MKS INSTRUMENTS INC
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
MKSI$192.27+8.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0000950170-24-057181
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0000950170-24-093615
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 129 previous paragraphs and 140 current paragraphs.
63 unchanged; 40 reworded; 35 added; 24 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 17 previous and 17 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (35)
Current report
For the three months ended June 30, 2024, net revenues in our semiconductor market increased by $18 million, or 5%, compared to the prior quarter primarily due to strong in-quarter demand conversion within VSD.
Current report
For the six months ended June 30, 2024, net revenues in our semiconductor market decreased by $30 million, or 4%, compared to the same period in the prior year. This decrease was mainly due to continued softened demand for semiconductor capital equipment related to deposition and etching, partially offset by an increase in sales of our lithography, metrology and inspection products.
Current report
For the three months ended June 30, 2024, net revenues in our electronics and packaging market increased by $21 million, or 10%, compared to the prior quarter primarily due to an increase in chemistry sales within MSD. This sequential increase was also due to seasonality related to the Lunar New Year in the three months ended March 31, 2024.
Current report
For the six months ended June 30, 2024, net revenues in our electronics and packaging market decreased by $10 million, or 2%, compared to the same period in the prior year. This decrease was primarily due to lower revenue within MSD mainly as a result of lower palladium prices that are passed through to our customers, which were partially offset by volume growth in chemistry sales.
Current report
For the six months ended June 30, 2024, net revenues in our specialty industrial market were essentially flat compared to the same period in the prior year.
Current report
Starting in the second quarter of 2024, we changed our basis of reporting geographical net revenues from the location in which the sale originated to the shipped-to location of the end customer. Prior periods have been recast to reflect this change, which was made to better align with how management reviews geographic net revenues.
Current report
For the six months ended June 30, 2024, net product revenues decreased $73 million compared to the same period in the prior year, primarily due to lower demand in our semiconductor market, with a decrease in net product revenue from VSD partially offset by an increase in net product revenue from PSD. In addition, net product revenues in our electronics and packaging market decreased mainly from lower equipment sales in MSD.
Current report
For the six months ended June 30, 2024, net service revenues increased $31 million compared to the same period in the prior year, primarily due to an increase in net services revenue from VSD and PSD. This increase is reflective of lower product sales, as customers service their older equipment rather than purchase new equipment, and increased prices for servicing.
Current report
For the three months ended June 30, 2024, net revenues from VSD increased $3 million compared to the prior quarter. For the six months ended June 30, 2024, net revenues from VSD decreased $70 million compared to the same period in the prior year, mainly due to a decrease in revenues from customers in the semiconductor market as a result of continued softened demand for semiconductor capital equipment in the deposition and etching tool markets.
Current report
Gross margin for our products decreased for the three months ended June 30, 2024 compared to the prior quarter, mainly as a result of higher warranty costs and higher tariff and duty costs.
Current report
For the three months ended June 30, 2024, research and development expenses decreased $4 million compared to the prior quarter, primarily due to a decrease of $5 million in compensation-related costs, including salaries, fringe and bonus expenses. Research and development expenses decreased by $11 million for the six months ended June 30, 2024 compared to the same period in the prior year, mainly due to decreases of $7 million in compensation-related costs, including salaries, fringe and bonus expenses, $2 million in project material costs and $2 million in test equipment costs.
Current report
Restructuring and other
Current report
During the three months ended June 30, 2023, as a result of softer industry demand, particularly in the personal computer and smartphone markets, we concluded there was a triggering event at our electronics (“EL”) and general metal finishing (“GMF”) reporting units, which together constitute MSD, and the ESB reporting unit of PSD.
Current report
For the EL, GMF and ESB reporting units, we performed a quantitative assessment of goodwill using a combination of market approach and the income approach. Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by our management. There are inherent uncertainties and management judgment required in these determinations.
Current report
This quantitative assessment resulted in a non-cash goodwill impairment of $826 million for the EL reporting unit, $428 million for the GMF reporting unit and $372 million for the ESB reporting unit. In addition, we recorded a $49 million impairment of in-process research and development allocated to the EL reporting unit and a $152 million impairment related to completed technology allocated to the ESB reporting unit.
Current report
We have concluded there were no triggering events across our reporting units through the six months ended June 30, 2024.
Current report
For the three months ended June 30, 2024, interest expense, net decreased $7 million, compared to the prior quarter, primarily related to the issuance of $1.4 billion of Convertible Notes, as defined and described further below under “Convertible Notes,” at a coupon rate of 1.25%, in May 2024. Of the proceeds, $1.2 billion was used to pay down our loans under the Term Loan Facility, as defined and described further below under “Credit Facilities,” at an interest rate of approximately 7.8%. For the six months ended June 30, 2024, interest expense, net decreased by $11 million compared to the same period in the prior year. In addition to the issuance of the Convertible Notes and subsequent pay down of our loans under the Term Loan Facility, interest expense, net was lower as a result of the voluntary prepayments of $100 million in October 2023, $50 million in February 2024 and $50 million in April 2024 on loans under the Term Loan Facility.
Current report
For the three and six months ended June 30, 2024, in connection with the issuance in May 2024 of the Convertible Notes, as defined and described further below under “Credit Facilities,” we recorded a loss on extinguishment of debt as a result of the acceleration of deferred financing and original issue discount costs associated with our loans under the Term Loan Facility.
Current report
For the three months ended March 31, 2024 and the six months ended June 30, 2024, we recorded a loss on extinguishment of debt as a result of the acceleration of deferred financing costs associated with the extinguishment of our senior secured tranche A term loans using proceeds from borrowing additional USD Tranche B and additional Euro Tranche B pursuant to the Second Amendment.
Current report
Benefit (provision) for income taxes
Current report
On July 23, 2024, we entered into the Fourth Amendment to the Credit Agreement (the “Repricing Amendment”). Pursuant to the Repricing Amendment we (i) refinanced the existing USD Tranche B loan and Euro Tranche B loan with a new $2.6 billion USD Tranche B loan and a new €800 million Euro Tranche B loan, (ii) decreased the applicable margin for the USD Tranche B from 2.50% to 2.25% with respect to Term SOFR borrowings and from 1.50% to 1.25% with respect to base rate borrowings, (iii) decreased the applicable margin for the Euro Tranche B from 3.00% to 2.75% and (iv) provided that a 1.00% prepayment premium may be required if we prepay any loans under the Term Loan Facility in connection with a repricing transaction prior to January 23, 2025. In connection with the execution of the Repricing Amendment, we paid customary fees and expenses to JPMorgan Chase Bank, N.A. On July 23, 2024, immediately prior to the effectiveness of the Repricing Amendment, we made a voluntary prepayment of $110 million aggregate principal amount of the Term Loan Facility, consisting of $69 million principal amount of the USD Tranche B loan and €38 million principal amount of the Euro Tranche B loan.
