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What changed in MKS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MKS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+506 added−493 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-14)

Top changes in MKS INC's 2023 10-K

506 paragraphs added · 493 removed · 386 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

52 edited+15 added−18 removed35 unchanged
Biggest changeWe have taken a number of steps to foster DE&I at MKS: • Over the last three years, approximately 320 of our leaders around the world completed a six-week DE&I program hosted by a consulting firm recognized as best-in-class in the area of DE&I capability building. • In 2022, we continued to offer DE&I training for all employees and bias awareness training for our global talent acquisition and management teams. 11 • We proactively provide our hiring managers with diverse candidate slates in our employee recruiting process and, in accordance with our Corporate Governance Guidelines, seek diverse candidates for the pool from which our Board of Director nominees are chosen. • We regularly conduct robust analyses of pay practices across gender globally and other diversity factors within the United States to detect any existing disparities within base and total compensation, taking prompt and effective action to correct any identified disparities.
Biggest changeTo further foster DE&I at MKS, we have implemented several initiatives: • Since 2020, over 320 of our global leaders have completed a six-week DE&I program led by a renowned consulting firm in the field. • Throughout the year, we provide DE&I training for all employees and bias awareness sessions for our global talent acquisition and management teams. • We have bolstered our recruitment and selection procedures by introducing our MKS Hiring Guide & Toolkit, which is designed to attract top talent while mitigating bias. • Consistent with our Corporate Governance Guidelines, we actively seek diverse candidates for our Board of Director nominees. • We routinely conduct comprehensive analyses of pay practices across gender and other diversity dimensions in our major regions of operations to identify and rectify any disparities promptly and effectively.
We typically provide warranties on our repair services for periods ranging from 90 days to up to one year, depending upon the type of repair. We also offer extended warranties ranging from one to five years. Customers We sell our products and services to thousands of customers worldwide, in a wide range of end markets.
We typically provide warranties on our repair services for periods ranging from 90 days to up to one year, depending upon the type of repair. We also offer extended warranties on our products ranging from one to five years. Customers We sell our products and services to thousands of customers worldwide, in a wide range of end markets.
With the Atotech Acquisition, we also offer a broad portfolio of specialty chemistry solutions for advanced surface modification, electroless and electrolytic plating, surface finishing, functional coating and corrosion resistance applications. MSD is supported by 15 state-of-the-art global technology centers, which are used to conduct extensive research and development in order to anticipate future industry requirements.
With the Atotech Acquisition, we also offer a broad portfolio of specialty chemistry solutions for advanced surface modification, electroless and electrolytic plating, surface finishing, functional coating and corrosion resistance applications. MSD 8 is supported by 15 state-of-the-art global technology centers, which are used to conduct extensive research and development in order to anticipate future industry requirements.
We have developed the following two product strategies that have been instrumental in delivering value to our customers and helping them solve their most complex problems: • Our Surround the Wafer SM offering includes a wide range of products, design and development services, system level integration, training programs, calibration, service, and repair for our semiconductor customers.
We have developed the following two product strategies that have been instrumental in delivering value to our customers and helping them solve their most complex problems: • Our Surround the Wafer® offering includes a wide range of products, design and development services, system-level integration, training programs, calibration, service, and repair for our semiconductor customers.
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 SM , to reflect the unique technology enablement we provide at the interconnect level within PCBs, package substrates and WLPs.
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.
Our research and development efforts include numerous projects, none of which are individually material, and 9 generally have a duration of 3 to 36 months, depending upon whether the product is an enhancement of existing technology or a new product.
Our research and development efforts include numerous projects, none of which are individually material, and generally have a duration of 3 to 36 months, depending upon whether the product is an enhancement of existing technology or a new product.
Atotech Acquisition On August 17, 2022 (the “Effective Date”), we completed the acquisition of Atotech Limited (“Atotech”), through the acquisition of the entire issued share capital of Atotech by Atotech Manufacturing, Inc. (“Bidco”), a Delaware corporation and indirect wholly owned subsidiary of the Company (the “Atotech Acquisition”).
Atotech Acquisition On August 17, 2022 (the “Effective Date”), we completed the acquisition of Atotech Limited (“Atotech”), through the acquisition of the entire issued share capital of Atotech by Atotech Manufacturing, Inc., a Delaware corporation and indirect wholly owned subsidiary of the Company (the “Atotech Acquisition”).
Hitachi Ltd., Horiba Ltd., Brooks Instrument and VAT, Inc. offer products that compete with our materials delivery solutions products. In PSD, Trumpf Group, Lumentum Holdings Inc., IPG Photonics Corporation, EdgeWave GmbH and Amplitude Systemes SA offer products that compete with our laser products.
Hitachi Ltd., Horiba Ltd., Brooks Instrument and VAT, Inc. offer products that compete with our materials delivery solutions products. 9 In PSD, Trumpf Group, Lumentum Holdings Inc., IPG Photonics Corporation, EdgeWave GmbH and Amplitude Systemes SA offer products that compete with our laser products.
We have developed, and continue to develop, new products to address industry trends, such as the shrinking of integrated circuit critical dimensions and technology inflections, and, in the flat panel display and solar markets, the transition to larger substrate sizes, which require more advanced processing and process control technology, the continuing drive toward more complex and accurate components and devices within the handset, tablet and high performance computing markets, the transition to 5G for both communications devices and infrastructure, the growth in units and via counts in the high density interconnect PCB and package substrate markets, and the industry transition to battery-powered vehicles in the automotive market.
We have developed, and continue to develop, new products to address industry trends, such as the shrinking of integrated circuit critical dimensions and technology inflections, and, in the flat panel display and solar markets, the transition to larger substrate sizes, which require more advanced processing and process control technology, the continuing drive toward more complex and accurate components and devices within the handset, tablet and high performance computing markets, the transition to 5G for both communications devices and infrastructure, the growth in units and via counts in the HDI PCB and package substrate markets, and the industry transition to battery-powered vehicles in the automotive market.
Item 1. B usiness MKS Instruments, Inc. (“MKS” or the “Company”) was founded in 1961 as a Massachusetts corporation. We enable technologies that transform our world. We deliver foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications.
Item 1. B usiness MKS Instruments, Inc. (“MKS”, the “Company”, “our”, or “we”) was founded in 1961 as a Massachusetts corporation. We enable technologies that transform our world. We deliver foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications.
Coherent Corp., Qioptiq Ltd., Jenoptik AG and Thorlabs, Inc. offer products that compete with our laser and photonics products. Sigma Koki Co., Ltd. and PI miCos GmbH offer products that compete with our photonics products. Our laser-based systems for PCB manufacturing primarily compete with laser-based systems provided by Via Mechanics, Ltd., EO Technics Co., Ltd. and Mitsubishi Electric Corporation.
Coherent Corp., Excelitas Technologies Corp., Jenoptik AG and Thorlabs, Inc. offer products that compete with our laser and photonics products. Sigma Koki Co., Ltd. and PI miCos GmbH offer products that compete with our photonics products. Our laser-based systems for PCB manufacturing primarily compete with laser-based systems provided by Via Mechanics, Ltd., EO Technics Co., Ltd. and Mitsubishi Electric Corporation.
Our portfolio includes photonics components, laser drilling systems, electronics chemistries and plating equipment, that are critical for the manufacturing of PCBs and package substrates, as well as in 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.
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 increasingly demand smaller features, greater density, and better performance.
Approximately 15%, 12%, and 11% of our net revenues for 2022, 2021, and 2020, respectively, were from sales to our electronics and packaging market. Specialty Industrial Market MKS’ strategy in specialty industrial is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial technologies, life and health sciences, and research and defense markets.
Approximately 25%, 15%, and 12% of our net revenues for 2023, 2022, and 2021, respectively, were from sales to our electronics and packaging market. Specialty Industrial Market MKS’ strategy in specialty industrial is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial technologies, life and health sciences, and research and defense markets.
MSD develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing. Atotech is a brand within MSD. Applying a comprehensive systems-and-solutions approach, MSD's portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in our electronics and packaging and specialty industrial markets.
MSD develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing. Applying a comprehensive systems-and-solutions approach, MSD's portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in our electronics and packaging and specialty industrial markets.
Global Service includes: • Installation services and training for many of our products. • Technical support offices and technology centers located near many of our customers’ facilities. • Repair and calibration services at internal service depots and authorized service providers located worldwide. • Warranties on our products that typically range from one to three years, with the majority of the warranties on our products ranging from one to two years.
Global Service includes: • Installation services and training for many of our products. • On-site services for maintenance and repair of equipment and critical subsystems. • Technical support offices and technology centers located near many of our customers’ facilities. • Repair and calibration services at internal service depots and authorized service providers located worldwide. • Warranties on our products that typically range from one to three years, with the majority of the warranties on our products ranging from one to two years.
Approximately 27%, 26%, and 29% of our net revenues for 2022, 2021, and 2020, respectively, were from sales to our specialty industrial market. International Markets A significant portion of our net revenues is from sales to customers in international markets.
Approximately 34%, 27%, and 26% of our net revenues for 2023, 2022, and 2021, respectively, were from sales to our specialty industrial market. International Markets A significant portion of our net revenues is from sales to customers in international markets.
We support research at academic institutions targeted at advances in materials science, semiconductor process development and photonics. Our research and development expenses were $241 million, $200 million and $173 million for 2022, 2021 and 2020, respectively.
We support research at academic institutions targeted at advances in materials science, semiconductor process development and photonics. Our research and development expenses were $288 million, $241 million and $200 million for 2023, 2022 and 2021, respectively.
For 2022, 2021, and 2020, international net revenues accounted for approximately 58%, 57% and 55%, respectively, of our total net revenues. A significant portion of our international net revenues were from sales to customers in China, Germany and South Korea.
For 2023, 2022, and 2021, international net revenues accounted for approximately 66%, 58%, and 57%, respectively, of our total net revenues. A significant portion of our international net revenues were from sales to customers in China, Germany, Japan and South Korea.
Industrial Technologies Industrial technologies encompasses a wide range of diverse applications, including chemistries for functional coatings, surface finishing and wear resistance in the automobile industry, vacuum solutions for synthetic diamond manufacturing and photonics for solar manufacturing. Other applications include vacuum and photonics solutions for light emitting diode and laser diode manufacturing.
Industrial Technologies Industrial technologies encompasses a wide range of diverse applications, including chemistries for functional coatings, surface finishing and wear resistance in the automobile industry, vacuum solutions for synthetic diamond manufacturing and photonics for solar manufacturing.
At our core, MKS is a foundational enabler of miniaturization and complexity. We believe there are three secular trends benefitting MKS. First is the impact of a world that continues to be increasingly interconnected, driving the need for smaller, more powerful and feature-rich advanced electronic devices, which is enabled by semiconductor manufacturing, laser processing and chemistry solutions.
We believe there are three secular trends benefiting MKS. First is the impact of a world that continues to be increasingly interconnected, driving the need for smaller, more powerful and feature-rich advanced electronic devices, which is enabled by semiconductor manufacturing, laser processing and chemistry solutions.
We believe our long history and deep expertise in solving critical problems position us well to address these challenges for our customers. Semiconductor Market MKS is a critical solutions provider for semiconductor manufacturing. Our products are used in major semiconductor processing steps, such as depositing thin films of material onto silicon wafer substrates, etching, cleaning, lithography, metrology, and inspection.
