Company Quick10K Filing
Quick10K
MKS Instruments
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$73.79 54 $4,011
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-09-27 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-09-16 Officers, Exhibits
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-05-08 Officers, Shareholder Vote, Exhibits
8-K 2019-04-29 Earnings, Exhibits
8-K 2019-02-01 Enter Agreement, Leave Agreement, M&A, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2019-01-09 Earnings, Regulation FD, Exhibits
8-K 2018-12-10 Other Events
8-K 2018-11-01 Other Events, Exhibits
8-K 2018-10-30 Other Events, Exhibits
8-K 2018-10-29 Enter Agreement, Other Events, Exhibits
8-K 2018-10-29 Officers, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-07-30 Officers, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-06-05 Officers
8-K 2018-05-09 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-11 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-02-12 Officers
8-K 2018-01-31 Earnings, Exhibits
SWK Stanley Black & Decker 20,196
CGNX Cognex 7,434
CUB Cubic 2,135
MCRN Milacron Holdings 1,121
ULBI Ultralife 139
IVAC Intevac 109
CPST Capstone Systems 49
POLA Polar Power 37
CVR Chicago Rivet & Machine 26
SVT Servotronics 26
MKSI 2019-06-30
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-10.1 d760840dex101.htm
EX-10.2 d760840dex102.htm
EX-31.1 d760840dex311.htm
EX-31.2 d760840dex312.htm
EX-32.1 d760840dex321.htm

MKS Instruments Earnings 2019-06-30

MKSI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q
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Table of Contents
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM
10-Q
 
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarterly period ended
June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
For the transition period from
                    
to
                    
Commission file number
0-23621
 
MKS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
 
     
Massachusetts
 
04-2277512
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
2 Tech Drive, Suite 201
,
Andover
, Massachusetts
 
01810
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Registrant’s telephone number, including area code (
978
)
645-5500
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock
, no par value
 
MKSI
 
Nasdaq Global Select Market
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
    
Yes
  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes
  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act:
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  
As of July 31, 2019, the registrant had
54,484,896
shares of common stock outstanding.
 
 
 
 
 
 
 
 
Table of Contents
  
MKS INSTRUMENTS, INC.
FORM 10-Q
INDEX
             
 
       
          ITEM 1.
   
             
     
3
 
             
     
4
 
             
     
5
 
             
     
6
 
             
     
7
 
             
          ITEM 2.
     
35
 
             
          ITEM 3.
     
46
 
             
          ITEM 4.
     
46
 
   
 
             
          ITEM 1.
     
46
 
             
          ITEM 1A.
     
47
 
             
          ITEM 6.
     
48
 
         
   
49
 
 
 
 
 
 
2
 
 
 
Table of Contents
 
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
 
June 30, 2019
   
December 31, 2018
 
ASSETS
   
     
 
Current assets:
   
     
 
Cash and cash equivalents
  $
366,935
    $
644,345
 
Short-term investments
   
92,985
     
73,826
 
Trade accounts receivable, net of allowance for doubtful accounts of $4,460 and $5,243 at June 30, 2019 and December 31, 2018, respectively
   
313,530
     
295,454
 
Inventories
   
479,497
     
384,689
 
Other current assets
   
80,303
     
65,790
 
Assets classified as held for sale
   
36,750
     
—  
 
                 
Total current assets
   
1,370,000
     
1,464,104
 
                 
Property, plant and equipment, net
   
230,649
     
194,367
 
Right-of-use
asset
   
68,631
     
—  
 
Goodwill
   
1,058,667
     
586,996
 
Intangible assets, net
   
599,372
     
319,807
 
Long-term investments
   
10,401
     
10,290
 
Other assets
   
44,228
     
38,682
 
                 
Total assets
  $
3,381,948
    $
2,614,246
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
     
 
Current liabilities:
   
     
 