Current report
On May 16, 2024, we completed a private offering of Convertible Notes. A significant portion of the net proceeds from the offering was used to repay approximately $1.2 billion of the USD Tranche B. As a result of the repayment, we recorded a $38 million loss on extinguishment of debt.
Current report
Convertible Notes
Current report
On May 16, 2024, we completed a private offering of $1.4 billion aggregate principal amount of convertible senior notes due 2030 (the “Convertible Notes”). The Convertible Notes were sold in a private placement under a purchase agreement, dated as of May 13, 2024, entered into by and among us and Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, BofA Securities, Inc. and Mizuho Securities USA LLC, as representatives of the several initial purchasers named therein, for resale to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended.
Current report
The net proceeds from the offering were approximately $1.4 billion after deducting the initial purchasers’ discounts and commissions and estimated offering expenses paid by us. We used approximately $167 million of the net proceeds from the offering to pay the cost of the capped call transactions described below. We used the remaining net proceeds from the offering to repay approximately $1.2 billion in borrowings outstanding under the USD Tranche B, together with accrued interest, as well as for general corporate purposes.
Current report
Indenture and the Convertible Notes
Current report
On May 16, 2024, we entered into an indenture (the “Indenture”) with respect to the Convertible Notes with U.S. Bank Trust Company, National Association, as trustee. Under the Indenture, the Convertible Notes are senior unsecured obligations of ours and bear interest at a coupon rate of 1.25% per annum, with interest payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024. The Convertible Notes will mature on June 1, 2030, unless earlier converted, redeemed or repurchased in accordance with their terms.
Current report
Subject to certain conditions, on or after June 5, 2027, we may redeem for cash all or any portion of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the trading day immediately preceding the date the notice of redemption is sent.
Current report
The conversion rate for the Convertible Notes is initially 6.4799 shares of our common stock per one thousand dollars principal amount of Notes, which is equivalent to an initial conversion price of approximately $154.32 per share. The conversion rate is subject to adjustment upon the occurrence of certain events.
Current report
Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. Prior to March 1, 2030, noteholders may convert all or any portion of their Convertible Notes only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date.
Current report
If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date of the Convertible Notes, holders may require us to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Current report
The Indenture contains customary terms and covenants, including that upon certain events of default that are occurring and continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding Convertible Notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the Convertible Notes to be due and payable.
Current report
As of June 30, 2024, the Convertible Notes are classified as a long-term liability, net of issuances costs, on the condensed consolidated balance sheet. The Convertible Notes were issued at par and costs associated with the issuance of the Convertible Notes are amortized to interest expense over the contractual term of the Convertible Notes. As of June 30, 2024, the effective interest rate of the Convertible Notes was 1.56%.
Current report
Capped Call Transactions
Current report
On May 13, 2024, in connection with the pricing of the Convertible Notes, and on May 14, 2024, in connection with the exercise in full by the initial purchasers of their option to purchase additional Convertible Notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers of the Convertible Notes or their respective affiliates and other financial institutions. The capped call transactions are expected generally to reduce the potential dilution to our common stock upon conversion of any Convertible Notes and/or offset any cash payments that we are required to make in excess of the principal amount of any converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $237.42 per share (which represents a premium of 100% over the last reported sale price of $118.71 per share of our common stock on The Nasdaq Global Select Market on May 13, 2024), and is subject to customary adjustments under the terms of the capped call transactions.
Removed paragraphs (24)
Previous report
For the three months ended March 31, 2024, net revenues in our semiconductor market decreased by $11 million, or 3%, compared to the prior quarter primarily due to softened demand for semiconductor capital equipment. Net revenues in our semiconductor market increased by $42 million, or 14%, compared to the same period in the prior year primarily due to lower net revenues in the prior year period as a result of lower order fulfillment due to the ransomware event. This incident had a material impact on our ability to process orders, ship products and provide service to our VSD and PSD customers in the first quarter of 2023.
Previous report
For the three months ended March 31, 2024, net revenues in our electronics and packaging market decreased by $18 million, or 8%, compared to the prior quarter and decreased by $14 million, or 6%, compared to the same period in the prior year. These decreases were primarily the result of continued softness in the consumer electronics market and lower demand in the PCB business. In addition, the decrease compared to the prior quarter was also due to seasonality related to a slowdown in production in China as a result of the Lunar New Year.
Previous report
For the three months ended March 31, 2024, net revenues in our specialty industrial market increased by $46 million, or 17%, compared to the same period in the prior year mainly due to lower revenue in the prior year period as a result of lower order fulfillment due to the ransomware event.
Previous report
For the three months ended March 31, 2024, net product revenues increased $42 million compared to the same period in the prior year mainly due to lower net revenues in the prior year period as a result of lower order fulfillment in VSD and PSD due to the ransomware event. As a result of our inability to fulfill orders, we estimated the ransomware event negatively impacted our revenue in the first quarter of 2023 by approximately $160 million, substantially all of which was recovered in the second and third quarters of 2023, as we shipped orders that were delayed during the first quarter.
Previous report
For the three months ended March 31, 2024, net service revenues increased $32 million compared to the same period in the prior year mainly due to lower net revenues in the prior year period as a result of lower service order fulfillment due to the ransomware event.
Previous report
For the three months ended March 31, 2024, net revenues from VSD decreased $15 million compared to the prior quarter, primarily due to volume decreases in the semiconductor market. For the three months ended March 31, 2024, net revenues from VSD increased $28 million compared to the same period in the prior year mainly due to lower net revenues in the prior year period as a result of lower order fulfillment due to the ransomware event. The increase was mainly in the semiconductor and specialty industrial markets.
Previous report
Gross margin for our products increased for the three months ended March 31, 2024, compared to the prior quarter as a result of favorable product mix, lower material costs and lower scrap expense, partially offset by lower revenue volumes and higher warranty costs.
Previous report
For the three months ended March 31, 2024, research and development expenses were flat compared to the prior quarter, and decreased by $2 million, compared to the same period in the prior year, mainly due to lower test equipment costs.
Previous report
Restructuring
Previous report
On October 31, 2023, we performed our annual goodwill and intangible asset impairment assessment. As a result of a higher weighted average cost of capital, mainly caused by overall higher market interest rates, we recorded non-cash goodwill impairment charges of $48 million at our Electronics (“EL”) reporting unit of MSD and $13 million at our ESB reporting unit. In addition, we recorded a $14 million impairment of in-process research and development allocated to the EL reporting unit. There were no impairments at any of our other reporting units.