We believe our long history and deep expertise in solving critical problems position us well to address these challenges for our customers. Semiconductor Market MKS is a critical solutions provider for semiconductor manufacturing. Our products are used in major semiconductor processing steps, such as deposition, etching, cleaning, lithography, metrology, and inspection.
As of December 31, 2022, we had a total workforce of approximately 10,900 individuals, excluding contracted employees, across 39 countries, with 31% located in the Asia-Pacific region, 31% located in Europe, the Middle East and India, and 38% located in the Americas. Of our total workforce, approximately 10,450 were employees and approximately 450 were temporary workers.
As of December 31, 2023, we had a total workforce of approximately 10,200 individuals, excluding contracted employees, across 37 countries, with 33% located in the Asia-Pacific region, 33% located in Europe, the Middle East and India, and 34% located in the Americas. Of our total workforce, approximately 10,000 were employees and approximately 200 were temporary workers.
Life and Health Sciences Our products for life and health sciences are used in a diverse array of applications, including bioimaging, medical instrument sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical production.
Other applications include vacuum and photonics solutions for light emitting diode and laser diode manufacturing. 6 Life and Health Sciences Our products for life and health sciences are used in a diverse array of applications, including bioimaging, medical instrument sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical production.
As part of these efforts, we strive to foster a diverse, equitable and inclusive community, invest in continuous learning and development, engage meaningfully with employees, offer a competitive compensation and benefits program and provide a safe and healthy workplace. Our total workforce and geographic presence significantly increased as a result of the Atotech Acquisition.
As part of these efforts, we strive to foster a diverse, equitable and inclusive community, invest in continuous learning and development, engage meaningfully with employees, offer a competitive compensation and benefits program and provide a safe and healthy workplace.
We expect that international revenues will continue to account for a significant percentage of total net revenues for the foreseeable future. Long-lived assets located outside of the United States accounted for approximately 57% and 28% of our total long-lived assets in 2022 and 2021, respectively.
We expect that international revenues will continue to account for a significant percentage of total net revenues for the foreseeable future. Long-lived assets located outside of the United States accounted for approximately 58% and 57% of our total long-lived assets in 2023 and 2022, respectively. Long-lived assets include property, plant and equipment, net, right-of-use assets, and certain other assets.
With the recent acquisition of Atotech, we have introduced an extension of the Surround the Workpiece offering called Optimize the Interconnect SM , which refers to MKS’ combined laser drilling and chemistry solutions geared towards accelerating innovation and customers’ time-to-market in printed circuit board (“PCB”) and package substrate manufacturing.
In connection with the Atotech Acquisition, we introduced an extension of the Surround the Workpiece offering called Optimize the Interconnect® , which refers to MKS’ combined laser drilling and chemistry solutions geared towards accelerating innovation and customers’ time-to-market in printed circuit board (“PCB”) and package substrate manufacturing. 5 At its core, MKS is a foundational enabler of miniaturization and complexity.
Foreign counterparts of certain U.S. applications have been filed or may be filed at the appropriate time. 10 We require each of our employees, including our executive officers, to enter into standard agreements pursuant to which the employee agrees to keep confidential all of our proprietary information and to assign to us all inventions while they are employed by us.
We require each of our employees, including our executive officers, to enter into standard agreements pursuant to which the employee agrees to keep confidential all of our proprietary information and to assign to us all inventions while they are employed by us.
Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers and changes in our manufacturing capacity. Order patterns exiting 2022 reflected a softening demand for semiconductor capital equipment anticipated for 2023.
Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers and changes in our manufacturing capacity. Competition The market for our products is cyclical and highly competitive.
VSD delivers foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging and specialty industrial applications. VSD products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery and vacuum technology.
VSD products are derived from our core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery and vacuum technology.
In some cases, competitors are smaller than we are, but are well established in specific product niches. For example, in VSD, Advanced Energy Industries, Inc. offers products that compete with our power solutions, plasma and reactive gas and photonics products. Inficon, Inc. offers products that compete with our pressure and vacuum control solutions products.
For example, in VSD, Advanced Energy Industries, Inc. offers products that compete with our power solutions, plasma and reactive gas and photonics products. Inficon, Inc. offers products that compete with our pressure and vacuum control solutions products.
The semiconductor market is subject to rapid demand shifts, which are difficult to predict. We cannot be certain as to the timing or extent of future demand or any future weakness in the semiconductor capital equipment industry. For example, our semiconductor market revenue sequentially increased 12% in 2022, 32% in 2021, and 49% in 2020.
The semiconductor market is subject to rapid demand shifts, which are difficult to predict. We cannot be certain as to the timing or extent of future demand or any future softness in the semiconductor capital equipment industry.
Its products include: • Laser Products, which consist of continuous wave and pulsed nanosecond and ultrafast lasers based on diode, diode-pumped solid-state and fiber laser technologies. • Photonics Products, which include precision motion control, optical tables and vibration isolation systems, photonic instruments, high-performance optics and optical assemblies, opto-mechanical components, temperature-sensing products for wafer fabrication systems, laser and LED measurement products, including laser power and energy meters and laser beam profilers and complex optical and photonic subsystems. • Laser-based systems for PCB manufacturing , which include flexible interconnect PCB processing systems and high-density interconnect solutions for rigid PCB manufacturing and substrate processing. • Multi-layer ceramic capacitor (“MLCC”) test systems , which include testing of ultra-small form factor MLCCs, used mainly in smartphones and other electronics manufacturing and large chip MLCCs, used mainly in automotive and communications infrastructure applications.
Its products include: • Laser Products, which consist of continuous wave and pulsed nanosecond and ultrafast lasers based on diode, diode-pumped solid-state and fiber laser technologies. • Photonics Products, which include precision motion control, optical tables and vibration isolation systems, photonic instruments, high-performance optics and optical assemblies, opto-mechanical components, temperature-sensing products for wafer fabrication systems, laser and LED measurement products, including laser power and energy meters and laser beam profilers and complex optical and photonic subsystems. 7 • Laser-based systems for PCB manufacturing , which include flexible interconnect PCB processing systems and high-density interconnect (“HDI”) solutions for the creation of blind micro-vias necessary for the manufacturing of PCBs (flexible, rigid-flexible, multilayer, HDI) and package substrates.
Human Capital In order to compete and succeed in highly competitive markets and industries that are subject to rapid technological change, we believe it is critical to attract, motivate and retain a dedicated, talented and innovative team of employees.
These environmental regulations include the European Union Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals and the Toxic Substances Control Act in the United States. 10 Human Capital In order to compete and succeed in highly competitive markets and industries that are subject to rapid technological change, we believe it is critical to attract, motivate and retain a dedicated, talented and innovative team of employees.
Our Environmental, Social, Governance Report is updated periodically. This website address is intended to be an inactive textual reference only. None of the information on, or accessible through, MKS’ website is part of this Annual Report on Form 10-K or is incorporated by reference herein.
None of the information on, or accessible through, MKS’ website is part of this Annual Report on Form 10-K or is incorporated by reference herein.
Of our total workforce, 14% work in research and development, 50% work in operations, manufacturing, service and quality assurance, and 36% work in sales, order administration, marketing, finance, legal, information technology, general management and other administrative functions. Diversity, Equity and Inclusion At MKS, our commitment to diversity, equity and inclusion (“DE&I”) is core to our culture.
Of our total workforce, 18% work in research and development, 56% work in operations, manufacturing, service and quality assurance, and 26% work in sales, order administration, marketing, finance, human resources, legal, information technology, general management and other administrative functions.
We also offer employees and eligible family members a full range of health and wellness programs, as well as many clinical and administrative services. 12 Additional information regarding MKS’ activities related to its people and sustainability can be found in our Environmental, Social, Governance Report, which is accessible through the Environmental, Social and Governance section of our website.
Additional information regarding MKS’ activities related to its people and sustainability can be found in our Environmental, Social, Governance Report, which is accessible through the Environmental, Social and Governance section of our website. Our Environmental, Social, Governance Report is updated periodically.
Although we believe that we compete favorably with respect to these factors, we can make no assurances that we will continue to do so. We encounter substantial competition in most of our product lines, although no single competitor competes with us across all product lines. Certain of our competitors have greater financial and other resources than we do.
We encounter substantial competition in most of our product lines, although no single competitor competes with us across all product lines. Certain of our competitors have greater financial and other resources than we do. In some cases, competitors are smaller than we are, but are well established in specific product niches.
Our MLCC test systems primarily compete with Humo Laboratory Ltd., as well as component manufacturers that develop systems for internal use. In MSD, Element Solutions Inc., DuPont de Nemours, Inc., Uyemura, Dipsol Chemicals Co., Ltd., JCU International, Inc. and Okuno Chemical Industries Co., Ltd. offer products that compete with our chemistry products.
In MSD, Element Solutions Inc., DuPont de Nemours, Inc., Uyemura, Dipsol Chemicals Co., Ltd., JCU International, Inc. and Okuno Chemical Industries Co., Ltd. offer products that compete with our chemistry products. Schmid Group, Process Automation International Limited and Manz AG offer products that compete with our plating equipment products.
We continue to assess the potential expansion of this recognition program globally. We also maintain a global flexible work policy. We are committed to ensuring that our total compensation packages are externally competitive and internally equitable, while supporting our business plans and strategies. As employee turnover is an indicator of employee satisfaction, we monitor turnover globally.
We are committed to ensuring that our total compensation packages are externally competitive and internally equitable, while supporting our business plans and strategies. As employee turnover is an indicator of employee satisfaction, we monitor turnover globally. MKS has a very stable and committed workforce, as evidenced by low voluntary turnover. Our voluntary turnover in 2023 was below 8%.
As of December 31, 2022, we owned 764 U.S. patents and 3,430 foreign patents that expire at various dates through 2044. As of December 31, 2022, we had 144 pending U.S. patent applications.
As of December 31, 2023, we owned 690 U.S. patents and 3,121 foreign patents that expire at various dates through 2042. As of December 31, 2023, we had 169 pending U.S. patent applications. Foreign counterparts of certain U.S. applications have been filed or may be filed at the appropriate time.
Compensation and Benefits MKS is committed to providing total compensation packages that attract, motivate and retain our employees. Additionally, MKS is committed to recognizing and rewarding each employee’s sustained performance and results. We run a recognition program for all U.S. employees, which allows peer-to-peer recognition and recognition by managers.
Additionally, MKS is committed to recognizing and rewarding employees’ sustained performance and results. We run a recognition program for all U.S. employees, which allows peer-to-peer recognition and recognition by managers. We continue to assess the potential expansion of this recognition program globally. We also maintain a global flexible work policy.
MKS has a very stable and committed workforce, as evidenced by low voluntary turnover. Our 12-month rolling average for voluntary turnover at the end of 2022 was below 6%. Our employee average tenure is more than 9 years. Health and Safety MKS is committed to providing a safe and healthy workplace for all employees.
Our employee average tenure is more than nine years. Health and Safety MKS is committed to providing a safe and healthy workplace for all employees.
In addition, in 2022, MKS conducted its second annual global employee engagement survey, which, due to the timing of the closing of the Atotech Acquisition, did not include Atotech employees. The results of the survey were thoroughly assessed and shared with our Chief Executive Officer and executive leadership team as well as our Board of Directors.