Short-term debt
  $
10,931
    $
3,986
 
Accounts payable
   
88,046
     
83,825
 
Accrued compensation
   
64,415
     
82,350
 
Income taxes payable
   
12,811
     
16,358
 
Lease liability
   
20,670
     
—  
 
Deferred revenue and customer advances
   
26,597
     
14,246
 
Other current liabilities
   
61,686
     
62,520
 
                 
Total current liabilities
   
285,156
     
263,285
 
Long-term debt, net
   
926,879
     
343,842
 
Non-current
deferred taxes
   
76,042
     
48,223
 
Non-current
accrued compensation
   
62,947
     
55,598
 
Non-current
lease liability
   
51,141
     
—  
 
Other liabilities
   
34,296
     
30,111
 
                 
Total liabilities
   
1,436,461
     
741,059
 
                 
Commitments and contingencies (Note 19)
 
 
 
 
 
 
 
Stockholders’ equity:
   
     
 
Preferred Stock, $0.01 par value per share, 2,000,000 shares authorized;
none
issued and outstanding
   
     
—  
 
Common Stock,
no
par value, 200,000,000 shares authorized; 54,479,692 and 54,039,554 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
   
113
     
113
 
Additional
paid-in
capital
   
849,585
     
793,932
 
Retained earnings
   
1,113,036
     
1,084,797
 
Accumulated other comprehensive loss
   
(17,247
)    
(5,655
)
                 
Total stockholders’ equity
   
1,945,487
     
1,873,187
 
                 
Total liabilities and stockholders’ equity
  $
3,381,948
    $
2,614,246
 
                 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
 
3
 
 
Table of Contents
 
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Net revenues:
   
     
     
     
 
Products
  $
401,326
    $
509,999
    $
798,689
    $
1,006,676
 
Services
   
72,784
     
63,141
     
138,982
     
120,739
 
                                 
Total net revenues
   
474,110
     
573,140
     
937,671
     
1,127,415
 
Cost of revenues:
   
     
     
     
 
Cost of products
   
226,213
     
266,890
     
455,923
     
528,211
 
Cost of services
   
36,870
     
31,373
     
72,603
     
61,472
 
                                 
Total cost of revenues (exclusive of amortization shown separately below)
   
263,083
     
298,263
     
528,526
     
589,683
 
Gross profit
   
211,027
     
274,877
     
409,145
     
537,732
 
Research and development
   
41,855
     
36,504
     
80,788
     
71,361
 
Selling, general and administrative
   
83,236
     
76,181
     
165,691
     
159,130
 
Fees and expenses related to term loan
   
     
378
     
5,847
     
378
 
Acquisition and integration costs
   
3,240
     
(1,168
)    
33,407
     
(1,168
)
Restructuring and other
   
1,242
     
790
     
3,165
     
3,010
 
Amortization of intangible assets
   
17,552
     
10,901
     
33,279
     
22,091
 
                                 
Income from operations
   
63,902
     
151,291
     
86,968
     
282,930
 
Interest income
   
1,423
     
1,456
     
3,137
     
2,561
 
Interest expense
   
12,674
     
3,922
     
21,793
     
9,352
 
Other expense, net
   
788
     
281
     
1,113
     
853
 
                                 
Income before income taxes
   
51,863
     
148,544
     
67,199
     
275,286
 
Provision for income taxes
   
14,124
     
25,682
     
17,005
     
47,303
 
                                 
Net income
  $
37,739
    $
122,862
    $
50,194
    $
227,983
 
                                 
Other comprehensive income:
   
     
     
     
 
Changes in value of financial instruments designated as cash flow hedges, net of tax (benefit) expense
(1)
  $
(739
)   $
7,712
    $
(687
)   $
7,890
 
Foreign currency translation adjustments, net of tax of $
0
   
593
     
(18,508
)    
(3,675
)    
(7,737
)
Unrecognized pension gain (loss), net of tax (benefit) expense
(2)
   
2
     
48
     
1
     
(37
)
Unrealized loss on investments, net of tax benefit
(3)
   
(96
)    
(266
)    
(146
)    
(325
)
                                 
Total comprehensive income
  $
37,499
    $
111,848
    $
45,687
    $
227,774
 
                                 
Net income per share:
   