Previous report
Interest expense for three months ended March 31, 2024 related to borrowings on the Term Loan Facility, as defined and described further below under “Credit Facilities.” Amounts were comparable in each period reported.
Previous report
In connection with the amendments to our Credit Facilities, as defined and described further below under “Credit Facilities,” we recorded losses on extinguishment of debt.
Previous report
Provision (benefit) for income taxes
Previous report
On October 3, 2023 (the “First Amendment Effective Date”), we entered into the First Amendment to Credit Agreement (the “First Amendment”), which refinanced all of the $3.56 billion outstanding USD Tranche B to (i) decrease the applicable margin for the USD Tranche B to 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings and (ii) remove the credit spread adjustment applicable to Term SOFR borrowings of the USD Tranche B.
Previous report
On January 22, 2024 (the “Second Amendment Effective Date”), we entered into the Second Amendment to Credit Agreement (the “Second Amendment”), pursuant to which we (i) borrowed additional USD Tranche B loans in an aggregate principal amount of $490 million and additional Euro Tranche B loans in an aggregate principal amount of €250 million (collectively, the “Incremental Tranche B Loans”) and (ii) used a portion of the proceeds of the Incremental Tranche B Loans to prepay the USD Tranche A in full in an aggregate principal amount of $744 million.
Previous report
On February 13, 2024, we entered into the Third Amendment to Credit Agreement (the “Third Amendment”), pursuant to which we increased the available borrowing capacity under the Revolving Facility by $175 million (the “Incremental Revolving Commitments”).
Previous report
The USD Tranche A was issued with original issue discount of 0.25% of the principal amount thereof. The USD Tranche B and the Euro Tranche B were issued on the Effective Date with original issue discount of 2.00% of the principal amounts thereof. The USD Tranche B was issued on the First Amendment Effective Date with original issue discount of 0.25% of the principal amount thereof. The Incremental Tranche B Loans were issued with original issue discount of 0.25% of the principal amount thereof.
Previous report
We incurred $242 million of deferred financing fees and original issue discount related to the term loans under the Term Loan Facility funded on the Effective Date, which are included in long-term debt, net in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method.
Previous report
We incurred $11 million of deferred financing fees and original issue discount related to the USD Tranche B funded on the First Amendment Effective Date, of which $9 million is included in long-term debt, net in the accompanying consolidated balance sheets and is being amortized to interest expense over the estimated life of the term loans using the effective interest method. We recorded an $8 million loss on extinguishment of debt in connection with the First Amendment.
Previous report
We incurred $5 million of deferred financing fees and original issue discount related to the Incremental Tranche B Loans funded on the Second Amendment Effective Date, of which $2 million is included in long-term debt, net in the accompanying consolidated balance sheets and is being amortized to interest expense over the estimated life of the term loans using the effective interest method. We recorded a $9 million loss on extinguishment of debt in connection with the Second Amendment.
Previous report
Under the USD Tranche A and the Revolving Facility, so long as any USD Tranche A loans (or commitments in respect thereof) are outstanding as of the end of any fiscal quarter, we may not allow our total net leverage ratio as of the end of such fiscal quarter to be greater than 5.25 to 1.00 for the fiscal quarters ending December 31, 2023 through September 30, 2024, with an annual step-down of 0.25:1.00 and subject to a step-up of 0.50:1.00 for the four full fiscal quarter periods following any material acquisition, not to exceed 5.50 to 1.00.
Previous report
In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter when our aggregate amount of loans outstanding under the Revolving Facility (net of (a) all letters of credit (whether cash collateralized or not) and (b) unrestricted cash of us and our restricted subsidiaries) exceeds 35% of the aggregate amount of all commitments under the Revolving Facility in effect as of such date, we may not allow our first lien net leverage ratio as of the end of each such fiscal quarter to be greater than 6.00 to 1.00.
Previous report
The Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict our ability and each of our subsidiaries to: incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or our subordinated indebtedness; make investments, loans and acquisitions; create restrictions on the payment of dividends or other amounts to ourselves from our restricted subsidiaries or restrictions on the ability of our restricted subsidiaries to incur liens; engage in transactions with our affiliates; sell assets, including capital stock of our subsidiaries; materially alter the business we conduct; consolidate or merge; incur liens; and engage in sale-leaseback transactions.
Previous report
We paid certain customary fees to and expenses of (i) JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities, Inc., Citibank, N.A., HSBC Securities (USA) Inc. and Mizuho Bank, Ltd. in their respective capacities as lead arrangers and bookrunners in connection with the Credit Facilities on the Effective Date, (ii) JPMorgan Chase Bank, N.A. in its capacity as lead arranger in connection with each of the First Amendment, the Second Amendment and the Third Amendment and (iii) the lenders providing the Incremental Revolving Commitments pursuant to the Third Amendment.
Reworded paragraphs (40)
Previous wording
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding the future financial performance, business prospects and growth of MKS Instruments, Inc. (“MKS,” the “Company,” “our,” or “we”). These statements are only predictions based on current assumptions and expectations. Any statements that are not statements of historical fact (including statements containing the words “will,” “projects,” “intends,” “believes,” “plans,” “anticipates,” “expects,” “estimates,” “forecasts,” “continues” and similar expressions) should be considered to be forward-looking statements. Actual events or results may differ materially from those in the forward-looking statements set forth herein.
Current wording
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding the future financial performance, business prospects and growth of MKS Instruments, Inc. (“MKS,” the “Company,” “our,” or “we”). These statements are only predictions based on current assumptions and expectations. Any statements that are not statements of historical fact (including statements containing the words “will,” “projects,” “intends,” “believes,” “plans,” “anticipates,” “expects,” “estimates,” “forecasts,” “continues” and similar expressions) should be considered forward-looking statements. Actual events or results may differ materially from those in the forward-looking statements set forth herein.