In 2023, MKS conducted its third annual global employee engagement survey, marking a significant milestone as it included Atotech employees for the first time post-acquisition. The survey findings were analyzed and shared with our President and Chief Executive Officer, the executive leadership team, and our Board of Directors.
Its products include: • Chemical processes and production equipment for PCB manufacturing , which include flexible, rigid-flexible, multilayer, high-density interconnect PCB processing, package substrate and wafer level packaging used in a wide spectrum of industries such as consumer electronics, communications infrastructure, automotive electronics, medical and industrial. • Chemical processes and production equipment for decorative and functional surface finishing, which include decorative, corrosion-protective, and wear-resistant coatings for various end markets such as the automotive, construction, energy, and heavy machinery industries. • Chemical processes for paint applications including pretreatment, stripping and overspray treatment for the automotive and household appliance industries. 8 For further information on our segments, see Note 20 to the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.
Its products include: • Advanced chemical processes, production equipment and software solutions, for the manufacturing of PCBs, package substrates and wafers used in smartphones, computers, other consumer electronics, server and data centers, automotive electronics, and the medical and industrial industries. • Advanced chemical processes and production equipment for decorative and functional surface finishing, which include decorative, corrosion-protective, and wear-resistant coatings for various end markets, such as automotive, construction, energy, household appliance and heavy machinery. • Advanced chemical processes for paint support applications, including pretreatment, stripping and overspray treatment for various end markets such as automotive, construction, aviation, heavy machinery and household appliance.
Our most recent analysis of our global employees' compensation, which was conducted over the past several years, has, with minimal required adjustments, resulted in equitable pay for our employees. • We offer regional and global initiatives that afford employees opportunities to engage in mentoring programs, book reading groups and facilitated discussion groups, webinars and workshops that celebrate and recognize awareness months and days.
Our recent global compensation analysis, spanning several years, has resulted in equitable pay for our workforce with minimal adjustments. • We offer regional and global initiatives, such as mentoring programs, DE&I-focused book clubs, webinars, and workshops to provide opportunities for our diverse workforce to engage and thrive.
Atotech further broadens the Company's capabilities by bringing leadership in critical chemistry solutions for electronics and packaging and specialty industrial applications.
Atotech further broadens the Company’s capabilities by bringing leadership in critical chemistry solutions for electronics and packaging and specialty industrial applications. Markets and Applications Since our inception, we have focused on satisfying the needs of our customers by establishing long-term collaborative relationships. We have a diverse base of customers across our three end-markets, semiconductor, electronics and packaging, and specialty industrial.
Competition The market for our products is cyclical and highly competitive. Principal competitive factors include product quality, performance and price, historical customer relationships, breadth of product line, ease of use, manufacturing capabilities and responsiveness, and customer service and support.
Principal competitive factors include product quality, performance and price, historical customer relationships, breadth of product line, ease of use, manufacturing capabilities and responsiveness, and customer service and support. Although we believe that we compete favorably with respect to these factors, we can make no assurances that we will continue to do so.
Schmid Group, Process Automation International Limited and Manz AG offer products that compete with our plating equipment products. Patents and Other Intellectual Property Rights We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights.
For additional information about risks related to our supply chain, please refer to our Risk Factors in Part I, Item 1A of this Annual Report. Patents and Other Intellectual Property Rights We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights.
Our Board of Directors is comprised of 33% female members, 22% racially diverse members and 11% LGBTQ+ members, and our Lead Director is a woman. We have been recognized for our commitment to advancing women’s representation on the boards of directors of public companies.
Similarly, our Board of Directors is comprised of 38% women, 25% people of color and 13% LGBTQ+ members, and our Lead Director is a woman. We have garnered recognition for our efforts to advance gender diversity on public company boards.
Revenues from our top ten customers accounted for 42%, 46% and 44% of net revenues for 2022, 2021 and 2020, respectively. Lam Research Corporation and Applied Materials, Inc. were our top two customers in 2022 and together accounted for approximately 24% of our net revenues. Both of these customers are in the semiconductor market.
Net revenues from our top ten customers accounted for 30%, 42% and 46% of net revenues for 2023, 2022 and 2021, respectively. None of our customers in 2023 accounted for greater than 10% of net revenues.
In addition, we provide financial support for college and graduate education for U.S. employees and access to online learning for all employees in local languages to help further the careers of our entire workforce. Employee Engagement MKS is committed to meaningful engagement with its employees.
Additionally, we ensure accessibility to online learning resources in local languages for all staff, thus bolstering the professional growth opportunities for our entire workforce. 11 Employee Engagement MKS remains dedicated to fostering meaningful connections with its employees.
During the third quarter of 2022, we consolidated our equipment solutions business (“ESB”), previously ESD, into a component of PSD. We group our product offerings by our reportable segments: VSD, PSD and MSD. Global Service represents our service offerings and consists of total services for all three of our reportable segments.
Reportable Segments, and Product and Service Offerings We are divided into three divisions: the Vacuum Solutions Division (“VSD”), the Photonics Solutions Division (“PSD”) and the Materials Solutions Division (“MSD”). MSD represents the Atotech business and was established following the Atotech Acquisition. We group our product offerings by our reportable segments: VSD, PSD and MSD.
Removed
The Atotech Acquisition was implemented by means of a scheme of arrangement under the laws of Jersey (the “Scheme”) pursuant to the definitive agreement entered into by the Company and Atotech on July 1, 2021, as amended by the Letter Agreement dated October 29, 2021 by and among the Company, Atotech and Bidco, and as further amended by the Amendment to the Implementation Agreement dated April 1, 2022 by and among the Company, Atotech and Bidco (together, the “Implementation Agreement”).
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For example, due in part to these demand shifts, our semiconductor market revenue sequentially decreased 28% in 2023, but it sequentially increased 12% in 2022 and 32% in 2021. Approximately 41%, 58%, and 62% of our net revenues for 2023, 2022, and 2021, respectively, were from sales to our semiconductor market.
Removed
On the Effective Date, pursuant to the Scheme and in accordance with the terms and conditions of the Implementation Agreement, Bidco acquired each issued and outstanding ordinary share of Atotech in exchange for per share consideration of $16.20 in cash and 0.0552 of a share of Company common stock.
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This decrease from 2022 to 2023 was primarily a result of the full-year impact of the Atotech Acquisition, as MSD only sells into our electronics and packaging and specialty industrial markets. Electronics and Packaging Market MKS is a foundational solutions provider for the electronics and packaging market.
Removed
The total net purchase price, including cash consideration, net of cash acquired, value of MKS shares issued, repayment of Atotech debt and settlement of certain Atotech share-based awards totaled $5.7 billion. The Company funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the New Term Loan Facility, as defined below.
Added
Global Service represents our service offerings and consists of total services for all three of our reportable segments. VSD delivers foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging and specialty industrial applications.
Removed
As a result of the Atotech Acquisition, the Company issued an aggregate of 10.7 million shares of Company common stock to the former Atotech shareholders.
Added
For further information on our segments, see Note 22 to the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.
Removed
In connection with the completion of the Atotech Acquisition, the Company 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 “New Credit Agreement”).
Added
Sources and Availability of Materials, Parts and Components We use various suppliers and contract manufacturers to supply materials, parts and components for manufacturing and support of our product lines.
Removed
The New Credit Agreement provides for (i) a senior secured term loan facility (the “New Term Loan Facility”) comprised of three tranches: a $1.0 billion loan (the “USD Tranche A”), a $3.6 billion loan (the “USD Tranche B”) and a EUR 600 million loan (the “Euro Tranche B”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of $500 million (the “New Revolving Facility” and, together with the New Term Loan Facility, the “New Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions. 5 Markets and Applications Since our inception, we have focused on satisfying the needs of our customers by establishing long-term collaborative relationships.
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Although our intention is to establish multiple sources of supply whenever practicable, we have sole or limited source supply arrangements for certain materials, parts and components, such as certain metals and electronic components. Certain of our sole or limited source supply arrangements are the result of “copy exact” requirements of our customers.
Removed
We have a diverse base of customers across our primary served markets, which include semiconductor, electronics and packaging, and specialty industrial.
Added
We may not be able to procure these materials, parts and components from alternate sources at acceptable prices and quality within a reasonable time, or at all. The risk of loss or interruption of this supply could impact our ability to deliver certain products on a timely basis.
Removed
We anticipate that our semiconductor revenue could decrease in 2023, as a result of expected softening in the semiconductor market following three years of significant growth, due, in part, to new U.S. government regulations, as further described under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segments and Markets—Semiconductor Market.” Approximately 58%, 62%, and 59% of our net revenues for 2022, 2021, and 2020, respectively, were from sales to our semiconductor market.
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Diversity, Equity and Inclusion At MKS, we embrace the strength found in our diversity – a diversity of perspectives, experiences, and thoughts. Our commitment is to cultivate an inclusive environment where all team members feel valued and empowered to bring their authentic selves to their work.
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Following the Atotech Acquisition, MKS’ end-market exposure has become more diversified and in the fourth quarter of 2022, revenue from the semiconductor market was 46% of total net revenues. 6 Electronics and Packaging Market MKS is a foundational solutions provider for the electronics and packaging market.
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This dedication stems from our belief that diverse viewpoints not only spur innovation but also fuel exceptional performance and sustainable progress. Diversity, equity, and inclusion (“DE&I”) is deeply ingrained in our cultural fabric. The composition of our executive team reflects this commitment, with women representing 30% and people of color representing 30%.
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The increase in long-lived assets outside of the United States primarily related to the Atotech Acquisition.
Added
Learning and Development MKS remains steadfast in its dedication to fostering learning and professional growth. We offer our employees a diverse array of programs, courses, and resources aimed at enhancing their career trajectories and fostering knowledge-sharing among peers. Our performance management framework is designed to provide ongoing, actionable feedback and facilitate dynamic career development conversations throughout the year.
Removed
Long-lived assets include property, plant and equipment, net, right-of-use assets, and certain other assets and exclude goodwill, intangible assets and long-term tax-related accounts. 7 Reportable Segments, and Product and Service Offerings In the first quarter of 2022, we updated the names of our then-three divisions in order to simplify our naming convention.
Added
In 2023, we expanded our course offerings to encompass areas such as employee engagement, change management, and leadership excellence, underscoring our commitment to continuous improvement. Furthermore, many of our leaders successfully completed the DE&I course as part of this initiative as mentioned above. We extend financial assistance for higher education to eligible employees, including support for college and graduate studies.
Removed
These three divisions, formerly known as the Vacuum & Analysis Division, the Light & Motion Division and the Equipment & Solutions Division, were renamed the Vacuum Solutions Division (“VSD”), the Photonics Solutions Division (“PSD”) and the Equipment Solutions Division (“ESD”), respectively. Following the Atotech Acquisition, we refer to the Atotech business as the Materials Solutions Division (“MSD”).
Added
Comprehensive communication of the results was extended to all employees, supplemented with executive videos and both in-person and virtual focus groups to pinpoint prevailing themes. Leveraging these themes and data points, tailored action items were created to encourage meaningful change. Additionally, our executive leadership team routinely engages in direct communication with employees worldwide, ensuring alignment with the Company's strategic goals.
Removed
These environmental regulations include the European Union Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals (“EU REACH”) and the Toxic Substances Control Act (the “TSCA”) in the United States.
