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MKS Instruments Reports Q3 2012 Financial Results

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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: 978.645.5578
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