     
     
     
 
Basic
  $
0.69
    $
2.25
    $
0.92
    $
4.18
 
                                 
Diluted
  $
0.69
    $
2.22
    $
0.91
    $
4.12
 
                                 
Weighted average common shares outstanding:
   
     
     
     
 
Basic
   
54,815
     
54,719
     
54,481
     
54,571
 
                                 
Diluted
   
55,089
     
55,274
     
54,966
     
55,280
 
                                 
 
(1)
Tax (benefit) expense was $
(227)
and $
2,367
for the three months ended June 30, 2019 and 2018, respectively. Tax (benefit) expense was $
(212)
and $
2,255
for the six months ended June 30, 2019 and 2018, respectively
(2)
Tax (benefit) expense was $
(1)
and $
12
for the three months ended June 30, 2019 and 2018, respectively. Tax expense (benefit) was $
20
and $
(24)
for the six months ended June 30, 2019 and 2018, respectively
(3)
Tax benefit was $
(30)
and $
(22)
for the three months ended June 30, 2019 and 2018, respectively. Tax benefit was $
(46)
and $
(39)
for the six months ended June 30, 2019 and 2018, respectively.
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
  
4
  
 
Table of Contents
 
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share data)
(Unaudited)
                                                 
 
Common Stock
   
Additional
Paid-In
   
Retained
   
Accumulated
Other
Comprehensive
   
Total
Stockholders’
 
 
Shares
   
Amount
   
Capital
   
Earnings
   
Income/(Loss)
   
Equity
 
Balance at December 31, 2018
   
54,039,554
    $
113
    $
793,932
    $
1,084,797
    $
(5,655
)   $
1,873,187
 
Net issuance under stock-based plans
   
192,218
     
     
22,491
     
     
     
22,491
 
Stock-based compensation
           
     
27,838
     
     
     
27,838
 
Cash dividend ($
0.20
per common share)
           
     
     
(10,843
)    
     
(10,843
)
Comprehensive income (net of tax):
           
     
     
     
     
 
Net income
           
     
     
12,455
     
     
12,455
 
Other comprehensive loss
           
     
     
     
(4,267
)    
(4,267
)
                                                 
Balance at March 31, 2019
   
54,231,772
     
113
     
844,261
     
1,086,409
     
(9,922
)    
1,920,861
 
Net issuance under stock-based plans
   
247,920
     
     
(2,113
)    
     
     
(2,113
)
Stock-based compensation
           
     
7,205
     
     
     
7,205
 
Cash dividend ($
0.20
per common share)
           
     
     
(10,880
)    
     
(10,880
)
Stock dividends accrued
           
     
232
     
(232
)    
     
 
Comprehensive income (net of tax):
           
     
     
     
     
 
Net income
           
     
     
37,739
     
     
37,739
 
Other comprehensive loss
           
     
     
     
(7,325
)    
(7,325
)
                                                 
Balance at June 30, 2019
   
54,479,692
    $
113
    $
849,585
    $
1,113,036
    $
(17,247
)   $
1,945,487
 
                                                 
                               
 
Common Stock
   
Additional
Paid-In
   
Retained
   
Accumulated
Other
Comprehensive
   
Total
Stockholders’
 
 
Shares
   
Amount
   
Capital
   
Earnings
   
Income/(Loss)
   
Equity
 
Balance at December 31, 2017
   
54,355,535
    $
113
    $
789,644
    $
795,698
    $
3,452
    $
1,588,907
 
Net issuance under stock-based plans
   
136,568
     
     
(8,920
)    
     
     
(8,920
)
Stock-based compensation
   
     
     
10,426
     
     
     
10,426
 
Cash dividend ($
0.18
per common share)
   
     
     
     
(9,808
)    
     
(9,808
)
Accounting Standards Codification Topic 606 adjustment
   
     
     
     
1,809
     
     
1,809
 
Comprehensive income (net of tax):
   
     
     
     
     
     
 
Net income
   
     
     
     
105,121
     
     
105,121
 
Other comprehensive gain
   
     
     