Added
Our executive leadership team is committed to continuously enhancing MKS’ workplace environment and steering organizational growth, with the annual engagement survey serving as a pivotal component for gathering employee insights. Compensation and Benefits MKS is committed to providing total compensation packages that attract, motivate and retain our employees.
Removed
We believe that diversity of gender, race, ethnicity, sexual orientation, culture, education, background and experience fuels innovation and results, as well as enables our employees to succeed. Our executive team is comprised of 22% female members and 22% racially diverse members.
Added
We also provide mandatory environmental, health, and safety training to ensure all employees are provided with the education to perform their jobs safely and to protect the environment. In 2022, we instituted MEHS, a formal Global MKS Management System for Environmental, Health, and Safety, to protect our employees, other stakeholders, and the environment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks, many of which we have experienced, include: • Adverse changes or instability in political or economic conditions in countries or regions where we and our customers and suppliers are located, including currency devaluations, debt defaults, lack of liquidity and recessions; • Challenges of administering our diverse business and product lines globally; • Actions of government regulatory authorities, including embargoes, sanctions (including “anti-blocking” rules), executive orders, import, export, and reexport restrictions, antiboycott laws, tariffs (including anti-dumping and countervailing duties), currency controls, trade restrictions and trade barriers (including retaliatory actions), license requirements (including license-specific restrictions and provisos), citizenship requirements, nationality restrictions, environmental requirements and other rules and regulations (including extraterritorial rules and regulations) applicable to the manufacture, import, export, reexport or end-use of our products, all of which may be complicated and conflicting, require significant investments in cost, time and resources for compliance, negatively impact revenues and margins, and impose strict and severe penalties for noncompliance; • Political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors; • Greater risk of violations of U.S. and international laws and regulations, including anti-corruption and trade laws, and our code of conduct, by our employees, sales representatives, distributors or other agents; • Ambiguous or vague laws that make collecting payments or seeking recourse difficult; • Increased credit risk and differing financial conditions of customers and distributors, resulting in longer accounts receivable collection periods and payment cycles, increased bad debt write-offs and additions to reserves; • Overlapping, burdensome and differing tax structures and laws; • Potential for certain tax benefits to be revoked or reclaimed; 25 • Reduced, inconsistent or differing protection of intellectual property, including unequal recognition and treatment of multi-national corporations' rights by hostile or indifferent governments; • Increasingly stringent privacy, security, consumer and data protection laws, such as the E.U.
Biggest changeThese risks, many of which we have experienced, include: • Adverse changes or instability in political or economic conditions in countries or regions where we and our customers and suppliers are located, including currency devaluations, debt defaults, lack of liquidity and recessions; • Challenges of administering our diverse business and product lines globally; • Actions of government regulatory authorities, including embargoes, sanctions (including “anti-blocking” rules), executive orders, import, export, and reexport restrictions, antiboycott laws, tariffs (including anti-dumping and countervailing duties), currency controls, trade restrictions and trade barriers (including retaliatory actions), license requirements (including license-specific restrictions and provisos), citizenship requirements, nationality restrictions, environmental requirements and other rules and regulations (including extraterritorial rules and regulations) applicable to the manufacture, import, export, reexport or end-use of our products, all of which may be complicated and conflicting, require significant investments in cost, time and resources for compliance, negatively impact revenues and margins, and impose strict and severe penalties for non-compliance; • Political and social attitudes, laws, rules, regulations and policies within countries that favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors; • Greater risk of violations of U.S. and international laws and regulations, including anti-corruption and trade laws, and our code of conduct, by our employees, sales representatives, distributors or other agents; • Ambiguous or vague laws that make collecting payments or seeking recourse difficult; • Increased credit risk and differing financial conditions of customers and distributors, resulting in longer accounts receivable collection periods and payment cycles, increased bad debt write-offs and additions to reserves; • Overlapping, burdensome and differing tax structures and laws; • Potential for certain tax benefits to be revoked or reclaimed; • Reduced, inconsistent or differing protection of intellectual property, including unequal recognition and treatment of multi-national corporations’ rights by hostile or indifferent governments; 25 • Increasingly stringent privacy, security, consumer and data protection laws, such as the EU General Data Protection Regulation, the Data Security Law of China and the China Personal Information Protection Law; • Shipping, logistics and other supply chain complications or cargo security requirements, including forced-labor mitigation rules and increased shipping costs, the latter of which certain parts of our business are experiencing as a result of the attacks on shipping in the Red Sea; • Adverse currency exchange rate fluctuations; • Restrictions on currency conversion or the transfer of funds, including restrictions on certain financial institutions themselves; • Compliance costs, withholding taxes and legal and contractual restrictions associated with repatriating overseas earnings; • Increased risk of exposure to significant health concerns (such as Monkeypox, COVID-19, Sudden Acute Respiratory Syndrome, Avian Influenza and the H7N9, Ebola or Zika viruses); • Differences in business practices, culture, language and management style; • Complex, burdensome and differing labor and employment laws and practices; • Changing labor conditions and difficulties staffing, managing, and rationalizing our foreign operations, including, rising wages and other labor costs, retention of employees, the formation of labor unions and works councils and the maintenance of defined benefit pension plans; • Nationalization or other expropriation of private enterprises or land; • Involuntary geopolitical annexations or accessions through military force or otherwise; and • Increased risk of exposure to civil unrest, terrorism, government sanctioned and non-government sanctioned acts of violence, and military activities.
Our business depends on the timely supply of products and services that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of raw materials, parts, components and subassemblies from suppliers, including contract manufacturers.
Our business depends on the timely supply of products and services that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of raw materials, parts, components and subassemblies from our suppliers, including contract manufacturers.
Moreover, if actual demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we purchase inventory in anticipation of customer demand that does not materialize, or if our customers reduce or delay orders, we may incur excess inventory charges.
Moreover, if actual demand for our products is different than expected, we may purchase more or fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we purchase inventory in anticipation of customer demand that does not materialize, or if our customers reduce or delay orders, we may incur excess inventory charges.
If we are unable to promptly identify and fix defects or other problems, we could experience, among other things: • Loss of customers; • Increased costs of product returns and warranty expenses; • Increased costs required to analyze and mitigate the defects or problems; • Damage to our reputation; 21 • Failure to attract new customers or achieve market acceptance; • Diversion of development, engineering and service resources; and/or • Legal action by our customers or their customers.
If we are unable to promptly identify and fix defects or other problems, we could experience, among other things: • Loss of customers; • Increased costs of product returns and warranty expenses; 21 • Increased costs required to analyze and mitigate the defects or problems; • Damage to our reputation; • Failure to attract new customers or achieve market acceptance; • Diversion of development, engineering and service resources; and/or • Legal action by our customers or their customers.
For example, the EU REACH imposes comprehensive compliance obligations and establishes mechanisms to identify and restrict high-concern chemicals, and comparable regulatory requirements have now been adopted in several other countries. As another example, in the United States, the core provisions of the TSCA were amended in June 2016 for the first time in nearly 40 years.
For example, EU REACH imposes comprehensive compliance obligations and establishes mechanisms to identify and restrict high-concern chemicals, and comparable regulatory requirements have now been adopted in several other countries. As another example, in the United States, the core provisions of TSCA were amended in June 2016 for the first time in nearly 40 years.
Our orders are generally subject to rescheduling without penalty or cancellation without penalty other than reimbursement in certain cases for certain labor and material costs.
Our orders are generally subject to rescheduling or cancellation without penalty other than reimbursement in certain cases for certain labor and material costs.
The COVID-19 pandemic subjected, and the continued effects of the COVID-19 pandemic or the emergence of other widespread health crises may continue to subject, our business, financial condition and operating results to a number of risks, including: • Supply chain disruptions and other operational challenges, including shortages of and significant price increases and increased lead times for raw materials, components and subassemblies, in particular where we rely on sole and limited source suppliers, increased employee turnover, increased health and safety measures, site closures, and other restrictions on the movement of people, goods and raw materials, which could reduce our ability to obtain materials from suppliers and meet customer demand, in each case on favorable terms, on a timely basis, or at all, harming our relationships with customers, creating opportunities for competitors and exposing us to contractual disputes or liability; • The implementation of government mandates and other regulatory actions, including periodic business shutdowns, manufacturing restrictions, and quarantines, which could reduce or halt our operations or the operations of our customers and suppliers, carry into the future for an extended or unknown duration, and contain complex requirements that make compliance difficult; • Decreased employee productivity or availability, whether due to illnesses or due to the measures we or government authorities may take to mitigate their spread and effects, including site closures, restrictions on travel and vaccine mandates, which could lead to employee attrition; and • A decline in industry and global economic conditions that reduces demand from and weakens the financial health of our customers, resulting in delayed or canceled orders, requests for payment deferrals or other contract modifications, and, if we do not anticipate significant or sudden decreases in order patterns, excess inventory.
The COVID-19 pandemic subjected, and the emergence of other widespread health crises may subject, our business, financial condition and operating results to a number of risks, including: • Supply chain disruptions and other operational challenges, including shortages of and significant price increases and increased lead times for raw materials, components and subassemblies, in particular where we rely on sole and limited source suppliers, increased employee turnover, increased health and safety measures, site closures, and other restrictions on the movement of people, goods and raw materials, which could reduce our ability to obtain materials from suppliers and meet customer demand, in each case on favorable terms, on a timely basis, or at all, harming our relationships with customers, creating opportunities for competitors and exposing us to contractual disputes or liability; • The implementation of government mandates and other regulatory actions, including periodic business shutdowns, manufacturing restrictions, and quarantines, which could reduce or halt our operations or the operations of our customers and suppliers, carry into the future for an extended or unknown duration, and contain complex requirements that make compliance difficult; • Decreased employee productivity or availability, whether due to illnesses or due to the measures we or government authorities may take to mitigate their spread and effects, including site closures, restrictions on travel and vaccine mandates, which could lead to employee attrition; and • A decline in industry and global economic conditions that reduces demand from and weakens the financial health of our customers, resulting in delayed or canceled orders, requests for payment deferrals or other contract modifications, and, if we do not anticipate significant or sudden decreases in order patterns, excess inventory.
Our New Term Loan Facility and New Revolving Facility contain several negative covenants that, among other things and subject to certain exceptions, restrict our ability and/or our subsidiaries' ability to: • Incur additional indebtedness; • Pay certain dividends on our capital stock or redeem, repurchase or retire certain capital stock or certain other indebtedness; • Make certain investments, loans and acquisitions; • Engage in certain 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.
Our Term Loan Facility and Revolving Facility contain several negative covenants that, among other things and subject to certain exceptions, restrict our ability and/or our subsidiaries’ ability to: • Incur additional indebtedness; • Pay certain dividends on our capital stock or redeem, repurchase or retire certain capital stock or certain other indebtedness; • Make certain investments, loans and acquisitions; • Engage in certain 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.
Further, we often recognize a significant portion of the revenue of certain of our business lines in the last month of each fiscal quarter, due in part to the tendency of some customers to wait until late in a quarter to commit to purchase our products as a result of capital expenditure approvals and budgeting constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor.
Further, we often recognize a significant portion of the revenue of certain of our business lines in the last month of a fiscal quarter, due in part to the tendency of some customers to wait until late in a quarter to commit to purchase our products as a result of capital expenditure approvals and budgeting constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor.
During downturns in the semiconductor and electronics manufacturing industries, periods of overcapacity have resulted in rapid and significantly reduced demand for our products, which may result in lower gross margins due to reduced absorption of manufacturing overhead, as our ability to reduce our cost structure rapidly and effectively in response to such downturns is limited by the fixed nature of many of our expenses in the near term.
