparing that with those calculated using the hypothetical
forward currency exchange rate.
There were no other material changes in MKS' exposure to market risk from
December 31, 2001.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 30, 2000, Applied Science and Technology, Inc. ("ASTeX"), which was
acquired by the Company in January 2001, brought suit in federal district court
in Delaware against Advanced Energy Industries, Inc. ("Advanced Energy") for
infringement of ASTeX's patent related to its Astron product. The Company is
seeking injunctive relief and damages for infringement. Advanced Energy has
filed a counterclaim seeking judgements that the patent is invalid,
unenforceable, and not infringed, in addition to costs, and attorneys' fees. The
Company believes that the counterclaim is without merit. On May 17, 2002, a jury
affirmed the validity of the Company's patent and found that Advanced Energy
infringed the patent. The jury awarded the Company $4.2 million in damages. On
May 31, 2002, based on the jury's findings, the Court entered a judgement on the
infringement claim and damage amount in favor of the Company and against
Advanced Energy. The Court awarded $4.2 million in damages to compensate the
Company for Advanced Energy's infringing activity. Advanced Energy filed motions
to overturn the verdict. Accordingly, the Company has not recorded the awarded
amount as of June 30, 2002.
There were no other material litigation developments since the filing of MKS
Annual Report on Form 10-K on April 1, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds from Sales of Registered Securities.
The Company has previously provided information on Form 10-Q for the quarter
ended September 30, 2000 relating to the use of proceeds from the sale of
securities by the Company pursuant to the Registration Statement on Form S-1
(Reg. No. 333-71363) that was declared effective by the Securities and Exchange
Commission on March 29, 1999. As of June 30, 2002, approximately $30.8 million
of the net proceeds from the securities sold has been used to acquire
businesses. There has been no other change to the information previously
provided.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of stockholders held on May 16, 2002 (the
"Annual Meeting"), the following proposals were approved as further specified
below:
1. Election of Directors:
For Withheld Authority
--- ------------------
John R. Bertucci 44,847,475 3,288,877
Robert R. Anderson 47,819,739 316,613
26
2. Amendment to the Restated Articles of Organization, as amended,
increasing the number of authorized shares of common stock from
75,000,000 to 200,000,000.
For Against Abstain/Broker Non-Votes
- --- ------- ------------------------
44,941,542 3,179,352 15,459
3. Amendment to the Company's Amended and Restated 1995 Stock
Incentive Plan, as amended, increasing the number of authorized
shares of common stock from 9,750,000 to 15,000,000.
For Against Abstain/Broker Non-Votes
- --- ------- ------------------------
34,895,172 10,447,436 2,793,744
4. Amendment to the Company's Amended and Restated 1999 Employee
Stock Purchase Plan, as amended, increasing the number of
authorized shares of common stock from 450,000 to 700,000.
For Against Abstain/Broker Non-Votes
- --- ------- ------------------------
44,821,412 545,554 2,769,387
5. Amendment to the Company's International Employee Stock Purchase
Plan, as amended, increasing the number of authorized shares of
common stock from 50,000 to 75,000.
For Against Abstain/Broker Non-Votes
- --- ------- ------------------------
44,764,779 605,750 2,765,824
6. Ratification of appointment of PricewaterhouseCoopers LLP as
independent accountants.
For Against Abstain/Broker Non-Votes
- --- ------- ------------------------
47,351,954 754,844 29,555
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Exhibit Description
- ----------- -------------------
3.5 Articles of Amendment to Restated Articles of Organization, as amended
10.1 Second Restated 1995 Stock Incentive Plan
10.6 Second Restated 1999 Employee Stock Purchase Plan
10.7 Restated International Employee Stock Purchase Plan
10.35 First Amended and Restated Credit Agreement dated July 31, 2002
by and among MKS Instruments, Inc. as Borrower, Fleet
National Bank as Agent and Lender, and JPMorgan Chase Bank
as Lender
21.1 List of Subsidiaries
99.1 Statement Pursuant to 18 U.S.C. (sec) 1350
27
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission a Current
Report on Form 8-K/A on April 15, 2002 which report amended a Current
Report on Form 8-K originally filed with the Securities and Exchange
Commission on February 12, 2002, to report under Item 7 (Financial
Statements, Pro Forma Financial Information and Exhibits) the following
financial statements:
Report of Independent Accountants
Combined Balance Sheets as of September 30, 2001 and 2000
Combined Statements of Income for the Years ended September 30,
2001, 2000 and 1999
Combined Statements of Divisional Control and Comprehensive
Income for the Years ended September 30, 2001, 2000 and 1999
Combined Statements of Cash Flows for the Years ended September
30, 2001, 2000 and 1999
Notes to the Combined Financial Statements
Unaudited Pro Forma Combined Consolidated Balance Sheet as of
December 31, 2001
Unaudited Pro Forma Combined Consolidated Statement of
Operations for the Year ended December 31, 2001
Notes to the Unaudited Pro Forma Combined Consolidated
Financial Statements
28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MKS INSTRUMENTS, INC.
August 13, 2002 By: /s/ Ronald C. Weigner
-----------------------------------------
Ronald C. Weigner
Vice President and Chief Financial Officer
(Principal Financial Officer)
29
EXHIBIT INDEX
Exhibit No. Exhibit Description
- -----------
3.5 Articles of Amendment to Restated Articles of Organization, as amended
10.1 Second Restated 1995 Stock Incentive Plan
10.6 Second Restated 1999 Employee Stock Purchase Plan
10.7 Restated International Employee Stock Purchase Plan
10.35 First Amended and Restated Credit Agreement dated July 31, 2002 by and among MKS Instruments, Inc. as
Borrower, Fleet National Bank as Agent and Lender, and JPMorgan Chase Bank as Lender
21.1 List of Subsidiaries
99.1 Statement Pursuant to 18 U.S.C. (sec) 1350
30