     
     
10,805
     
10,805
 
                                                 
Balance at March 31, 2018
   
54,492,103
     
113
     
791,150
     
892,820
     
14,257
     
1,698,340
 
Net issuance under stock-based plans
   
295,050
     
     
(4,132
)    
     
     
(4,132
)
Stock-based compensation
   
     
     
6,366
     
     
     
6,366
 
Cash dividend ($
0.20
per common share)
   
     
     
     
(10,942
)    
     
(10,942
)
Accounting Standards Codification Topic 606 adjustment
   
     
     
     
(42
)    
     
(42
)
Comprehensive income (net of tax):
   
     
     
     
     
     
 
Net income
   
     
     
     
122,862
     
     
122,862
 
Other comprehensive loss
   
     
     
     
     
(11,014
)    
(11,014
)
                                                 
Balance at June 30, 2018
   
54,787,153
    $
113
    $
793,384
    $
1,004,698
    $
3,243
    $
1,801,438
 
                                                 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
 
5
 

Table of Contents
 
MKS INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
                 
 
Six Months Ended June 30,
 
 
2019
   
2018
 
Cash flows provided by operating activities:
   
     
 
Net income
  $
50,194
    $
227,983
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Depreciation and amortization
   
52,655
     
40,377
 
Amortization of inventory
step-up
adjustment to fair value
   
7,624
     
—  
 
Amortization of debt issuance costs, original issue discount, and soft call premium
   
2,953
     
2,887
 
Stock-based compensation
   
34,767
     
16,792
 
Provision for excess and obsolete inventory
   
12,053
     
10,292
 
(Recovery) provision for doubtful accounts
   
(691
)    
596
 
Deferred income taxes
   
(2,625
)    
1,170
 
Other
   
917
     
460
 
Changes in operating assets and liabilities, net of business acquired:
   
     
 
Trade accounts receivable
   
27,163
     
(42,511
)
Inventories
   
(30,821
)    
(59,529
)
Income taxes
   
(3,941
)    
(11,416
)
Other current and
non-current
assets
   
(897
)    
(4,317
)
Accrued compensation
   
(17,808
)    
(15,933
)
Other current and
non-current
liabilities
   
(273
)    
9,912
 
Accounts payable
   
(24,666
)    
5,604
 
                 
Net cash provided by operating activities
   
106,604
     
182,367
 
                 
Cash flows used in investing activities:
   
     
 
Acquisition of business, net of cash acquired
   
(988,599
)    
—  
 
Purchases of investments
   
(117,919
)    
(148,816
)
Maturities of investments
   
40,386
     
90,734
 
Sales of investments
   
157,710
     
63,363
 
Proceeds from sale of assets
   
35
     
—  
 
Purchases of property, plant and equipment
   
(28,254
)    
(21,818
)
                 
Net cash used in investing activities
   
(936,641
)    
(16,537
)
                 
Cash flows provided by (used in) financing activities:
   
     
 
Net proceeds from short and long-term borrowings
   
640,939
     
36,989
 
Payments on short-term borrowings
   
(1,926
)    
(28,059
)
Payments on long-term borrowings
   
(51,625
)    
(50,000
)
Net payments related to employee stock awards
   
(11,012
)    
(13,052
)
Dividend payments to common stockholders
   
(21,723
)    
(20,750
)
                 
Net cash provided by (used in) financing activities
   
554,653
     
(74,872
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(2,026
)    
2,586
 
                 
(Decrease) Increase in cash and cash equivalents and restricted cash
   
(277,410
)    
93,544
 
Cash and cash equivalents at beginning of period
   
644,345
     
333,887
 
                 
Cash and cash equivalents at end of period
  $
366,935
    $
427,431
 
                 
 
 
 
 
 