During downturns in the semiconductor and electronics manufacturing industries, periods of overcapacity have resulted in significantly reduced demand for our products, which may result in lower gross margins due to reduced absorption of manufacturing overhead, as our ability to rapidly and effectively reduce our cost structure in response to such downturns is limited by the fixed nature of many of our expenses in the near term.
While the Atotech Acquisition has mitigated our reliance on these customers to some degree, the loss of any of these customers or any significant reduction in orders by these customers, including reductions due to economic, market or competitive conditions or regulatory requirements, would likely still have a material adverse effect on our business, financial condition and operating results.
While the Atotech Acquisition has mitigated our reliance on these customers to some degree, the loss of any of these customers or any significant reduction in orders by these customers, including reductions due to economic, market or competitive conditions or regulatory requirements, would likely have a material adverse effect on our business, financial condition and operating results.
In October 2022, the New BIS Rules imposed new restrictions on our ability to sell, ship, service and support certain equipment and otherwise conduct business with certain counterparties, primarily China-based companies involved in semiconductor manufacturing, which has negatively impacted, and we expect will continue to negatively impact, our revenues.
Beginning in October 2022, the BIS Rules imposed new restrictions on our ability to sell, ship, service and support certain equipment and otherwise conduct business with certain counterparties, primarily China-based companies involved in semiconductor manufacturing, which has negatively impacted, and we expect will continue to negatively impact, our revenues.
For example, in response to the imposition of U.S. tariffs in 2018 and 2019, China imposed its own retaliatory tariffs. In May 2019, China's Ministry of Commerce announced an “unreliable entity list” under which non-Chinese entities that cut off supply to Chinese companies may be subject to government action.
For example, in response to the imposition of U.S. tariffs in 2018 and 2019, China imposed its own retaliatory tariffs. In 2019, China’s Ministry of Commerce also announced an “unreliable entity list” under which non-Chinese entities that cut off supply to Chinese companies may be subject to government action.
Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset certain transaction and integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset certain transaction and integration-related costs over time, this net benefit may not be 13 achieved in the near term, or at all.
Specifically, we did not design or maintain effective controls with respect to our financial reporting systems related to access authentication, intrusion detection and response capability, and backup and restoration such that recovery from a cybersecurity incident could be performed in a more timely manner.
Specifically, we did not design or maintain effective controls with respect to our financial reporting systems related to access authentication, 27 intrusion detection and response capability, and backup and restoration such that recovery from a cybersecurity incident could be performed in a more timely manner.
In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If we become the subject of securities class action litigation, it could result in substantial costs and a diversion of our management's attention and resources. We may not pay dividends on our common stock.
In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we become the subject of securities class action litigation, it could result in substantial costs and a diversion of our management’s attention and resources. We may not pay dividends on our common stock.
While we have implemented policies and procedures to comply with these laws, we cannot be certain that our employees, contractors, suppliers or agents will not violate such laws or our policies. Changes in tax rates or tax regulation or the termination of tax incentives could affect our operating results.
Additionally, while we have implemented policies and procedures to comply with these laws, we cannot be certain that our employees, contractors, suppliers or agents will not violate such laws or our policies. Changes in tax rates or tax regulation or the termination of tax incentives could affect our operating results.
Our inability to adjust spending quickly enough to compensate for any shortfall would magnify the adverse impact of a shortfall in net revenues on our operating results. 34 Customers of our high-value, more complex products often require substantial time to qualify our products and make purchase decisions.
Our inability to adjust spending quickly enough to compensate for any shortfall would magnify the adverse impact of a shortfall in net revenues on our operating results. Customers of our high-value, more complex products often require substantial time to qualify our products and make purchase decisions.
We may not always be able to pass on price increases in raw materials, or price increases by our suppliers, to our customers due to competitive pricing pressure, and, even when we are able to do so, there may be a delay between price increases in raw materials and our ability to increase the prices of our products.
We may not be able to pass on price increases in raw materials, or price increases by our suppliers, to our customers due to competitive pricing pressure, and, even when we are able to do so, there may be a delay between price increases in raw materials and our ability to increase the prices of our products.
In addition, we have from time to time received claims from third parties alleging that we are infringing certain trademarks, patents or other intellectual property rights held by them. Such infringement claims have in the past and may in the future result in litigation, settlement or enforcement action.
In addition, we have from time to time received claims from third parties alleging that we are infringing certain trademarks, patents or other intellectual property rights held by them. Such infringement claims have in the past resulted in, and may in the future result in, litigation, settlement or enforcement action.
Supply constraints and potential for shortages have caused us to increase safety stock levels, which has increased the amount of inventory we hold. Cyclical industry conditions and volatility of demand for our products increase capital, technical, operational and other risks for us and for companies throughout our supply chain.
Supply constraints and the potential for shortages caused us to increase safety stock levels, which has increased the amount of inventory we hold. Cyclical industry conditions and volatility of demand for our products increase capital, technical, operational and other risks for us and for companies throughout our supply chain.
Internal controls related to our financial reporting systems are important to accurately reflect our financial position and results of operations in our financial reports. Due to the material weakness in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective as of December 31, 2022.
Internal controls related to our financial reporting systems are important to accurately reflect our financial position and results of operations in our financial reports. Due to the material weakness in our internal control over financial reporting, we also concluded our disclosure controls and procedures were not effective as of December 31, 2022.
Any of these results could harm our business, financial condition and reputation. 18 Our proprietary technology is important to the continued success of our business. Our failure to protect this proprietary technology may significantly impair our competitive position. Our success and ability to compete depend in large part upon protecting our proprietary technology.
Any of these results could harm our business, financial condition and reputation. Our proprietary technology is important to the continued success of our business. Our failure to protect this proprietary technology may significantly impair our competitive position. Our success and ability to compete depend in large part upon protecting our proprietary technology.
If we are unable to manage these transfers and training smoothly and comprehensively, or if we are unable to requalify products in a timely manner, we could suffer manufacturing and supply chain delays, excessive product defects, harm to our operating results and our reputation with our customers, and loss of customers.
If we are unable to manage these transfers and training smoothly and comprehensively, or if we are unable to requalify products in a timely manner, we could suffer manufacturing and supply chain delays, excessive product defects, harm to our operating results and our reputation, and loss of customers.
Increased restrictions on China may lead to regulatory retaliation by the Chinese government and possibly further escalate geopolitical tensions between China and Taiwan. China has adopted, and announced its intention to further adopt, new regulations, which could have an adverse effect on our operations.
Increased restrictions on China may lead to regulatory retaliation by the Chinese government and further escalate geopolitical tensions between China and Taiwan. China has adopted, and announced its intention to further adopt, new regulations, which could have an adverse effect on our operations.
A failure to comply with the ever-changing regulatory landscape, or a breach of our operational or security systems or infrastructure, or those of our customers, suppliers and other business partners, could disrupt our business, including business operations and manufacturing processes; result in the disclosure, misuse, corruption or loss of confidential or other valuable business information, including intellectual property, personally identifiable information and other critical data of ours and our employees, customers, suppliers and other business partners; result in competitive disadvantages to the extent the information is competitively sensitive; damage our reputation; negatively affect our relationships with our employees, customers, suppliers and other business partners, including loss of confidence, which could lead to loss of or reduction in orders; divert the attention of management; cause losses; result in litigation, investigations or liability under contracts; require notifications to regulatory authorities and impacted individuals; result in significant penalties and/or fines from regulatory bodies, including pursuant to privacy laws and export control laws; add to the complexity of our compliance obligations; increase our cybersecurity protection costs; and result in the incurrence of remediation costs.
A failure to comply with the evolving regulatory landscape, or a breach of our operational or security systems or infrastructure, or those of our customers, suppliers and other business partners, could disrupt our business, including business operations and manufacturing processes; result in the disclosure, misuse, corruption or loss of confidential or other valuable business information, including intellectual property, personally identifiable information and other critical data of ours and our employees, customers, suppliers and other business partners; result in competitive disadvantages to the extent the information is competitively sensitive; damage our reputation; negatively affect our relationships with our employees, customers, suppliers and other business partners, including loss of confidence, which could lead to loss of or reduction in orders; divert the attention of management; cause losses; result in litigation, investigations or liability under contracts; require notifications to regulatory authorities and impacted individuals; result in significant penalties and/or fines from regulatory bodies, including pursuant to privacy laws and export control laws; add to the complexity of our compliance obligations; increase our cybersecurity protection costs; and result in the incurrence of remediation costs.
There is significant competition for personnel in the technology and sciences marketplace, particularly in certain geographies where we are located, including the Boston area, the Orange County, California area, the San Francisco Bay area, China, Germany, Japan and Singapore.
There is significant competition for personnel in the technology and sciences marketplace, particularly in certain geographies where we are located, including the Boston area, Orange County and the San Francisco Bay area of California, China, Germany, Japan and Singapore.
In addition, patents issued to us may be challenged, invalidated or circumvented. The loss or expiration of any of our key patents could lead to a significant loss of sales of certain of our products and could materially affect our future operating results.
In addition, patents issued to us may be challenged, invalidated or circumvented. The loss or expiration of any of our key patents could lead to a significant loss of sales of certain of our products and could materially affect our operating results.
We rely on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information and to carry out and support a variety of business activities, including, among others, finance and accounting, order management, human resources, communications, manufacturing, research and development, intellectual property, supply chain management, sales and information technology, including critical functions such as internet connectivity, network communications, and email.
We rely on various IT networks and systems, some of which are managed by third parties, to process, transmit and store electronic information and to carry out and support a variety of business activities, including, among others, finance and accounting, order management, human resources, communications, manufacturing, research and development, intellectual property, supply chain management, sales and IT, including critical functions such as internet connectivity, network communications, and email.
Our failure to successfully manage the transition of certain of our products to other manufacturing locations and/or to contract manufacturers and the transition of certain functions to centralized locations would likely harm our business, financial condition and operating results.
Our failure to successfully manage the transition of certain of our products to other manufacturing locations, the transition of certain of our products to or from contract manufacturers, and the transition of certain functions to centralized locations would likely harm our business, financial condition and operating results.
There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all. The terms of our New Term Loan Facility and New Revolving Facility impose significant financial obligations and risks upon us, limit our ability to take certain actions, and could discourage a change in control.
There can be no assurance that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all. 15 The terms of our Term Loan Facility and Revolving Facility impose significant financial obligations and risks upon us, limit our ability to take certain actions, and could discourage a change in control.
Although we maintain insurance related to cybersecurity risks, all of these costs, expenses, liability and other matters may not be covered adequately by insurance and may result in an increase in our costs for insurance or insurance not being available to us on economically feasible terms, or at all. Insurers may also deny us coverage as to any future claim.
Although we maintain insurance related to cybersecurity risks, these costs, expenses, liability and other matters may not be adequately covered by insurance and may result in an increase in our costs for insurance or insurance not being available to us on 18 economically feasible terms, or at all. Insurers may also deny us coverage as to any future claim.
