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8-K - LIVE FILING - MKS INSTRUMENTS INChtm_48676.htm

(MKS LOGO)

EXHIBIT 99.1

Contact: Seth H. Bagshaw
Vice President, Chief Financial Officer & Treasurer
Telephone: 978.645.5578

MKS Instruments Reports Q3 2013 Financial Results

Andover, Mass., October 23, 2013 — MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports third quarter 2013 financial results.

                 
    GAAP Results   Non-GAAP Results
Net revenues ($ millions)
  $ 166     $ 166  
Gross margin
    37.4 %     41.2 %
Operating margin
    7.4 %     12.2 %
Net income/Net earnings ($ millions)
  $ 2.5     $ 13.3  
Diluted EPS
  $ 0.05     $ 0.25  

Third Quarter Financial Results

Sales were $166 million, an increase of 6% from $157 million in the second quarter, and an increase of 18% from $141 million in the third quarter of 2012.

Third quarter net income was $2.5 million, or $0.05 per diluted share, compared to net income of $7.3 million, or $0.14 per diluted share in the second quarter of 2013, and $2.6 million, or $0.05 per diluted share in the third quarter of 2012.

Non-GAAP net earnings, which exclude special items, were $13.3 million, or $0.25 per diluted share, compared to $7.3 million, or $0.14 per diluted share in the second quarter of 2013, and $8.4 million, or $0.16 per diluted share in the third quarter of 2012. Non-GAAP net earnings in the third quarter of 2013 exclude certain excess and obsolete inventory charges, restructuring charges, amortization of acquired intangible assets, discrete tax adjustments, and the related tax impact of these adjustments.

In the third quarter, the Company paid a quarterly cash dividend of $0.16 per share which was paid on September 13th.

Leo Berlinghieri, Chief Executive Officer, said, “We have seen a recent acceleration in order rates, particularly from our customers in the semiconductor industry, and anticipate continued sales growth in the fourth quarter. Semiconductor industry analysts are projecting that 2014 should be a good year for the industry, driven by ongoing transitions to smaller geometries and implementation of new device technologies in support of demand for full featured mobile devices.

“Given current business levels, we anticipate that sales in the fourth quarter may range from $185 million to $200 million, and, at these volumes, our GAAP net income per share could range from $0.28 to $0.38 and non-GAAP net earnings could range from $0.31 to $0.41 per share.”

Conference Call Details

A conference call with management will be held on Thursday, October 24, 2013 at 8:30 a.m. (Eastern Time). To participate in the conference call, please dial (877) 212-6076 for domestic callers and (707) 287-9331 for international callers and an operator will connect you. Participants will need to provide the operator with the Conference ID of 68499581, which has been reserved for this call. A live and archived webcast of the call will be available on the company’s website at www.mksinst.com.

Use of Non-GAAP Financial Results

Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of acquired intangible assets, costs associated with acquisitions, restructuring charges, certain excess and obsolete inventory charges, litigation settlements and related insurance reimbursements, certain supplemental executive retirement costs, discrete tax benefits and charges and the related tax effect of any adjustments. These non-GAAP measures are not in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP). MKS’ management believes the presentation of these non-GAAP financial measures is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results.

About MKS Instruments

MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. Our products are derived from our core competencies in pressure measurement and control, materials delivery, gas composition analysis, control and information technology, power and reactive gas generation, and vacuum technology. Our primary served markets are manufacturers of capital equipment for semiconductor devices, and for other thin film applications including flat panel displays, solar cells, light emitting diodes, data storage media, and other advanced coatings. We also leverage our technology in other markets with advanced manufacturing applications including medical equipment, pharmaceutical manufacturing, energy generation and environmental monitoring.

Forward-Looking Statements

This release contains projections or other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27 of the Securities Act, and Section 21E of the Securities Exchange Act regarding MKS’ future growth and the future financial performance of MKS. These projections or statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements set forth herein. Among the important factors that could cause actual events to differ materially from those in the projections or other forward-looking statements are the fluctuations in capital spending in the semiconductor industry, and other advanced manufacturing markets, fluctuations in net sales to MKS’ major customers, potential fluctuations in quarterly results, the challenges, risks and costs involved with integrating the operations of MKS and any acquired companies, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing and sourcing risks, volatility of stock price, international operations, financial risk management, and future growth subject to risks. Readers are referred to MKS’ filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for a discussion of these and other important risk factors concerning MKS and its operations. MKS is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

###

1

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)

                         
    Three Months Ended (Note 7)
    September 30, 2013   September 30, 2012   June 30, 2013
Net revenues:
                       
Products
  $ 139,846     $ 114,647     $ 132,541  
Services
    26,607       26,800       24,387  
 
                       
Total net revenues
    166,453       141,447       156,928  
Cost of revenues:
                       