Previous wording
Among the important factors that could cause actual events to differ materially from those in the forward-looking statements that we make are the need to generate sufficient cash flows to service and repay the substantial indebtedness we incurred in connection with our acquisition of Atotech Limited (“Atotech” and such transaction, the “Atotech Acquisition”), which we completed in August 2022; the terms of our existing credit facilities under which we incurred such debt; our entry into the chemicals technology business through the Atotech Acquisition, in which we did not have previous experience and which may expose us to significant additional liabilities; the risk that we are unable to integrate the Atotech Acquisition successfully or realize the anticipated synergies, cost savings and other benefits of the Atotech Acquisition; legal, reputational, financial and contractual risks resulting from the ransomware event we identified in February 2023, and other risks related to cybersecurity, data privacy and intellectual property; competition from larger, more advanced or more established companies in our markets; the ability to successfully grow our business, including through growth of the Atotech business and growth of the Electro Scientific Industries, Inc. business, which we acquired in February 2019, and financial risks associated with those and potential future acquisitions, including goodwill and intangible asset impairments; manufacturing and sourcing risks, including those associated with limited and sole source suppliers and the impact and duration of supply chain disruptions, component shortages, and price increases; changes in global demand; the impact of a pandemic or other widespread health crisis; risks associated with doing business internationally, including geopolitical conflicts, such as the conflict in the Middle East, trade compliance, regulatory restrictions on our products, components or markets, particularly the semiconductor market, and unfavorable currency exchange and tax rate fluctuations, which risks become more significant as we grow our business internationally and in China specifically; conditions affecting the markets in which we operate, including fluctuations in capital spending in the semiconductor, electronics manufacturing and automotive industries, and fluctuations in sales to our major customers; disruptions or delays from third-party service providers upon which our operations may rely; the ability to anticipate and meet customer demand; the challenges, risks and costs involved with integrating or transitioning global operations of the companies we have acquired; risks associated with the attraction and retention of key personnel; potential fluctuations in quarterly results; dependence on new product development; rapid technological and market change; acquisition strategy; volatility of stock price; risks associated with chemical manufacturing and environmental regulation compliance; risks related to defect…
Excerpt shortened here; the source contains the full paragraph.
Current wording
Among the important factors that could cause actual events to differ materially from those in the forward-looking statements that we make are the level and terms of our substantial indebtedness and our ability to service such debt; our entry into the chemicals technology business through our acquisition of Atotech Limited (“Atotech”) in August 2022 (the “Atotech Acquisition”) which may expose us to significant additional liabilities; the risk that we are unable to integrate the Atotech Acquisition successfully or realize the anticipated synergies, cost savings and other benefits of the Atotech Acquisition; legal, reputational, financial and contractual risks resulting from the ransomware event we identified in February 2023, and other risks related to cybersecurity, data privacy and intellectual property; competition from larger, more advanced or more established companies in our markets; the ability to successfully grow our business, including through growth of the Atotech business and growth of the Electro Scientific Industries, Inc. business, which we acquired in February 2019, and financial risks associated with those and potential future acquisitions, including goodwill and intangible asset impairments; manufacturing and sourcing risks, including those associated with limited and sole source suppliers and the impact and duration of supply chain disruptions, component shortages, and price increases; changes in global demand; the impact of a pandemic or other widespread health crisis; risks associated with doing business internationally, including geopolitical conflicts, such as the conflict in the Middle East, trade compliance, regulatory restrictions on our products, components or markets, particularly the semiconductor market, and unfavorable currency exchange and tax rate fluctuations, which risks become more significant as we grow our business internationally and in China specifically; conditions affecting the markets in which we operate, including fluctuations in capital spending in the semiconductor, electronics manufacturing and automotive industries, and fluctuations in sales to our major customers; disruptions or delays from third-party service providers upon which our operations may rely; the ability to anticipate and meet customer demand; the challenges, risks and costs involved with integrating or transitioning global operations of the companies we have acquired; risks associated with the attraction and retention of key personnel; potential fluctuations in quarterly results; dependence on new product development; rapid technological and market change; acquisition strategy; volatility of stock price; risks associated with chemical manufacturing and environmental regulation compliance; risks related to defective products; financial and legal risk management; and the other important factors described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with t…
Excerpt shortened here; the source contains the full paragraph.
Previous wording
The Management’s Discussion and Analysis of Financial Condition and Results of Operations describes principal factors affecting the results of operations, financial condition, cash flows and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our condensed consolidated financial statements, and is intended to better allow investors to view the Company from management’s perspective. This section focuses on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of our future operating results or our future financial condition. This section provides an analysis of our financial results for the three months ended March 31, 2024 compared to the three months ended December 31, 2023 and the three months ended March 31, 2023.
Current wording
The Management’s Discussion and Analysis of Financial Condition and Results of Operations describes principal factors affecting the results of operations, financial condition, cash flows and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our condensed consolidated financial statements, and is intended to better allow investors to view the Company from management’s perspective. This section focuses on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of our future operating results or our future financial condition. This section provides an analysis of our financial results for the three months ended June 30, 2024 compared to the three months ended March 31, 2024, and the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Previous wording
MKS is a foundational solutions provider for the electronics and packaging market. Our portfolio includes photonics components, laser drilling systems, electronics chemistries and plating equipment that are critical for the manufacturing of PCBs and package substrates, and critical to wafer level packaging (“WLP”) applications. Similar to the semiconductor industry, the PCB, package substrate and WLP industries demand smaller features, greater density, and better performance. In addition, the electronics and packaging market also includes sales of our vacuum and photonics solutions for display manufacturing applications. We characterize our complementary offering of laser systems and chemistry solutions as Optimize the Interconnect®, to reflect the unique technology enablement we provide at the Interconnect level within PCBs, package substrates and WLPs.
Current wording
PCBs and package substrates, and critical to wafer level packaging (“WLP”) applications. Similar to the semiconductor industry, the PCB, package substrate and WLP industries demand smaller features, greater density, and better performance. In addition, the electronics and packaging market also includes sales of our vacuum and photonics solutions for display manufacturing applications. We characterize our complementary offering of laser systems and chemistry solutions as Optimize the Interconnect®, to reflect the unique technology enablement we provide at the Interconnect level within PCBs, package substrates and WLPs.
Previous wording
For the three months ended March 31, 2024, net revenues in our specialty industrial market increased by $4 million, or 1%, compared to the prior quarter.
Current wording
For the three months ended June 30, 2024, net revenues in our specialty industrial market decreased by $20 million, or 7%, compared to the prior quarter mainly due to lower revenue in our general industrial and defense markets within VSD and PSD.
Previous wording
A significant portion of our net revenues is from sales to customers in international markets. For the three months ended March 31, 2024 and 2023 and the three months ended December 31, 2023, international net revenues accounted for approximately 65%, 68%, and 67%, respectively, of our total net revenues. A significant portion of our international net revenues was from China, Germany, South Korea and Japan. We expect international net revenues will continue to account for a significant percentage of total net revenues for the foreseeable future.