Factors that could harm our competitive position include: 23 • Our failure to anticipate demand for and internally develop or acquire new, improved and disruptive technologies; • Our investment in emerging applications that do not achieve widespread adoption or significant growth; • Delays in introducing new, enhanced and differentiated products, many of which are difficult to design and manufacture because of their sophistication and complexity; • Reduced manufacturing capabilities, customer service or support; • Our inability to have semiconductor device manufacturers direct semiconductor capital equipment manufacturers to use our products at their semiconductor fabrication facilities; • Our inability to have global electronics OEMs specify our products in their manufacturing processes for the rigid printed circuit board manufacturers they use; • Failure of customers to achieve market demand for their products that incorporate our technologies; • Efforts of customers to internally develop products that compete with our technologies or to engage subcontract manufacturers or system integrators to manufacture competitive products on their behalf; • Competitors that develop products that offer superior performance or technological features; • Competitors with greater financial, technical, marketing and other resources, including ownership by or affiliations with members of government, political entities or larger, multinational businesses, which may offer a number of competitive advantages, such as the ability to incur lower costs due to control over sources of components and raw materials or exclusive agreements with suppliers thereof; • Competitors with greater recognition and stronger presences in specific product niches and/or regions, including in the specialty chemicals industry; • Competitors, particularly in China, that are able to develop low-cost competitive products; • Difficulties in displacing competitors' products that are designed into customers' products; • Pricing pressure from customers and competitors, particularly new competitors that offer aggressive price and payment terms in an attempt to gain market share, and especially during cyclical downturns in our markets, when end-markets become more sensitive to costs and competitors are more likely to seek to maintain or increase market share, reduce inventory or introduce more technologically advanced or lower-cost products; • Industry consolidation among competitors, which could exacerbate certain of these factors; and • Regulatory changes that prevent or make it difficult to supply our products and services to a particular industry, market or country.
Factors that could harm our competitive position include: 23 • Our failure to anticipate demand for and internally develop or acquire new, improved and disruptive technologies; • Our investment in emerging applications that do not achieve widespread adoption or significant growth; • Delays in introducing new, enhanced and differentiated products, many of which are difficult to design and manufacture because of their sophistication and complexity; • Reduced manufacturing capabilities, customer service or support; • Our inability to have semiconductor device manufacturers direct semiconductor capital equipment manufacturers to use our products at their semiconductor fabrication facilities; • Our inability to have global electronics OEMs specify our products in their manufacturing processes for the rigid PCB manufacturers they use; • Failure of customers to achieve market demand for their products that incorporate our technologies; • Efforts of customers to internally develop products that compete with our technologies or to engage subcontract manufacturers or system integrators to manufacture competitive products on their behalf; • Competitors that develop products that offer superior performance or technological features; • Competitors with greater financial, technical, marketing and other resources, including ownership by or affiliations with members of government, political entities or larger, multinational businesses, which may offer a number of competitive advantages, such as the ability to incur lower costs due to control over sources of components and raw materials or exclusive agreements with suppliers thereof; • Competitors with greater recognition and stronger presences in specific product niches and/or regions, including in the specialty chemicals industry; • Competitors, particularly in Asia, that are able to develop low-cost competitive products; • Difficulties in displacing competitors' products that are designed into customers' products; • Pricing pressure from customers and competitors, particularly new competitors that offer aggressive price and payment terms in an attempt to gain market share, and especially during cyclical downturns in our markets, when end-markets become more sensitive to costs and competitors are more likely to seek to maintain or increase market share, reduce inventory or introduce more technologically advanced or lower-cost products; • Industry consolidation among competitors, which could exacerbate certain of these factors; and • Regulatory changes that prevent or restrict the supply of our products and services to a particular industry, market or country.
In particular, we do not have previous experience in the specialty chemistry industry, which Atotech serves. Atotech's chemistry business is also subject to highly complex environmental regulations, across multiple jurisdictions around the globe, and may expose us to significant additional liabilities for past or future activities.
In particular, we did not have previous experience in the specialty chemistry industry, which Atotech serves. Atotech's chemistry business is also subject to highly complex environmental regulations, across multiple jurisdictions around the globe, and may expose us to significant additional liabilities for past or future activities.
Our New Term Loan Facility and New Revolving Facility contain customary events of default, including: • Failure to make required payments; • Failure to comply with certain agreements or covenants; • Materially breaching any representation or warranty; • Failure to pay, or cause acceleration of, certain other indebtedness; • Certain events of bankruptcy and insolvency; • Failure to pay certain judgments; and • A change in control of us.
Our Term Loan Facility and Revolving Facility contain customary events of default, including: • Failure to make required payments; • Failure to comply with certain agreements or covenants; • Materially breaching any representation or warranty; • Failure to pay, or cause acceleration of, certain other indebtedness; • Certain events of bankruptcy and insolvency; • Failure to pay certain judgments; and 16 • A change in control of us.
We are exposed to various risks related to legal proceedings, including, for example, product liability claims, intellectual property infringement claims, contractual claims and securities class action litigation, which if successful, could have a material adverse effect on our commercial relationships, business, financial condition and operating results.
We are exposed to various risks related to legal proceedings, including, for example, product liability claims, intellectual property infringement claims, regulatory claims, contractual claims and class action litigation, which if successful, could have a material adverse effect on our commercial relationships, business, financial condition and operating results.
However, while we benefitted from the indemnification of 31 certain costs by a third party in the past, that indemnification is now in a transition period, and we will become subject to a greater portion of costs of remediation going forward. Our ultimate costs of remediation and other potential liabilities are difficult to predict.
However, while we benefited from the indemnification of 31 certain costs by a third party in the past, that indemnification is now in a transition period, and we will become subject to a greater portion of costs of remediation going forward. Our ultimate costs of remediation and other potential liabilities are difficult to predict.
The process of seeking patent protection can be time consuming and expensive and patents may not be issued from currently pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us.
The process of seeking patent protection can be time consuming and expensive and patents may not be issued from pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or a commercial advantage to us.
Government concerns relate to, among other things, national security concerns and the concept of 'military/civil fusion' in China - a national strategy in which military technologies are developed or produced alongside commercial, non-military items, often by private or quasi-government companies.
The U.S. government concerns relate to, among other things, national security concerns and the concept of “military/civil fusion” in China, a national strategy in which military technologies are developed or produced alongside commercial, non-military items, often by private or quasi-government companies.
If our customers or the industries we serve shift to other technologies, our business, financial condition and operating results would be harmed. 24 We offer products for multiple markets and must face the challenges of supporting the distinct needs of each of the markets we serve.
If our customers or the industries we serve shift to other technologies, our business, financial condition and operating results would be harmed. 24 We offer products for multiple markets and must face the challenges of supporting the distinct needs of each of the markets we serve. We offer products for very diverse markets.
Such claims could also result in the necessity of obtaining a license or paying damages relating to one or more of our products, services or current or future technologies, which may not be available on commercially reasonable terms or at all.
Such claims could also result in the necessity of obtaining a license or paying damages relating to one or more of our products, services or current or future technologies, which may not be available on commercially acceptable terms or at all.
These regulations include tariff increases, additional sanctions against specified entities, and the broadening of restrictions and license requirements for specified end-uses of those of our products that are subject to these restrictions, including restrictions surrounding specific product groups, applications and/or end uses. U.S.
These regulations include tariff increases, additional sanctions against specified entities, and the broadening of restrictions and license requirements for specified end-uses of those of our products that are subject to these restrictions, including restrictions surrounding specific product groups, applications and/or end uses.
Spectra-Physics and the other responsible parties entered into cost-sharing agreements covering the costs of remediating the off-site groundwater impact. The site is mature, and investigations, monitoring and remediation efforts by the responsible parties have been ongoing for approximately 30 years.
Spectra-Physics and the other responsible parties entered into cost-sharing agreements covering the costs of remediating the off-site groundwater impact. The site is mature, and investigations, monitoring and remediation efforts by the responsible parties have been ongoing for approximately 35 years.
MSD has generally experienced its strongest revenue in the second half of the fiscal year, mostly driven by consumption trends during the holiday season, and its lowest revenue in the first quarter of the fiscal year, mostly driven by the slowdown in production in China as a result of the Chinese New Year.
MSD has generally experienced its strongest revenue in the second half of the fiscal year, mostly driven by consumption trends during the holiday season, and its lowest revenue in the first quarter of the fiscal year, mostly driven by the slowdown in production in China as a result of the Lunar New Year.
Increased costs would decrease our profit margins if we could not pass the costs to our customers. Further, shipping delays damage, and may continue to damage, our relationships with customers and have a material adverse effect on our business and operating results.
Increased costs would decrease our profit margins if we could not pass these costs to our customers. Further, shipping delays damage, and may continue to damage, our relationships with customers and have a material adverse effect on our business and operating results.
If a permit for a production facility would not be renewed or would be revoked, the facility may need to be closed temporarily or permanently, which may have a material adverse effect on our business, financial condition and operating results.
If a permit for a production facility is not renewed or is revoked, the facility may need to be closed temporarily or permanently, which may have a material adverse effect on our business, financial condition and operating results.
While we have attempted to mitigate these issues by establishing a significant local presence in many of these countries, companies like us that are based elsewhere remain at a disadvantage. 26 We face significant risks associated with doing increased business in China in particular. The Atotech Acquisition significantly increased our operations and assets in China.
While we have attempted to mitigate these issues by establishing a significant local presence in many of these countries, companies like us that are based elsewhere remain at a disadvantage. 26 We face significant risks associated with doing increased business in China in particular. The Atotech Acquisition significantly increased our operations and assets in, and revenues generated from, China.
Disruptions or delays at our third-party service providers could adversely impact our operations. We outsource a number of services, including certain information technology systems and systems management, logistics functions, contract manufacturing, payroll and tax functions, to third-party service providers. While outsourcing arrangements may lower our cost of operations, they also reduce our direct control over the services rendered.
Disruptions or delays at our third-party service providers could adversely impact our operations. We outsource a number of services, including certain IT systems and systems management, logistics, contract manufacturing, payroll and tax functions, to third-party service providers. While outsourcing arrangements may lower our cost of operations, they also reduce our direct control over the services rendered.
Further, serving diverse markets requires an understanding of different sales cycles and customer types, and the development and maintenance of a complex global sales team and sales channels to support the markets' differing needs. It also requires dynamic operations that can support both complex, customized product builds as well as quick turn-around for commercial off-the-shelf sales.
Further, serving diverse markets requires an understanding of different sales cycles and customer types, and the development and maintenance of a complex global sales team and sales channels to support each market’s differing needs. It also requires dynamic operations that can support both complex, customized product builds as well as quick turn-around for commercial off-the-shelf sales.
In addition, some of our sales to defense and security customers are under major defense programs that involve lengthy competitive bidding and qualification processes. These customers often perform, or require us to perform, extensive configuration, testing and evaluation of our products before committing to purchasing them, which can require a significant upfront investment in time and resources.
In addition, some of our sales to defense and security customers are under major defense programs that involve 34 lengthy competitive bidding and qualification processes. These customers often perform, or require us to perform, extensive configuration, testing and evaluation of our products before committing to purchase them, which can require a significant upfront investment in time and resources.
We may also be at a disadvantage in any enforcement proceeding in China and India as a foreign entity seeking protection against a locally headquartered company. Patent and trademark laws and trade secret protection may not be adequate to deter third party infringement or misappropriation of our patents, trademarks, trade secrets and similar proprietary rights.
We may also be at a disadvantage in any enforcement proceeding in China and India as a foreign entity seeking protection against a locally headquartered company. Patent and trademark laws and trade secret protection may not adequately deter third-party infringement or misappropriation of our patents, trademarks, trade secrets and similar proprietary rights.
