MKS Instruments, Inc. — 2010 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2010, MKS reported as one operating segment. It supplies instruments, subsystems, and process-control solutions for semiconductor and other advanced manufacturing markets. The filing also provides fourth-quarter 2010 results; this is an annual report, not a quarterly filing.
Financial performance
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Revenue | $853.1 million | $392.7 million |
| Gross profit / gross margin | $378.6 million / 44.4% | $130.2 million / 33.2% |
| Operating income (loss) / margin | $195.5 million / 22.9% | ($171.7 million) / (43.7%) |
| Continuing-operations income (loss) | $132.9 million | ($149.4 million) |
| Net income (loss) | $142.6 million; diluted EPS $2.80 | ($212.7 million); diluted EPS ($4.31) |
| Cash from operations | $163.5 million | $4.9 million |
Fourth-quarter 2010 revenue was $219.0 million, gross profit was $97.3 million, continuing-operations income was $34.2 million, and net income was $35.9 million (diluted EPS $0.70). In fourth-quarter 2009, revenue was $142.8 million and net income was $14.9 million.
At December 31, 2010, cash and cash equivalents were $162.5 million and short-term investments were $269.5 million, totaling $431.9 million. Working capital was $643.2 million. There was no short- or long-term debt reported at year-end; Japanese subsidiary credit arrangements provided up to approximately $30.7 million, with no amounts drawn. Capital expenditures were $15.8 million. The board declared a quarterly dividend of $0.15 per share in February 2011.
Changes versus the prior comparable period
- Revenue rose 117.2% year over year, following a 36.8% decline in 2009. Semiconductor capital-equipment and device-maker sales increased 167% in 2010; other advanced-market sales increased 64%.
- Gross margin improved 11.2 percentage points, reflecting higher volume and favorable product mix, as well as lower excess-inventory charges than in 2009.
- Operating results recovered from the 2009 loss, which included $143.0 million of continuing-operations impairment charges and $5.5 million of restructuring charges. MKS recorded no goodwill or asset impairment charge in 2010.
- Operating cash flow rose to $163.5 million, while receivables and inventory increased by $42.5 million and $52.5 million, respectively, with higher business levels.
Outlook, risks, contingencies, and unusual items
- Management attributed the recovery to an improved global economy and expected other advanced markets to continue growing. It did not provide specific revenue or earnings guidance and emphasized uncertainty about the timing and extent of semiconductor demand changes.
- Key risks include semiconductor-industry cyclicality, limited order visibility and low backlog, customer concentration, competition, international and foreign-exchange exposure, supplier dependencies, and the ability to develop products for future equipment generations. The top ten customers represented about 45% of 2010 sales; Applied Materials alone represented about 16%.
- MKS sold Ion Systems and the assets of Yield Dynamics in 2010, receiving $15.6 million in net proceeds and recording a combined $4.4 million pretax gain. Their results are presented as discontinued operations; 2010 income from discontinued operations was $9.7 million.
- Research and development expense increased 24.8% to $62.7 million. SG&A increased 19.3% to $119.8 million, partly reflecting restored incentive compensation and employee benefits after 2009 cost reductions.
- The Brooks Instrument patent, contract, and trade-secret lawsuits were settled in February 2011 and dismissed; the filing does not state settlement terms. Management said other ordinary-course legal matters were not expected to have a material adverse effect.
- Purchase commitments totaled $168.4 million, including approximately $141.6 million primarily due within one year. The filing also reports $29.2 million of operating-lease obligations.
- The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether the sharp 2010 rebound is sustainable given semiconductor-cycle exposure, low backlog, and customer concentration.
- How much of operating cash flow remains after working-capital needs, particularly as receivables and inventory rise with sales.
- The drivers and quality of reported earnings, including discontinued-operation gains, tax items, and the absence of 2009-scale impairment charges.
- Future realization of deferred tax assets and the outcome of open tax examinations; gross unrecognized tax benefits were approximately $15.3 million at year-end.
- The terms and any ongoing obligations arising from the Brooks settlement, which are not detailed in the filing.