Current wording
A significant portion of our net revenues is from sales to customers in international markets. For the six months ended June 30, 2024 and 2023, international net revenues accounted for approximately 76% and 75%, respectively, of our total net revenues. A significant portion of our international net revenues was generated from sales to customers in China, South Korea, Japan, Taiwan and Singapore. We expect international net revenues will continue to account for a significant percentage of total net revenues for the foreseeable future.
Previous wording
Long-lived assets located outside of the United States accounted for approximately 58% of our total long-lived assets as of both March 31, 2024 and December 31, 2023. Long-lived assets include property, plant and equipment, net, right-of-use assets, net and certain other assets.
Current wording
Long-lived assets located outside of the United States accounted for approximately 57% and 58% of our total long-lived assets as of June 30, 2024 and December 31, 2023. Long-lived assets include property, plant and equipment, net, right-of-use assets, net and certain other assets.
Previous wording
For the three months ended March 31, 2024, net product revenues decreased $31 million compared to the prior quarter. This decrease was primarily due to continued softness in demand in our electronics and packaging and our semiconductor markets.
Current wording
For the three months ended June 30, 2024, net product revenues increased $16 million compared to the prior quarter. This increase was primarily due to higher chemistry sales at MSD.
Previous wording
Net service revenues consisted mainly of fees for services related to the maintenance and repair of our products, sales of spare parts, and installation and training. For the three months ended March 31, 2024, net service revenues increased $6 million compared to the prior quarter mainly related to increased sales to customers in the semiconductor and electronics and packaging markets.
Current wording
Net service revenues consisted mainly of fees for services related to the maintenance and repair of our products, sales of spare parts, and installation and training. For the three months ended June 30, 2024, net service revenues increased $3 million compared to the prior quarter.
Previous wording
For the three months ended March 31, 2024, net revenues from PSD were flat compared to the prior quarter. For the three months ended March 31, 2024, net revenues from PSD increased $68 million compared to the same period in the prior year mainly due to lower net revenues in the prior year period as a result of lower order fulfillment due to the ransomware event. The increase was mainly in the semiconductor and specialty industrial markets.
Current wording
For the three months ended June 30, 2024, net revenues from PSD were flat compared to the prior quarter. For the six months ended June 30, 2024, net revenues from PSD increased $50 million compared to the same period in the prior year mainly in the semiconductor and specialty industrial markets. The increase in semiconductor revenue is mainly related to an increase in sales of our lithography, metrology and inspection products. The increase in specialty industrial market revenue is mainly related to increases in sales to data communications and research and defense customers.
Previous wording
For the three months ended March 31, 2024, net revenues from MSD decreased $11 million compared to the prior quarter, primarily due to a decrease in chemistry sales due to seasonality related to a slowdown in production in China as a result of the Lunar New Year. For the three months ended March 31, 2024, revenues from MSD decreased $22 million compared to the same period in the prior year primarily due to lower palladium prices and the negative impact of foreign currency.
Current wording
For the three months ended June 30, 2024, net revenues from MSD increased $16 million compared to the prior quarter, primarily due to an increase in chemistry sales due to seasonality as a result of the Lunar New Year in the prior quarter. For the six months ended June 30, 2024, revenues from MSD decreased $22 million compared to the same period in the prior year, primarily due to lower equipment revenue as customers postponed certain investment decisions, and a small decrease in chemistry sales, primarily due to lower palladium prices that are passed on to our customers, offset by increases in chemistry volumes.
Previous wording
Gross margin for our products increased for the three months ended March 31, 2024 compared to the same period in the prior year, primarily due to higher revenue volumes, higher factory utilization, favorable product mix, lower material costs and lower excess and obsolete inventory charges, partially offset by higher scrap costs.
Current wording
Gross margin for our products increased for the six months ended June 30, 2024 compared to the same period in the prior year, primarily due to favorable product mix, higher factory utilization and lower material costs, partially offset by higher warranty costs.
Previous wording
Gross margin for our services increased for the three months ended March 31, 2024 compared to the prior quarter mainly as a result of favorable product mix, lower excess and obsolete charges and favorable direct labor and overhead absorption.
Current wording
Gross margin for our services decreased for the three months ended June 30, 2024 compared to the prior quarter, mainly as a result of higher excess and obsolete inventory charges for service parts.
Previous wording
Gross margin for our services increased for the three months ended March 31, 2024 compared to the same period in the prior year primarily due to favorable product mix, higher revenue volumes, and lower direct labor and overhead costs.
Current wording
Gross margin for our services increased for the six months ended June 30, 2024 compared to the same period in the prior year, primarily due to favorable product mix, higher revenue volumes, and lower direct labor and overhead costs.
Previous wording
Gross margin for VSD increased for the three months ended March 31, 2024, compared to the prior quarter, primarily due to higher factory utilization, lower material costs and lower freight and duty costs, partially offset by lower revenue volumes and unfavorable foreign exchange rates. Gross margin for VSD increased for the three months ended March 31, 2024, compared to the same period in the prior year, primarily due to higher revenue volumes, higher factory utilization, lower material costs and lower excess and obsolete inventory charges, partially offset by unfavorable product mix.
Current wording
Gross margin for VSD was flat for the three months ended June 30, 2024, compared to the prior quarter. Gross margin for VSD increased for the six months ended June 30, 2024, compared to the same period in the prior year, primarily due to higher factory utilization and lower material costs partially offset by lower revenue volumes, unfavorable product mix and higher warranty costs.
Previous wording
Gross margin for PSD increased for the three months ended March 31, 2024, compared to the prior quarter, primarily due to favorable product mix and lower freight and duty costs, partially offset by unfavorable factory utilization. Gross margin for PSD increased for the three months ended March 31, 2024, compared to the same period in the prior year, primarily due to higher revenue volumes, higher factory utilization, lower freight and duty costs and lower excess and obsolete inventory charges, partially offset by unfavorable product mix and higher scrap costs.
Current wording
Gross margin for PSD decreased for the three months ended June 30, 2024, compared to the prior quarter, primarily due to unfavorable product mix, unfavorable factory utilization, higher warranty cost and higher excess and obsolete inventory charges. Gross margin for PSD increased for the six months ended June 30, 2024 compared to the same period in the prior year, primarily due to higher revenue volumes, lower freight and duty costs and lower excess and obsolete inventory charges, partially offset by higher physical inventory and material variances.
Previous wording
Gross margin for MSD increased for the three months ended March 31, 2024, compared to the prior quarter, primarily due to favorable product mix, lower palladium prices, favorable foreign exchange rates and lower excess and obsolete inventory charges, partially offset by higher warranty costs. Gross margin for MSD increased for the three months ended March 31, 2024, compared to the same period in the prior year, primarily due to lower palladium prices, favorable product mix and lower excess and obsolete inventory charges, partially offset by higher freight and duty charges.