Products
    87,809       68,304       79,206  
Services
    16,410       16,572       15,764  
 
                       
Total cost of revenues
    104,219       84,876       94,970  
Gross profit
    62,234       56,571       61,958  
Research and development
    15,257       14,136       16,813  
Selling, general and administrative
    33,158       29,661       34,849  
Insurance reimbursement
                (1,071 )
Litigation
          5,316        
Completed acquisition costs
          851        
Restructuring
    1,126             198  
Amortization of intangible assets
    361       215       742  
 
                       
Income from operations
    12,332       6,392       10,427  
Interest income, net
    208       267       211  
 
                       
Income before income taxes
    12,540       6,659       10,638  
Provision for income taxes
    10,082       4,079       3,318  
 
                       
Net income
  $ 2,458     $ 2,580     $ 7,320  
 
                       
Net income per share:
                       
Basic
  $ 0.05     $ 0.05     $ 0.14  
Diluted
  $ 0.05     $ 0.05     $ 0.14  
Cash dividends per common share
  $ 0.16     $ 0.16     $ 0.16  
Weighted average shares outstanding:
                       
Basic
    53,165       52,854       53,054  
Diluted
    53,513       53,290       53,358  
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
                       
Net income
  $ 2,458     $ 2,580     $ 7,320  
Adjustments (net of tax, if applicable):
                       
Income tax charge (Note 1)
    6,481              
Credits on U.S. tax expense (Note 2)
    (1,200 )            
Insurance reimbursement (Note 3)
                (1,071 )
Litigation (Note 3)
          5,316        
Excess and obsolete charge (Note 4)
    6,423              
Acquisition inventory step-up
          101        
Completed acquisition costs (Note 5)
          851        
Restructuring (Note 6)
    1,126             198  
Amortization of intangible assets
    361       215       742  
Pro forma tax adjustments
    (2,355 )     (626 )     61  
 
                       
Non-GAAP net earnings (Note 7)
  $ 13,294     $ 8,437     $ 7,250  
 
                       
Non-GAAP net earnings per share (Note 7)
  $ 0.25     $ 0.16     $ 0.14  
 
                       
Weighted average shares outstanding
    53,513       53,290       53,358  
Income from operations
  $ 12,332     $ 6,392     $ 10,427  
Adjustments:
                       
Insurance reimbursement (Note 3)
                (1,071 )
Litigation (Note 3)
          5,316        
Excess and obsolete charge (Note 4)
    6,423              
Acquisition inventory step-up
          101        
Completed acquisition costs (Note 5)
          851        
Restructuring (Note 6)
    1,126             198  
Amortization of intangible assets
    361       215       742  
 
                       
Non-GAAP income from operations
  $ 20,242     $ 12,875     $ 10,296  
 
                       
Non-GAAP operating margin percentage
    12.2 %     9.1 %     6.6 %
 
                       
Gross profit
  $ 62,234     $ 56,571     $ 61,958  
Excess and obsolete charge (Note 4)
    6,423              
 
                       
Non-GAAP gross profit
  $ 68,657     $ 56,571     $ 61,958  
 
                       
Non-GAAP gross profit percentage
    41.2 %     40.0 %     39.5 %
 
                       

Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.

Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.

Note 3: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year settlement.

Note 4: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.

Note 5: Costs related to the Company’s acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company’s acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.

Note 6: The three month periods ended September 30, 2013 and June 30, 2013, include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.

Note 7: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with acquisitions, a litigation settlement, a benefit related to an insurance reimbursement, excess and obsolete charge related to unique product in a solar application and the related tax effect of these adjustments and pro-forma income tax adjustments to reflect the expected full year effective tax rate in the quarter.

2

MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)

                                                 
    Three Months Ended September 30, 2013   Three Months Ended June 30, 2013
     Income Before    Provision for    Effective    Income Before    Provision for    Effective
     Income Taxes     Income Taxes     Tax Rate     Income Taxes     Income Taxes     Tax Rate 
GAAP                
  $          12,540   $         10,082      80.4%      $         10,638   $         3,318      31.2%   
Adjustments:
                                               
Income tax charge (Note 1)
    (6,481 )                    
Credits on U.S. tax expense (Note 2)
    1,200                    
Insurance reimbursement (Note 4)
              (1,071 )          
Excess and obsolete charge (Note 5)
  6,423                      
Restructuring (Note 7)
  1,126             198          
Amortization of intangible assets
  361             742          
Tax effect of pro forma adjustments
    767             (147 )        
Adjustment to pro forma tax rate
    1,588             86        
 
                               
Non-GAAP
  $       20,450   $       7,156      35.0%      $       10,507   $       3,257      31.0%   
 
                               
                         
    Three Months Ended September 30, 2012
     Income Before     Provision for    Effective
     Income Taxes     Income Taxes     Tax Rate 
GAAP
  $       6,659     $       4,079         61.3%    
Adjustments:
                       
Litigation (Note 4)
    5,316                
Completed acquisition costs (Note 6)
    851                
Acquisition inventory step-up
    101                
Amortization of intangible assets
    215       2,390          
Tax effect of pro forma adjustments
          (1,764 )        
 
                       
Non-GAAP
  $       13,142     $       4,705       35.8%    
 
                       
                                                 
    Nine Months Ended September 30, 2013   Nine Months Ended September 30, 2012
     Income Before    Provision for    Effective    Income Before    Provision for    Effective
     Income Taxes     Income Taxes     Tax Rate     Income Taxes     Income Taxes     Tax Rate 
GAAP                
  $          28,145   $         12,606      44.8%      $         68,276   $         24,356      35.7%   
Adjustments:
                                               
Income tax charge (Note 1)
    (6,481 )                    
Credits on U.S. tax expense (Note 2)
    1,200                    
Tax benefit (Note 3)
    2,353                    
Insurance reimbursement (Note 4)
  (1,071 )                      
Litigation (Note 4)
              5,316          
Excess and obsolete charge (Note 5)
  6,423                      
Completed acquisition costs (Note 6)
  171             1,258          
Acquisition inventory step-up
              101          
Restructuring (Note 7)
  1,364                      
Amortization of intangible assets
  1,537             453          
Tax effect of pro forma adjustments
    802             2,611        
Adjustment to pro forma tax rate
    2,319             28        
 
                               
Non-GAAP
  $       36,569   $       12,799      35.0%      $       75,404   $       26,995      35.8%   
 
                               

Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.

Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.

Note 3: Tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.

Note 4: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year settlement.

Note 5: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.

Note 6: Costs related to the Company’s acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company’s acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.

Note 7: The three and nine month periods ended September 30, 2013 and the three month period ended June 30, 2013, include restructuring charges primarily for severance related costs related to the consolidation of certain facilities.

3

MKS Instruments, Inc.
Reconciliation of Q4-13 Guidance — GAAP Net Income to Non-GAAP Net Earnings
(In thousands, except per share data)

                                 
    Three Months Ended December 31, 2013
    Low Guidance   High Guidance
    $ Amount   $ Per Share   $ Amount   $ Per Share
GAAP net income
  $ 14,800     $ 0.28     $ 20,100     $ 0.38  
Executive retirement costs (Note 1)
    2,300       0.04       2,300       0.04  
Amortization
    400       0.01       400       0.01  
Restructuring (Note 2)
    100       0.00       100       0.00  
Tax effect of adjustments (Note 3)
    (1,000 )     (0.02 )     (1,000 )     (0.02 )
 
                               
Non-GAAP net earnings
  $ 16,600     $ 0.31     $ 21,900     $ 0.41  
 
                               
Q4 - 13 Forecasted Shares
            53,600               53,600  

Note 1: As of December 30, 2013, the Company’s Chief Executive Officer will retire and this amount includes the estimated costs related to his supplemental executive retirement plan and other fringe benefits.

Note 2: The three month period ended December 31, 2013, includes the estimated remaining restructuring charges primarily for severance related costs related to the consolidation of certain facilities.

Note 3: The Non-GAAP adjustments are tax effected at estimated Q4-13 tax rate of 35%.

4

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)

                 
    Nine Months Ended
    September 30, (Note 8)
    2013   2012
Net revenues:
               
Products
  $ 388,998     $ 427,986  
Services
    76,028       81,726  
 
               
Total net revenues
    465,026       509,712  
Cost of revenues:
               
Products
    237,590       243,950  
Services
    48,542       48,884  
 
               
Total cost of revenues
    286,132       292,834  
Gross profit
    178,894       216,878  
Research and development
    47,318       45,911  
Selling, general and administrative
    102,140       96,332  
Insurance reimbursement
    (1,071 )      
Litigation
          5,316  
Completed acquisition costs
    171       1,258  
Restructuring
    1,364        
Amortization of intangible assets
    1,537       453  
 
               
Income from operations
    27,435       67,608  
Interest income, net
    710       668  
 
               
Income before income taxes
    28,145       68,276  
Provision for income taxes
    12,606       24,356  
 
               
Net income
  $ 15,539     $ 43,920  
 
               
Net income per share:
               
Basic
  $ 0.29     $ 0.83  
Diluted
  $ 0.29     $ 0.82  
Cash dividends per common share
  $ 0.48     $ 0.46  
Weighted average shares outstanding:
               
Basic
    52,998       52,679  
Diluted
    53,410       53,240  
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS’ operating results:
               
Net income
  $ 15,539     $ 43,920  
Adjustments (net of tax, if applicable):
               
Income tax charge (Note 1)
    6,481        
Credits on U.S. tax expense (Note 2)
    (1,200 )      
Tax benefit (Note 3)
    (2,353 )      
Insurance reimbursement (Note 4)
    (1,071 )      
Litigation (Note 4)
          5,316  
Excess and obsolete charge (Note 5)
    6,423        
Acquisition inventory step-up
          101  
Completed acquisition costs (Note 6)
    171       1,258  
Restructuring (Note 7)
    1,364        
Amortization of intangible assets
    1,537       453  
Pro forma tax adjustments
    (3,121 )     (2,639 )
 
               
Non-GAAP net earnings (Note 6)
  $ 23,770     $ 48,409  
 
               
Non-GAAP net earnings per share (Note 6)
  $ 0.45     $ 0.91  
 
               
Weighted average shares outstanding
    53,410       53,240  
Income from operations
  $ 27,435     $ 67,608  
Adjustments:
               
Insurance reimbursement (Note 4)
    (1,071 )      
Litigation (Note 4)
          5,316  
Excess and obsolete charge (Note 5)
    6,423        
Acquisition inventory step-up
          101  
Completed acquisition costs (Note 6)
    171       1,258  
Restructuring (Note 7)
    1,364        
Amortization of intangible assets
    1,537       453  
 
               
Non-GAAP income from operations
  $ 35,859     $ 74,736  
 
               
Non-GAAP operating margin percentage
    7.7 %     14.7 %
 
               
Gross profit
  $ 178,894     $ 216,878  
Excess and obsolete charge (Note 5)
    6,423        
 
               
Non-GAAP gross profit
  $ 185,317     $ 216,878  
 
               
Non-GAAP gross profit percentage
    39.9 %     42.5 %
 
               

Note 1: In the third quarter of 2013, we incurred income tax charges of $6.5 million related to an election to pay currently, at a substantially reduced rate, taxes on certain accumulated earnings from the years 2001 to 2011 of one of our foreign subsidiaries.

Note 2: In the third quarter of 2013, we received $1.2 million in credits against U.S. tax expense on amended returns related to prior years.

Note 3: Tax benefit related to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013.

Note 4: In the third quarter of 2012, we incurred $5.3 million in charges to settle litigation with former shareholders of one of our former subsidiaries. This litigation was long standing and the decision to reach a settlement was made to eliminate future legal expenses related to the suit. In the second quarter of 2013, we recovered $1.1 million from our insurance company relating to the prior year settlement.

Note 5: Cost of sales for the three month period ended September 30, 2013, include $6.4 million of special charges for obsolete inventory related to unique product in a solar application in which slowing market conditions provide uncertainty as to the net realizable value of this inventory.

Note 6: Costs related to the Company’s acquisition of Alter Power Systems S.r.l., in March 2013, are comprised of legal fees. Costs related to the Company’s acquisition of Plasmart, Inc. in August 2012, are comprised of investment banking fees, legal fees and due diligence fees.

Note 7: The nine month period ended September 30, 2013, includes restructuring charges primarily for severance related costs related to the consolidation of certain facilities.

Note 8: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, restructurings, costs associated with acquisitions, a litigation settlement, a benefit related to an insurance reimbursement, excess and obsolete charge related to unique product in a solar application and the related tax effect of these adjustments and pro-forma income tax adjustments to reflect the expected full year effective tax rate in the quarter.

5

MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)

                 
    September 30, 2013   December 31, 2012
ASSETS
               
Cash and cash equivalents
  $ 254,778     $ 287,588  
Short-term investments
    365,876       327,653  
Trade accounts receivable, net
    98,133       82,060  
Inventories
    136,060       134,639  
Deferred income taxes
    10,059       8,194  
Other current assets
    28,651       28,048  
 
               
Total current assets
    893,557       868,182  
Property, plant and equipment, net
    78,020       80,516  
Long-term investments
    5,183       12,158  
Goodwill
    150,700       150,733  
Intangible assets, net
    13,316       11,561  
Other assets
    31,198       29,412  
 
               
Total assets
  $ 1,171,974     $ 1,152,562  
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Accounts payable
  $ 27,304     $ 16,803  
Accrued compensation
    25,190       20,955  
Income taxes payable
    7,768       4,148  
Other current liabilities
    35,899       37,405  
 
               
Total current liabilities
    96,161       79,311  
Other liabilities
    70,391       61,095  
Stockholders’ equity:
               
Common stock
    113       113  
Additional paid-in capital
    726,018       718,005  
Retained earnings
    267,246       278,583  
Other stockholders’ equity
    12,045       15,455  
 
               
Total stockholders’ equity
    1,005,422       1,012,156  
 
               
Total liabilities and stockholders’ equity
  $ 1,171,974     $ 1,152,562  
 
               

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