If we are required to change contract manufacturers or assume internal manufacturing operations for any reason, including the termination of one of our contract manufacturing contracts, we will likely suffer manufacturing and shipping delays, lost sales, increased costs and damage to our customer relationships, any of which would harm our business, financial condition and operating results.
If we are required to change contract manufacturers or assume internal manufacturing operations, including due to the termination of one of our contract manufacturing contracts, we will likely suffer manufacturing and shipping delays, lost sales, increased costs and damage to our customer relationships, any of which would harm our business, financial condition and operating results.
For example, such amendments have in the past, and may in the future, result in certain of our products falling in the scope of a directive, even if they were initially exempt.
For example, such amendments have in the past resulted in, and may in the future result in, certain of our products falling within the scope of a directive, even if they were initially exempt.
If we fail to manage our relationships with our contract manufacturers, or if any of our contract manufacturers violate laws or regulations or experience financial difficulty, delays, disruptions, capacity constraints or quality control problems in their operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed.
If we fail to manage our relationships with our contract manufacturers, or if any of our contract manufacturers violate laws or regulations or experience financial difficulty, delays, disruptions, capacity constraints or quality control problems, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed.
See “—We are exposed to various risks related to legal proceedings, including, for example, product liability claims, intellectual property infringement claims, contractual claims and security class action litigation, which if successful, could have a material adverse effect on our commercial relationships, business, financial condition and operating results.” below for more information regarding legal risks associated with privacy-related matters.
See “—We are exposed to various risks related to legal proceedings, including, for example, product liability claims, intellectual property infringement claims, regulatory claims, contractual claims and class action litigation, which if successful, could have a material adverse effect on our commercial relationships, business, financial condition and operating results” below for more information regarding legal risks associated with privacy-related matters.
In addition, there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts or that any such future significant deficiencies identified may not be material weaknesses that would be required to be reported in future periods.
There can be no assurance that future remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts, or that any future significant deficiencies may not be material weaknesses that would be required to be reported in future periods.
As disclosed in more detail in Part II, Item 9A, “Controls and Procedures” below, following the ransomware incident we identified on February 3, 2023, we 27 identified a material weakness as of December 31, 2022 in our internal control over financial reporting.
As disclosed in more detail in Part II, Item 9A, “Controls and Procedures” below, following the ransomware incident in February 2023, we identified a material weakness as of December 31, 2022 in our internal control over financial reporting.
We may also face competitive disadvantages by selling products that are new to us and/or selling products in markets and geographies that are new to us. In addition, if we are not successful in completing acquisitions or integrating acquired businesses, we may be required to re-evaluate our growth strategy.
We may also face competitive disadvantages by selling products that are new to us and/or selling products in markets and geographies that are new to us. In addition, if we are not successful in completing acquisitions or integrating acquired businesses, we may need to re-evaluate our growth strategy.
As a result of our presence in China, we are subject to the following significant risks: • Adverse changes in Chinese political, economic or social conditions or Chinese laws, regulations or policies, including the imposition of unexpected or confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, or the reversal of economic reform policies that encourage private economic activity, foreign investments and greater economic decentralization; • Restrictions or limitations on our ability to repatriate funds from our Chinese operations, including penalties for non-compliance with applicable Chinese law; • Differing economic practices compared to most developed countries, including with respect to the amount of government involvement, control of foreign exchange and allocation of resources; • Uncertainties presented by the Chinese legal system, which is not fully integrated and continues to rapidly evolve, impeding our ability to interpret certain Chinese laws and regulations, predict and evaluate the outcome of administrative and court proceedings and the level of legal protection in China and enforce contracts we have entered into in China; and • Chinese controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China, restricting our ability to remit sufficient foreign currency to pay dividends or make other payments to us, or otherwise satisfy foreign currency-denominated obligations.
As a result of our presence in China, we are subject to the following significant risks: • Adverse changes in Chinese political, economic or social conditions or Chinese laws, regulations or policies, including the imposition of unexpected or confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, or the reversal of economic reform policies that encourage private economic activity, foreign investments and greater economic decentralization; • Differing economic practices compared to most developed countries, including with respect to the amount of government involvement, control of foreign exchange and allocation of resources; • Uncertainties presented by the Chinese legal system, which is not fully integrated and continues to rapidly evolve, impeding our ability to interpret certain Chinese laws and regulations, predict and evaluate the outcome of administrative and court proceedings and the level of legal protection in China and enforce contracts we have entered into in China; and • Chinese controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China, restricting our ability to remit sufficient foreign currency to pay dividends or make other payments to us, or otherwise satisfy foreign currency-denominated obligations.
As MSD manufactures specialty chemicals, we are subject to chemicals approvals, registrations and regulations around the world, including European Union Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals (“EU REACH”), the Toxic Substances Control Act (“TSCA”) in the United States, and similar laws and regulations in certain other jurisdictions in which we and our customers operate.
As MSD manufactures specialty chemicals, we are subject to chemicals approvals, registrations and regulations around the world, including European Union Regulations on Registration, Evaluation, Authorisation and Restriction of Chemicals (“ EU REACH”) in the EU, the Toxic Substances Control Act (“TSCA”) in the United States, and similar laws and regulations in certain other jurisdictions in which we and our customers operate.
Additionally, ongoing legal and other costs related to this lawsuit, as well as any potential future proceedings and inquiries, may be substantial, and losses associated with any adverse judgments, settlements, penalties or other resolutions of such proceedings and inquiries could be significant and have a material adverse impact on our business, reputation, financial condition, cash flows and operating results.
Additionally, ongoing legal and other costs related to any potential future proceedings and inquiries, may be substantial, and losses associated with any adverse judgments, settlements, penalties or other resolutions of such proceedings and inquiries could be significant and have a material adverse impact on our business, reputation, financial condition, cash flows and operating results.
Further, our reliance on contract manufacturers reduces our control over compliance, the assembly process, quality assurance, production costs and material and component supply for our products.
Further, our reliance on contract manufacturers reduces our control over compliance, assembly, quality assurance, production costs and material and component supply for our products.
Other potential risks related to the Atotech Acquisition include our ability to: • expand our financial and management controls and reporting systems and procedures to integrate and manage Atotech; • integrate our information technology systems to enable the management and operation of the combined business; • realize expected synergies resulting from the Atotech Acquisition during our expected timeframe; • maintain and improve Atotech's operations; • retain and expand Atotech's customer base while aligning our sales efforts; • avoid lost revenue resulting from the distraction of our personnel as a consequence of the Atotech Acquisition and ongoing integration efforts; • retain key Atotech personnel; • recognize and capitalize on technology enhancement opportunities presented by our combined businesses; • adequately familiarize ourselves with Atotech's products and technology and certain of its markets and customer base such that we can manage Atotech's business effectively; and • successfully integrate our respective corporate cultures such that we achieve the benefits of acting as a unified company.
Other potential risks related to the Atotech Acquisition include our ability to: • Expand our financial and management controls and reporting systems and procedures to integrate and manage Atotech; • Integrate our information technology (“IT”) systems to enable the management and operation of the combined business; • Realize expected synergies resulting from the Atotech Acquisition during our expected timeframe; • Maintain and improve Atotech's operations; • Retain and expand Atotech's customer base while aligning our sales efforts; • Avoid lost revenue resulting from the distraction of our personnel as a consequence of the Atotech Acquisition and ongoing integration efforts; • Retain key Atotech personnel; • Recognize and capitalize on technology enhancement opportunities presented by our combined businesses; • Develop sufficient knowledge of Atotech's products and technology and certain of its markets and customer base such that we can manage Atotech's business effectively; and • Successfully integrate our respective corporate cultures such that we achieve the benefits of acting as a unified company.
Risks Related to Cybersecurity, Data Privacy and Intellectual Property Protection We are exposed to risks related to cybersecurity and data privacy threats and incidents, including the ransomware event we identified on February 3, 2023, and we are subject to restrictions and changes in laws and regulations governing data privacy and data protection, any of which could have a material adverse effect on our business.
Risks Related to Cybersecurity, Data Privacy and Intellectual Property Protection We are exposed to risks related to cybersecurity and data privacy threats and incidents, such as the ransomware event we identified in February 2023, and we are subject to restrictions and changes in laws and regulations governing data privacy and data protection, any of which could have a material adverse effect on our business.
Some of these activities are processed via Software-as-a-Service (“SaaS”) products provided by third parties and hosted on their own networks and servers, or third-party networks and servers. The data on such various information technology networks and systems includes confidential information, personally identifiable information, transactional information and intellectual property belonging to us and our employees, customers, suppliers and other business partners.
Many of these activities are processed via Software-as-a-Service (“SaaS”) products provided by third parties and hosted on their own networks and servers or on third-party networks and servers. The data on such IT networks and systems includes confidential information, personally identifiable information, transactional information and intellectual property belonging to us and our employees, customers, suppliers and other business partners.
In addition, many of our product manufacturing processes and product services require deep technical expertise, and it can be particularly challenging to identify and attract candidates and retain employees possessing such expertise. We have experienced, and may continue to experience, attrition in certain key positions.
In addition, many of our product manufacturing processes and product services require deep technical expertise, and it can be particularly challenging to identify and attract candidates and retain employees possessing such expertise. We have experienced, and may continue to experience, attrition in certain key positions. For example, Seth H.
The impact of these regulations on our customers and our customers' ability to comply with these regulations is outside of our control. However, noncompliance by our customers could have an indirect negative effect on our business.
The impact of these regulations on our customers and our customers' ability to comply with these regulations is outside of our control. However, non-compliance by our customers could have an indirect negative effect on our business.
Our reliance on sole and limited source suppliers and international suppliers involves a number of risks, including: • The inability to obtain an adequate supply of required raw materials or components, including if our suppliers cannot scale their manufacturing output to meet our demands; • Quality and reliability problems with raw materials or components, which in turn adversely affects our products' quality and reliability; • Prohibitively higher raw material or component prices due to the imposition of tariffs; • Supply chain disruptions, including as a result of the relocation of our low-cost and sole and limited source suppliers to less-developed countries, such as the movement of some suppliers from China to the Philippines or Vietnam; • Reduced control over pricing and timing of delivery of raw materials and components; • The inability of our suppliers to develop technologically advanced products to support our growth and development of new products; • The unavailability of service and/or spare parts for critical capital equipment; and • The inability or unwillingness of our suppliers to continue to offer supplies or services on commercially acceptable terms.
Our reliance on sole and limited source suppliers and international suppliers involves a number of risks, including: • The inability to obtain an adequate supply of required raw materials or components, including if our suppliers cannot scale their manufacturing output to meet our demands; • Quality and reliability problems with raw materials or components, which in turn may adversely affect our products' quality and reliability; • Prohibitively higher raw material or component prices due to the imposition of tariffs; • Supply chain disruptions, including as a result of the relocation of certain low-cost and sole and limited source suppliers to less-developed countries; • Reduced control over pricing and timing of delivery of raw materials and components; • The inability of our suppliers to develop technologically advanced products to support our growth and development of new products; • The unavailability of service and/or spare parts for critical capital equipment; and • The inability or unwillingness of our suppliers to continue to offer supplies or services on commercially acceptable terms.