 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
 
6
  
 
Table of Contents
 
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
 
1)    
Basis of Presentation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The terms “MKS” and the “Company” refer to MKS Instruments, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The interim financial data as of June 30, 2019, and for the three and six months ended June 30, 2019 are unaudited; however, in the opinion of MKS, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet presented as of December 31, 2018 has been derived from the consolidated audited financial statements as of that date. The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form
10-Q
and do not include all of the information and note disclosures required by United States generally accepted accounting principles (“U.S. GAAP”). The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the MKS Annual Report on Form
10-K
for the year ended December 31, 2018 filed with the Securities and Exchange Commission on February 26, 2019.
The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an
on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition, stock-based compensation, inventory, intangible assets, goodwill and other long-lived assets, warranty liabilities, pension liabilities, acquisition expenses, income taxes and investments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
2)
Recently Issued Accounting Pronouncements
In October 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-16,
“Derivatives and Hedging (Topic 815).” This standard permits the use of the Overnight Index Swap Rate (“OIS”) based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct treasury obligations of the U.S. government, the London Interbank Offered Rate (“LIBOR”) swap rate, the OIS rate based on the Federal Funds Effective Rate and the Securities Industry and Financial Markets Association Municipal Swap Rate. This standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this ASU during the first quarter of 2019 and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU
2018-15,
“Intangibles-Goodwill and
Other-Internal-Use
Software (Subtopic
350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software (and hosting arrangements that include an
internal-use
software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments to this update. This standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the requirements of this ASU and adoption could have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU
2017-12,
“Derivatives and Hedging (Topic 815).” This standard better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The provisions of this ASU are effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this ASU during the first quarter of 2019 and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases”. This standard requires the recognition of lease assets and liabilities for all leases, with certain exceptions, on the balance sheet. This ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2016-02 on January 1, 2019, and used the effective date as its date of initial application. As such, the Company did not adjust prior period amounts. The Company also elected to adopt the package of practical expedients upon transition, which permits companies to not reassess lease identification, classification, and initial direct costs for leases that commenced prior to the effective date.
 
7
 
 
 
Table of Contents
MKS INSTRUMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
 
The Company implemented internal controls and a lease accounting information system to enable preparation on adoption. Upon adoption, the Company recorded a cumulative effect of initially applying this new standard, resulting in the addition of $71,042 of
right-of-use
assets and $20,192 and $54,147 of short-term and long-term lease liabilities, respectively. The
right-of-use
asset is net of the deferred rent liability, prepaid rent and a net favorable lease asset which were
re-classified
to the
right-of-use
asset upon adoption of the standard. For additional information on the required disclosures related to the impact of adopting this standard, see Note 3 to the Consolidated Condensed Financial Statements.
3)
Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company has various operating leases for real estate and non-real estate items. The non-real estate leases are mainly comprised of automobiles but also include copiers, printers and other lower-valued items. The Company does not have any finance leases.
The Company has lease arrangements with lease and non-lease components, has elected to account for the lease and non-lease components as a single lease component, and has allocated all of the contract consideration to the lease component only. The Company has existing net leases in which the non-lease components (e.g. common area maintenance, maintenance, consumables, etc.) are paid separately from rent based on actual costs incurred. Therefore, non-lease components are not included in the right-of-use asset and lease liability and are reflected as expenses in the periods incurred.
The Company has existing leases that include variable lease and non-lease components that are not included in the right-of-use asset and lease liability, and are reflected as expenses in the periods incurred. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index (e.g., the Consumer Price Index).
A
right-of-use
asset of $68,631, short-term lease liability of $20,670 and long-term lease liability of $51,141 were reflected on the balance sheet as of June 30, 2019.
The elements of lease expense were as follows:
                 
 
Three Months Ended
June 30, 2019
 
 
Six Months Ended
 

June 30, 2019
 
Lease Cost:
   
 
 
 
 
 
Operating lease cost
  $
6,004
 
 
$
11,381
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The weighted average discount rate and the weighted average remaining lease term were 
3.8
% and
5.1
years, respectively, for the period ended June 30, 2019. Operating cash flows used for operating leases for the six months ended June 30, 2019 was $
11,515
.
Future lease payments under
non-cancelable
leases as of June 30, 2019 are detailed as follows: