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MKS Instruments Reports Q3 2012 Financial Results

ANDOVER, Mass., Oct. 24, 2012 (GLOBE NEWSWIRE) -- MKS Instruments, Inc. (Nasdaq:MKSI), a global provider of technologies that enable advanced processes and improve productivity; today reports third quarter 2012 financial results.

GAAP Results Non-GAAP Results
Net revenues ($ millions) $141.4 $141.4
Operating margin 4.5% 9.1%
Net income ($ millions) $2.6 $8.4
Diluted EPS $0.05 $0.16

Third Quarter Financial Results

Sales were $141.4 million, a decrease of 20% from $177.4 million in the second quarter of 2012, and a decrease of 27% from $194.5 million in the third quarter of 2011.

Third quarter net income was $2.6 million, or $0.05 per diluted share, compared to net income of $18.6 million, or $0.35 per diluted share in the second quarter of 2012, and $30.4 million, or $0.57 per diluted share in the third quarter of 2011.

Non-GAAP net earnings, which exclude special charges, were $8.4 million, or $0.16 per diluted share, compared to $18.9 million, or $0.36 per diluted share in the second quarter of 2012, and $30.6 million, or $0.58 per diluted share in the third quarter of 2011.

In the third quarter, the board of directors authorized an increase in the Company's quarterly cash dividend from $0.15 per share to $0.16 per share which was paid on September 14th and the Company also repurchased 76,600 shares for $2.1 million at an average price of $26.97 pursuant to the share repurchase program announced in July of 2011.

Leo Berlinghieri, Chief Executive Officer and President, said, "Forecasts by industry analysts and recent earnings reports by our customers indicate that the semiconductor industry will decrease further in the fourth quarter, and the solar and LED equipment markets are also expected to remain depressed until excess capacity is absorbed. In this environment we are cautious and have implemented additional measures to curtail non-critical spending.

"Given current business levels, we anticipate that sales in the fourth quarter may range from $115 million to $135 million. At these volumes, our GAAP net income could range from a net loss of $(0.08) per basic share to net income of $0.05 per diluted share. Non-GAAP net earnings could range from a net loss of $(0.07) per basic share to net earnings of $0.06 per diluted share. While near term business conditions are challenging, we are continuing to work closely with customers on design wins and are continuing to make investments to position ourselves for long term growth."

Conference Call Details

A conference call with management will be held on Thursday, October 25, 2012 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 38424683, 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 legal settlement charges, amortization of intangible assets, costs associated with acquisitions and disposition related charges, and certain adjustments to income taxes. 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, which exclude legal settlement charges, amortization of intangible assets, costs associated with acquisitions, the related tax effect of any adjustments and pro-forma tax adjustments to reflect the expected full year effective tax rate in the quarter, is useful to investors for comparing prior periods and analyzing ongoing business trends and operating results. Non-GAAP net earnings (loss) per share guidance, excludes amortization of intangible assets and special charges net of tax.

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, including a pending investigation on export compliance in China, 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, as well as recent press releases, 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.

MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended (Notes 3 and 4)
September 30, September 30, June 30,
2012 2011 2012
Net revenues $ 141,447 $ 194,508 $ 177,397
Cost of revenues 84,876 106,830 100,881
Gross profit 56,571 87,678 76,516
Research and development 14,136 14,331 15,591
Selling, general and administrative 29,661 31,984 32,582
Litigation settlements 5,316 -- --
Completed acquisition costs 851 -- 377
Amortization of intangible assets 215 251 119
Income from operations 6,392 41,112 27,847
Interest income, net 267 272 149
Income before income taxes 6,659 41,384 27,996
Provision for income taxes 4,079 11,011 9,424
Net income $ 2,580 $ 30,373 $ 18,572
Basic income per share:
Net income $ 0.05 $ 0.58 $ 0.35
Diluted income per share:
Net income $ 0.05 $ 0.57 $ 0.35
Cash dividends per common share $ 0.16 $ 0.15 $ 0.15
Weighted average shares outstanding:
Basic 52,854 52,456 52,679
Diluted 53,290 52,992 53,206
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
Net income $ 2,580 $ 30,373 $ 18,572
Adjustments (net of tax, if applicable):
Completed acquisition costs (Note 1) 851 -- 377
Acquisition inventory step-up 101 -- --
Litigation settlements (Note 2) 5,316 -- --
Amortization of intangible assets 215 251 119
Pro forma tax adjustments (626) (67) (176)
Non-GAAP net earnings (Note 3) $ 8,437 $ 30,557 $ 18,892
Non-GAAP net earnings per share (Note 3) $ 0.16 $ 0.58 $ 0.36
Weighted average shares outstanding 53,290 52,992 53,206
Income from operations $ 6,392 $ 41,112 $ 27,847
Adjustments:
Completed acquisition costs (Note 1) 851 -- 377
Acquisition inventory step-up 101 -- --
Litigation settlements (Note 2) 5,316 -- --
Amortization of intangible assets 215 251 119
Non-GAAP income from operations $ 12,875 $ 41,363 $ 28,343
Non-GAAP operating margin 9.1% 21.3% 16.0%
Note 1: 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 2: 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.
Note 3: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, costs associated with acquisitions, litigation settlements, 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.
Note 4: In the third quarter of 2012, the Company has reported completed acquisition costs as a line item separate from selling, general and administrative expenses. The Company has reclassified these costs from selling, general and administrative expenses to this separate line beginning with the first quarter of 2012. These costs have been excluded from Non-GAAP earnings and the second quarter and year to date 2012 Non-GAAP net earnings and Non-GAAP net earnings per share have been adjusted to reflect this change.
MKS Instruments, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Nine Months Ended
September 30, (Notes 3 and 4)
2012 2011
Net revenues $ 509,712 $ 650,846
Cost of revenues 292,834 351,819
Gross profit 216,878 299,027
Research and development 45,911 46,809
Selling, general and administrative 96,332 96,542
Litigation settlements 5,316 --
Completed acquisition costs 1,258 --
Amortization of intangible assets 453 751
Income from operations 67,608 154,925
Interest income, net 668 852
Income from continuing operations before income taxes 68,276 155,777
Provision for income taxes 24,356 48,760
Net income $ 43,920 $ 107,017
Basic income per share:
Net income $ 0.83 $ 2.06
Diluted income per share:
Net income $ 0.82 $ 2.03
Cash dividends per common share $ 0.46 $ 0.45
Weighted average shares outstanding:
Basic 52,679 52,070
Diluted 53,240 52,761
The following supplemental Non-GAAP earnings information is presented to aid in understanding MKS' operating results:
Net income $ 43,920 $ 107,017
Adjustments (net of tax, if applicable):
Completed acquisition costs (Note 1) 1,258 --
Acquisition inventory step-up 101 --
Litigation settlements (Note 2) 5,316 --
Amortization of intangible assets 453 751
Pro forma tax adjustments (2,639) (197)
Non-GAAP net earnings (Note 3) $ 48,409 $ 107,571
Non-GAAP net earnings per share (Note 3) $ 0.91 $ 2.04
Weighted average shares outstanding 53,240 52,761
Income from operations $ 67,608 $ 154,925
Adjustments:
Completed acquisition costs (Note 1) 1,258 --
Acquisition inventory step-up 101 --
Litigation settlements (Note 2) 5,316 --