Current wording
Gross margin for MSD increased for the three months ended June 30, 2024, compared to the prior quarter, primarily due to favorable product mix and lower palladium prices, partially offset by higher warranty costs. Gross margin for MSD increased for the six months ended June 30, 2024, compared to the same period in the prior year, primarily due to lower palladium prices, favorable product mix and lower excess and obsolete inventory charges, partially offset by higher warranty cost.
Previous wording
For the three months ended March 31, 2024, selling, general and administrative expenses increased $10 million, compared to the prior quarter, primarily due to increases of $8 million in compensation-related costs and $2 million in information technology costs.
Current wording
For the three months ended June 30, 2024, selling, general and administrative expenses decreased $9 million, compared to the prior quarter, primarily due to a decrease of $11 million in compensation-related costs including stock compensation and fringe costs.
Previous wording
For the three months ended March 31, 2024, selling, general and administrative expenses decreased $4 million, compared to the same period in the prior year, mainly as a result of a decrease of $7 million of net costs incurred as a result of the ransomware event and a decrease of $4 million in compensation related costs, partially offset by an increase of $3 million in consulting and professional fees and $3 million in information technology costs.
Current wording
For the six months ended June 30, 2024, selling, general and administrative expenses decreased $17 million, compared to the same period in the prior year, mainly as a result of decreases of $17 million in compensation-related costs and $10 million in net costs incurred as a result of the ransomware event in February 2023, partially offset by increases of $5 million in information technology investments and $3 million in consulting and professional fees.
Previous wording
Acquisition and integration costs incurred during the three months ended March 31, 2024, December 31, 2023 and March 31, 2023 were related to consulting and professional fees related to the Atotech Acquisition.
Current wording
Acquisition and integration costs incurred during the three and six months ended June 30, 2024 and 2023 were related to consulting and professional fees related to the Atotech Acquisition.
Previous wording
Restructuring charges during the three months ended March 31, 2024 and December 31, 2023, primarily related to severance costs as a result of global cost saving initiatives implemented in the fourth quarter of 2023. Restructuring charges during the three months ended March 31, 2023 primarily related to severance costs as a result of a global cost saving initiative implemented in the first quarter of 2023.
Current wording
Restructuring charges during the three and six months ended June 30, 2024 and three months ended March 31, 2024, primarily related to severance costs as a result of a global cost saving initiative implemented in the fourth quarter of 2023. Restructuring charges during the six months ended June 30, 2023 primarily related to severance costs as a result of global cost saving initiatives implemented in each of the first and second quarters of 2023.
Previous wording
During the three months ended March 31, 2024, we recorded fees and expenses related to the Incremental Tranche B Loans incurred pursuant to the Second Amendment and, during the three months ended December 31, 2023, we recorded fees and expenses related to the refinancing of the USD Tranche B pursuant to the First Amendment, each as defined and described further below under “Credit Facilities.”
Current wording
During the three months ended March 31, 2024 and six months ended June 30, 2024, we recorded fees and expenses related to borrowing additional USD Tranche B and additional Euro Tranche B, each as defined and described further below under “Credit Facilities,” pursuant to the Second Amendment to Credit Agreement, dated as of January 22, 2024, by and among us as parent borrower, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and each lender party thereto (the “Second Amendment”).
Previous wording
For the three months ended March 31, 2024, amortization of intangible assets decreased by $8 million, compared to the prior quarter, primarily due to backlog related to MSD being fully amortized in the three months ended December 31, 2023. For the three months ended March 31, 2024, amortization of intangible assets decreased by $19 million, compared to the same period in the prior year, primarily due to backlog related to MSD being fully amortized in the three months ended December 31, 2023 and the write-off of completed technology at our Equipment Solutions Business (“ESB”) reporting unit of PSD in the second quarter of 2023.
Current wording
For the three months ended June 30, 2024, amortization of intangible assets decreased by $1 million, compared to the prior quarter. For the six months ended June 30, 2024, amortization of intangible assets decreased by $34 million, compared to the same period in the prior year, primarily due to backlog related to MSD being fully amortized in the three months ended December 31, 2023, and the write-off of completed technology at our equipment solutions business (“ESB”) reporting unit of PSD in the second quarter of 2023.
Previous wording
Other (income) expense, net, for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023 consisted primarily of net foreign exchange and fair value gains and losses.
Current wording
Other (income) expense, net, for the three and six months ended June 30, 2024, three months ended March 31, 2024 and six months ended June 30, 2023, consisted primarily of net foreign exchange and fair value gains and losses.
Previous wording
Our effective tax rates for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023 were 23.1%, 14.2%, and 46.6%, respectively. Our effective tax rate for the three months ended March 31, 2024 was higher than the U.S. statutory tax rate, mainly due to an expected increase in foreign withholding taxes and U.S. base erosion and anti-abuse tax, partially offset by the U.S. deduction for foreign derived intangible income (“FDII”) and research and development credits. Our effective tax rate for the three months ended December 31, 2023 was lower than the U.S. statutory tax rate primarily due to the impairment of goodwill and intangible assets. Our effective tax rate for the three months ended March 31, 2023 was higher than the U.S. statutory tax rate mainly due to the geographic mix of income earned by our international subsidiaries being taxed at higher rates than the U.S. statutory tax rate, offset by the U.S. foreign tax credit and the U.S. deduction for FDII.
Current wording
Our effective tax rates for the three months ended June 30, 2024 and March 31, 2024 were (3.6)% and 23.1% respectively. Our effective tax rate for the three months ended June 30, 2024 was lower than the U.S. statutory tax rate mainly due to the tax benefit related to the U.S deduction for foreign derived intangibles income (“FDII”) and research and development credits, partially offset by an expected increase in foreign withholding taxes and U.S. base erosion and anti-abuse tax. Our effective tax rate for the three months ended March 31, 2024 was higher than the U.S. statutory tax rate, mainly due to an expected increase in foreign withholding taxes and U.S. base erosion and anti-abuse tax, partially offset by the U.S. deduction for FDII and research and development credits.
Previous wording
Cash and cash equivalents and short-term investments at March 31, 2024 and December 31, 2023 totaled $846 million and $875 million, respectively. The primary driver in our current and anticipated future cash flows is, and we expect will continue to be, cash generated from operations, consisting primarily of our net income (loss), excluding non-cash charges and changes in operating assets and liabilities. In periods when our sales are growing, higher sales to customers will result in increased trade receivables, and inventories will generally increase as we build products for future sales. This may result in lower cash generated from operations. Conversely, in periods when our sales are declining, our accounts receivable and inventory balances will generally decrease, resulting in increased cash from operations. We believe that our current cash and investments position and available borrowing capacity, together with the cash anticipated to be generated from our operations, will be sufficient to satisfy our estimated working capital, planned capital expenditure requirements, payments of debt, and any future cash dividends declared by our Board of Directors or share repurchases through at least the next 12 months and the foreseeable future.
Current wording
Cash and cash equivalents and short-term investments at June 30, 2024 and December 31, 2023 totaled $851 million and $875 million, respectively. The primary driver in our current and anticipated future cash flows is, and we expect will continue to be, cash generated from operations, consisting primarily of our net income (loss), excluding non-cash charges and changes in operating assets and liabilities. In periods when our sales are growing, higher sales to customers will result in increased trade receivables, and inventories will generally increase as we build products for future sales. This may result in lower cash generated from operations. Conversely, in periods when our sales are declining, our accounts receivable and inventory balances will generally decrease, resulting in increased cash from operations. We believe that our current cash and investments position and available borrowing capacity, together with the cash anticipated to be generated from our operations, will be sufficient to satisfy our estimated working capital, planned capital expenditure requirements, payments of debt, and any future cash dividends declared by our Board of Directors or share repurchases through at least the next 12 months and the foreseeable future.
Previous wording
Net cash provided by operating activities was $67 million for the three months ended March 31, 2024, resulting from a net income of $15 million, which included non-cash charges of $100 million, mainly the result of a $88 million of depreciation and amortization expense, offset by a net increase in working capital of $48 million. The net increase in working capital was primarily due to a decrease in accounts payable of $32 million, a decrease of $30 million in accrued compensation and a decrease of $12 million in other current and non-current liabilities. This net increase in working capital was partially offset by an increase in income taxes payable of $16 million and an increase in accounts receivable of $16 million.
Current wording
Net cash provided by operating activities was $189 million for the six months ended June 30, 2024, resulting from net income of $37 million, which included non-cash charges of $198 million, mainly the result of $175 million of depreciation and amortization expense and $47 million of loss on extinguishment of debt, partially offset by $95 million in deferred income taxes and a net increase in working capital of $46 million. The net increase in working capital was primarily due to a decrease in accrued compensation of $48 million, a decrease in accounts payable of $30 million and a decrease in other current and non-current liabilities of $26 million. This net increase in working capital was partially offset by an increase in income taxes payable of $33 million and a decrease in other current and non-current assets of $23 million.
Previous wording
Net cash used in investing activities was $18 million for the three months ended March 31, 2024, and consisted of $18 million in capital expenditures.
Current wording
Net cash used in investing activities was $44 million for the six months ended June 30, 2024, and consisted primarily of $45 million in capital expenditures.
Previous wording
Net cash used in financing activities was $72 million for the three months ended March 31, 2024, primarily due to net proceeds from the Incremental Tranche B Loans in an aggregate principal amount of $761 million which were used in part to prepay the USD Tranche A in full in an aggregate principal amount of $744 million. In addition, there were normal quarterly debt payments and a voluntary prepayment that totaled $62 million and $15 million of dividend payments.
Current wording
Net cash used in financing activities was $159 million for the six months ended June 30, 2024, primarily due to net proceeds from the issuance of Convertible Notes of $1.4 billion and incremental loans under the Term Loan Facility in an aggregate principal amount of $761 million. The proceeds of the incremental loans under the Term Loan Facility were used in part to prepay the USD Tranche A term loans outstanding under the Credit Agreement in full in an aggregate principal amount of $744 million and the proceeds of the Convertible Notes were used in part to prepay a portion of the USD Tranche B loans in an aggregate principal amount of $1.2 billion. In addition, there were normal quarterly debt payments and voluntary prepayments that totaled $125 million. We also made payments of $167 million to purchase a capped call option related to the Convertible Notes, $33 million of debt financing costs and $30 million of dividend payments.
Previous wording
Holders of our common stock are entitled to receive dividends when they are declared by our Board of Directors. During each of the first quarters of 2024 and 2023, our Board of Directors declared a cash dividend of $0.22 per share, which totaled $15 million in each period, respectively. On May 7, 2024, our Board of Directors declared a quarterly cash dividend of $0.22 per share to be paid on June 7, 2024 to stockholders of record as of May 28, 2024. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our Board of Directors.
Current wording
Holders of our common stock are entitled to receive dividends when they are declared by our Board of Directors. During each of the first and second quarters of 2024 and 2023, our Board of Directors declared a cash dividend of $0.22 per share. The cash dividends totaled $30 million and $29 million for the six months ended June 30, 2024 and 2023, respectively. On August 5, 2024, our Board of Directors declared a quarterly cash dividend of $0.22 per share to be paid on September 6, 2024 to stockholders of record as of August 26, 2024. Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of our Board of Directors.
Previous wording
In connection with the completion of the Atotech Acquisition, on August 17, 2022 (the “Effective Date”) we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto (the “Credit Agreement”). The Credit Agreement provided for (i) a senior secured term loan facility comprised of three tranches: a $1.0 billion loan (the “USD Tranche A”), a $3.6 billion loan (as further increased, refinanced and otherwise modified as described herein, the “USD Tranche B”) and a €600 million loan (as further increased and otherwise modified as described herein, the “Euro Tranche B” and together with the USD Tranche A and the USD Tranche B, the “Term Loan Facility”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of $500 million (as further increased and otherwise modified as described herein, the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions. The proceeds of the Term Loan Facility were used on the Effective Date, among other things, to fund a portion of the consideration payable in connection with the Atotech Acquisition and to refinance our existing term loan and revolving credit facilities and certain indebtedness of Atotech.
Current wording
In connection with the completion of the Atotech Acquisition, on August 17, 2022 (the “Effective Date”) we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto, which we have amended several times since (as amended, the “Credit Agreement”). As of June 30, 2024, the Credit Agreement provided for (i) a senior secured term loan facility comprised of two tranches: a $2.7 billion loan (the “USD Tranche B”) and a €838 million loan (the “Euro Tranche B” and together with the USD Tranche B, the “Term Loan Facility”) and (ii) a senior secured revolving credit facility of $675 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions.