Amortization of intangible assets 453 751
Non-GAAP income from operations $ 74,736 $ 155,676
Non-GAAP operating margin 14.7% 23.9%
Note 1: 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 2: 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.
Note 3: The Non-GAAP net earnings and Non-GAAP net earnings per share amounts exclude amortization of intangible assets, costs associated with acquisitions, litigation settlements, 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.
Note 4: In the third quarter of 2012, the Company has reported completed acquisition costs as a line item separate from selling, general and administrative expenses. The Company has reclassified these costs from selling, general and administrative expenses to this separate line beginning with the first quarter of 2012. These costs have been excluded from Non-GAAP earnings and the year to date 2012 Non-GAAP net earnings and Non-GAAP net earnings per share have been adjusted to reflect this change.
MKS Instruments, Inc.
Reconciliation of GAAP Income Tax Rate to Non-GAAP Income Tax Rate
(In thousands)
Three Months Ended September 30, 2012 (Note 3) Three Months Ended June 30, 2012 (Note 3)
Income Before Provision for Effective Income Before Provision for Effective
Income Taxes Income Taxes Tax Rate Income Taxes Income Taxes Tax Rate
GAAP $ 6,659 $ 4,079 61.3% $ 27,996 $ 9,424 33.7%
Adjustments:
Completed acquisition costs (Note 1) 851 -- 377 --
Acquisition inventory step-up 101 -- -- --
Litigation settlements (Note 2) 5,316 -- -- --
Amortization of intangible assets 215 -- 119 --
Tax effect of pro forma adjustments -- 2,390 -- 176
Adjustment to pro forma tax rate -- (1,764) -- --
Non-GAAP $ 13,142 $ 4,705 35.8% $ 28,492 $ 9,600 33.7%
Three Months Ended September 30, 2011 (Note 3)
Income Before Provision for Effective
Income Taxes Income Taxes Tax Rate
GAAP $ 41,384 $ 11,011 26.6%
Adjustments:
Amortization of intangible assets 251 --
Tax effect of pro forma adjustments -- 67
Adjustment to pro forma tax rate -- --
Non-GAAP $ 41,635 $ 11,078 26.6%
Nine Months Ended September 30, 2012 (Note 3) Nine Months Ended September 30, 2011 (Note 3)
Income Before Provision for Effective Income Before Provision for Effective
Income Taxes Income Taxes Tax Rate Income Taxes Income Taxes Tax Rate
GAAP $ 68,276 $ 24,356 35.7% $ 155,777 $ 48,760 31.3%
Adjustments:
Completed acquisition costs (Note 1) 1,258 -- -- --
Acquisition inventory step-up 101 -- -- --
Litigation settlements (Note 2) 5,316 -- -- --
Amortization of intangible assets 453 -- 751 --
Tax effect of pro forma adjustments -- 2,611 -- 197
Adjustment to pro forma tax rate -- 28 -- --
Non-GAAP $ 75,404 $ 26,995 35.8% $ 156,528 $ 48,957 31.3%
Note 1: 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 2: 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.
Note 3: The Non-GAAP net earnings before taxes exclude amortization of intangible assets, costs associated with acquisitions, litigation settlements, 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.
MKS Instruments, Inc.
Unaudited Consolidated Balance Sheet
(In thousands)
September 30, December 31,
2012 2011
ASSETS
Cash and short-term investments $ 583,634 $ 565,519
Trade accounts receivable, net 87,536 120,894
Inventories 145,518 153,632
Other current assets 36,249 44,856
Total current assets 852,937 884,901
Property, plant and equipment, net 77,493 72,487
Long-term investments 40,062 7,873
Goodwill 149,887 140,084
Intangible assets, net 11,843 1,043
Other assets 10,080 12,266
Total assets $ 1,142,302 $ 1,118,654
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 4,164 $ 1,932
Accounts payable 16,395 24,853
Accrued expenses and other liabilities 68,631 69,646
Total current liabilities 89,190 96,431
Other liabilities 37,925 32,211
Stockholders' equity:
Common stock 113 113
Additional paid-in capital 715,001 707,419
Retained earnings 284,802 268,870
Other stockholders' equity 15,271 13,610
Total stockholders' equity 1,015,187 990,012
Total liabilities and stockholders' equity $ 1,142,302 $ 1,118,654
CONTACT: Seth H. Bagshaw Vice President, Chief Financial Officer & Treasurer Telephone: 978.645.5578Source:MKS Instruments, Inc.