Previous wording
Initially, borrowings under the Credit Facilities bore interest at a rate per annum equal to, at our option, any of the following, plus, in each case, an applicable margin: (a) with respect to the USD Tranche A, the Revolving Facility and the USD Tranche B, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the prime rate quoted in The Wall Street Journal, or (3) a forward-looking term rate based on Term SOFR (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00%; and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50% and (II) with respect to the USD Tranche A and the Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0%. Initially, the applicable margins for borrowings under the Credit Facilities were (i) under the USD Tranche A, 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings, (ii) under the USD Tranche B, 1.75% with respect to base rate borrowings and 2.75% with respect to Term SOFR borrowings, (iii) under the Euro Tranche B, 3.00% and (iv) under the Revolving Facility, 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings.
Current wording
As of June 30, 2024, borrowings under the Credit Facilities bore interest at a rate per annum equal to, at our option, any of the following, plus, in each case, an applicable margin: (a) with respect to the USD Tranche B and the Revolving Facility, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the prime rate quoted in The Wall Street Journal, or (3) a forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00%, and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50% and (II) with respect to the Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0%. As of June 30, 2024, the applicable margins for borrowings under the Credit Facilities were (i) under the USD Tranche B and the Revolving Facility, 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings and (ii) under the Euro Tranche B, 3.00%.
Previous wording
In addition to paying interest on outstanding principal under the Credit Facilities, we are required to pay a commitment fee in respect of the unutilized commitments under the Revolving Facility. The commitment fee is 0.375% per annum. The commitment fee is subject to downward adjustment based on our first lien net leverage ratio as of the end of the preceding fiscal quarter. We must also pay customary letter of credit fees and agency fees.
Current wording
In addition to paying interest on outstanding principal under the Credit Facilities, we are required to pay a commitment fee in respect of the unutilized commitments under the Revolving Facility. As of June 30, 2024, the commitment fee was 0.375% per annum. The commitment fee is subject to adjustment based on our first lien net leverage ratio as of the end of the preceding fiscal quarter. We must also pay customary letter of credit fees and agency fees.
Previous wording
As of March 31, 2024, the outstanding principal of the Term Loan Facility was $4.89 billion and the weighted average interest rate was 7.6%. The Revolving Facility has a maturity date in August 2027 while the Incremental Tranche B Loans have a maturity in August 2029. As of March 31, 2024, there were no borrowings under the Revolving Facility.
Current wording
As of June 30, 2024, the weighted average interest rate of the Term Loan Facility was 7.5%. The Revolving Facility has a maturity date in August 2027 while the USD Tranche B and Euro Tranche B have a maturity date in August 2029. As of June 30, 2024, there were no borrowings under the Revolving Facility.
Previous wording
Prior to the repayment in full of the USD Tranche A, we were required to make scheduled quarterly payments each equal to 1.25% of the original principal amount of the USD Tranche A. We are required to make scheduled quarterly payments each equal to approximately 0.25% of the aggregate principal amount of each of the Euro Tranche B and the USD Tranche B as of the Second Amendment Effective Date, in each case with the balance due thereunder on the seventh anniversary of the Effective Date.
Current wording
We are required to make scheduled quarterly principal payments equal to approximately $10 million with respect to the USD Tranche B and approximately €2 million with respect to the Euro Tranche B, in each case with the balance due thereunder on the seventh anniversary of the Effective Date. There is no scheduled amortization under the Revolving Facility. Any principal amount outstanding under the Revolving Facility is due and payable in full on the fifth anniversary of the Effective Date.
Previous wording
Under the Credit Agreement, we are required to prepay outstanding term loans, subject to certain exceptions, with portions of our annual excess cash flow as well as with the net cash proceeds of certain of our asset sales, certain casualty and condemnation events and the incurrence or issuances of certain debt. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the aggregate commitments under the Revolving Facility, we are required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.
Current wording
Under the Credit Agreement, we are required to prepay outstanding term loans, subject to certain exceptions, with portions of our annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrence or issuances of certain debt. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the aggregate commitments under the Revolving Facility, we are required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.
Previous wording
We may voluntarily prepay outstanding loans under the Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans; provided, however, that subject to certain exceptions, if on or prior to the date that is six months after the Second Amendment Effective Date, we prepay any loans under the USD Tranche B or the Euro Tranche B in connection with a repricing transaction, we must pay a prepayment premium of 1.00% of the aggregate principal amount of the loans so prepaid. Additionally, we may voluntarily reduce the unutilized portion of the commitment amount under the Revolving Facility.
Current wording
We may voluntarily prepay, and have voluntarily repaid, outstanding loans under the Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans and any prepayment premium that might be applicable to repayments we make prior to January 23, 2025. Additionally, we may voluntarily reduce the unutilized portion of the commitment amount under the Revolving Facility.
Previous wording
Under the Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1,011 million and (2) 75% of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt).
Current wording
Under the Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1,011 million and (2) 75% of consolidated earnings before interest, taxes, depreciation, and amortization, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt).
Previous wording
The Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Credit Facilities and all actions permitted to be taken by a secured creditor. As of March 31, 2024, we were in compliance with all covenants under the Credit Agreement.
Current wording
The Credit Agreement contains customary representations and warranties, covenants and provisions relating to events of default. As of June 30, 2024, we were in compliance with all covenants under the Credit Agreement. The USD Tranche B and the Euro Tranche B are not subject to financial maintenance covenants.
Previous wording
Certain of our Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. These lines of credit and financing facility provided for aggregate borrowings as of March 31, 2024 and December 31, 2023 of up to an equivalent of $20 million and $14 million, respectively. There were no borrowings under these arrangements at March 31, 2024 and December 31, 2023.
Current wording
Certain of our Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. These lines of credit and financing facility provided for aggregate borrowings as of June 30, 2024 and December 31, 2023 of up to an equivalent of $19 million and $14 million, respectively. There were no borrowings under these arrangements at June 30, 2024 and December 31, 2023.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
MKS is a foundational solutions provider for the electronics and packaging market. Our portfolio includes photonics components, laser drilling systems, electronics chemistries and plating equipment that are critical for the manufacturing of
Current report — wording carried from elsewhere
Our effective tax rates for the six months ended June 30, 2024 and 2023 were 8.9% and 3.2%, respectively. Our effective tax rate for the six months ended June 30, 2024 was lower than the U.S. statutory tax rate mainly due to the tax benefit related to the U.S deduction for FDII and research and development credits, partially offset by an expected increase in foreign withholding taxes and U.S. base erosion and anti-abuse tax. Our effective tax rate for the six months ended June 30, 2023 was lower than the U.S. statutory tax rate primarily due to the tax benefit related to the impairment of intangible assets.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
There is no scheduled amortization under the Revolving Facility. Any principal amount outstanding under the Revolving Facility is due and payable in full on the fifth anniversary of the Effective Date.
Previous report — wording carried elsewhere
The USD Tranche B and the Euro Tranche B are not subject to financial maintenance covenants.