While we have utilized certain permitted approaches for transferring personally identifiable information from these countries to the United States, these approaches may be reviewed and invalidated by courts or regulatory bodies and we may be required to ascertain an alternative legal basis for such transfers.
While we have utilized certain permitted approaches for transferring personally identifiable information from these countries, these approaches may be invalidated by courts or regulatory bodies and we may be required to ascertain an alternative legal basis for such transfers.
Other factors that could cause fluctuations in our financial results include: • A worldwide economic slowdown or disruption in the global financial markets; • Fluctuations in our customers' capital spending, industry cyclicality (particularly in the semiconductor, electronics manufacturing and automotive industries), levels of government funding available to our customers (particularly in the life and health sciences, and research and defense markets) and other economic conditions within the markets we serve; • The timing of the receipt of orders within a given period; • Demand for our products and the products sold by our customers; • Disruption in sources of supply; • Production capacity constraints; • Regulatory and trade restrictions in the countries we source from, manufacture or sell our products; • Specific features requested by customers; • Natural disasters or other events beyond our control (such as earthquakes, floods or storms, regional economic downturns, pandemics, social unrest, political instability, terrorism, or acts of war); • The timing of product shipments and revenue recognition within a given quarter; • Changes in our pricing practices or in the pricing practices of our competitors or suppliers, including as a result of inflationary pressures; • Our and our competitors' timing in introducing new products; • Engineering and development investments relating to new product introductions, and significant changes to our manufacturing and outsourcing operations; • Market acceptance of any new or enhanced versions of our products; • The timing and level of inventory obsolescence, scrap and warranty expenses; • The availability, quality and cost of components and raw materials we use to manufacture our products; • Changes in our effective tax rates; • Changes in our capital structure, including cash, marketable securities and debt balances, and changes in interest rates; 35 • Changes in bad debt expense based on the collectability of our accounts receivable; • The timing, type and size of acquisitions and divestitures, and related expenses and charges; • Fluctuations in currency exchange rates; • Our expense levels; • Impairment of goodwill and amortization of intangible assets; and • Fees, expenses and settlement costs or judgments against us relating to litigation or regulatory compliance. • As a result of these factors, among others, we may experience quarterly or annual fluctuations in our operating results, and our operating results for any period may fall below our expectations or the expectations of public market analysts or investors.
Other factors that could cause fluctuations in our financial results include: • A worldwide economic slowdown or disruption in the global financial markets; • Fluctuations in our customers’ capital spending, industry cyclicality (particularly in the semiconductor, electronics manufacturing and automotive industries), levels of government funding available to our customers (particularly in the life and health sciences and the research and defense markets) and other economic conditions within the markets we serve; • The timing of the receipt of orders within a given period; • Demand for our products and the products sold by our customers; • Disruption in sources of supply; • Production capacity constraints; • Regulatory and trade restrictions in the countries where we source, manufacture or sell our products; • Specific features requested by customers; • Natural disasters or other events beyond our control (such as earthquakes, floods or storms, regional economic downturns, pandemics, social unrest, political instability, terrorism, or acts of war); • IT or infrastructure failures; • The timing of product shipments and revenue recognition within a given quarter; • Changes in our pricing practices or in the pricing practices of our competitors or suppliers, including as a result of inflationary pressures; • Our and our competitors’ timing in introducing new products; • Engineering and development investments relating to new product introductions, and significant changes to our manufacturing and outsourcing operations; • Market acceptance of any new or enhanced versions of our products; • The timing and level of inventory obsolescence, scrap and warranty expenses; • The availability, quality and cost of components and raw materials we use to manufacture our products; • Changes in our effective tax rates; • Changes in our capital structure, including cash, marketable securities and debt balances, and changes in interest rates; • Changes in bad debt expense based on the collectability of our accounts receivable; 35 • The timing, type and size of acquisitions and divestitures, and related expenses and charges; • Fluctuations in currency exchange rates; • Our expense levels; • Impairment charges for goodwill, intangible assets or long-lived assets; and • Fees, expenses and settlement costs or judgments against us relating to litigation or regulatory compliance.
The loss of net revenues from any one of our major customers would likely have a material adverse effect on us. Our top ten customers accounted for approximately 42%, 46% and 44% of our net revenues for 2022, 2021 and 2020, respectively.
The loss of net revenues from any one of our major customers would likely have a material adverse effect on us. Our top ten customers accounted for approximately 30%, 42% and 46% of our net revenues for 2023, 2022 and 2021, respectively.
Our inability to remediate the material weakness, our discovery of additional weaknesses, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting could adversely affect our results of operations, our stock price and investor confidence in our Company.
Our inability to remediate material weaknesses in the future, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, could adversely affect our results of operations, our stock price and investor confidence in our Company.
In addition, the continued effects of the COVID-19 pandemic and the emergence of other widespread health crises could exacerbate the other risks described here and in our future filings with the SEC.
In addition, the COVID-19 pandemic exacerbated, and the emergence of other widespread health crises could exacerbate, the other risks described here and in our future filings with the SEC.
In particular, transferring product lines to other manufacturing locations and/or to our contract manufacturers' facilities often requires us to transplant complex manufacturing equipment and processes across a large geographical distance and to train a completely new workforce concerning the use of this equipment and these processes.
In particular, transferring product lines to other manufacturing locations and/or to or from our contract manufacturers' facilities often requires us to transplant complex manufacturing equipment and processes across a large geographical distance, train a completely new workforce concerning the use of this equipment and these processes and comply with local regulations.
If we fail to remediate the material weakness and maintain effective disclosure controls and procedures or internal control over financial reporting, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods could be adversely affected.
If we fail to remediate any future material weaknesses and maintain effective disclosure controls and procedures or internal control over financial reporting, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods could be adversely affected.
As a result of the ongoing military conflict between Russia and Ukraine, including the imposition of sanctions on Russia, Belarus and related parties, our sales operations in Russia and our sales into Belarus and Russia have ceased. Any additional disruptions, including the expansion of sanctions in connection with the conflict, could adversely affect our business.
Historically, we have made immaterial sales into Russia and Belarus. As a result of the ongoing military conflict between Russia and Ukraine, including the imposition of sanctions on Russia, Belarus and related parties, our sales into Belarus and Russia have ceased. Any additional disruptions, including the expansion of sanctions in connection with the conflict, could adversely affect our business.
The hazards associated with chemical manufacturing and the related storage and transportation of chemical raw materials, products and wastes are inherent in operating MSD. These hazards could lead to an interruption or suspension of operations and have a material adverse effect on the productivity and profitability of a particular manufacturing facility or on our business as a whole.
The hazards associated with chemical manufacturing and the related storage and transportation of chemical raw materials, products and waste are inherent to MSD’s operations. These hazards could lead to an interruption or suspension of operations and have a material adverse effect on the productivity and profitability of a particular manufacturing facility or on our business as a whole.
If we fail to qualify or remain qualified for certain tax incentives, the tax incentives we previously received may be terminated and/or retroactively revoked, requiring repayment of past tax benefits, and we would be subject to an increase in our effective tax rate, which would adversely impact our financial results.
If we fail to qualify or remain qualified for certain tax incentives, the tax incentives we previously received may be terminated and/or retroactively revoked, requiring repayment of past tax benefits, and we would be subject to an increase in our effective tax rate, which could have a materially adverse impact our financial results.
In addition, certain of our customers may require the requalification of products supplied to them in connection with the relocation of manufacturing operations.
In addition, certain of our customers may require us to requalify products supplied to them in connection with the relocation of manufacturing operations.
Certain markets in which we operate, such as the semiconductor capital equipment market and the mobile phone market, which is part of our industrial technologies market, experience cyclicality and unevenness in capital spending.
Certain markets in which we operate, such as the semiconductor capital equipment market and the mobile phone market, which is part of our electronics and packaging market, experience cyclicality and unevenness in capital spending.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeActivity Reportable Segment Owned/Leased China Guangzhou 794,000 Manufacturing, Warehouse, Sales and Research and Development MSD Owned and Leased Shenzhen 302,000 Manufacturing and Service VSD and PSD Leased Yangzhou 156,000 Manufacturing, Warehouse, and Office MSD Owned and Leased Germany Berlin 271,000 Manufacturing, Office, Research and Development MSD Leased Feucht 445,000 Manufacturing, Warehouse, Office and Research and Development MSD Owned Neuruppin 216,000 Manufacturing, Warehouse, Office and Research and Development MSD Owned Trebur 101,000 Research and Development MSD Owned and Leased India Manesar 189,000 Manufacturing, and Research and Development MSD Owned Israel Jerusalem 120,000 Manufacturing, Sales and Research and Development PSD Owned and Leased Italy Milan 135,000 Warehouse MSD Leased Malaysia Penang 109,000 Manufacturing, Warehouse, Sales, Office and Research and Development MSD Owned Mexico Nogales 248,000 Manufacturing and Service VSD and PSD Leased Queretaro 172,000 Manufacturing, Warehouse, Sales, and Office MSD Owned Romania Oradea 104,000 Warehouse MSD Leased South Korea Hwasung 107,000 Manufacturing, Sales, and Office MSD Owned and Leased United States Andover, MA 158,000 Corporate Headquarters, Manufacturing, and Research and Development VSD Owned and Leased Beaverton, OR 113,000 Manufacturing, Office and Warehouse PSD Leased Broomfield, CO 107,000 Manufacturing, and Research and Development VSD Leased Irvine, CA 233,000 Manufacturing, and Research and Development PSD Leased Milpitas, CA 103,000 Manufacturing, Sales, Customer Support, Service and Research and Development PSD Leased Rochester, NY 156,000 Manufacturing, Sales, Customer Support, Service and Research and Development VSD Owned Rock Hill, SC 200,000 Manufacturing, Warehouse, Office and Research and Development MSD Owned Wilmington, MA 118,000 Manufacturing, Customer Support, Service and Research and Development VSD Owned In addition to the significant facilities listed above, MKS also has manufacturing, sales and marketing, customer support and services operations in various other leased and owned facilities throughout the world.
Biggest changeActivity Reportable Segment Owned/Leased China Guangzhou 704,000 Manufacturing, Warehouse, Sales and Research and Development MSD Owned and Leased Shenzhen 253,000 Manufacturing and Service VSD Leased Tianjin 179,000 Manufacturing, Office, Warehouse, Sales MSD Owned Yangzhou 156,000 Manufacturing, Warehouse, and Office MSD Owned and Leased Germany Berlin 200,000 Manufacturing, Office, Research and Development MSD Leased Feucht 301,000 Manufacturing, Warehouse, Office and Research and Development MSD Owned Neuruppin 170,000 Manufacturing, Warehouse, Office and Research and Development MSD Owned India Manesar 189,000 Manufacturing, and Research and Development MSD Owned Mexico Nogales 124,000 Manufacturing and Service VSD and PSD Leased South Korea Hwasung 107,000 Manufacturing, Sales, and Office MSD Owned and Leased Yongin-si 179,000 Research and Development, Office, Warehouse, Service, Sales VSD Owned United States Andover, MA 76,000 Corporate Headquarters and Research and Development VSD Leased Beaverton, OR 113,000 Manufacturing, Office and Warehouse PSD Leased Broomfield, CO 107,000 Manufacturing, and Research and Development VSD Leased Irvine, CA 191,000 Manufacturing, and Research and Development PSD Leased Milpitas, CA 103,000 Manufacturing, Sales, Customer Support, Service and Research and Development PSD Leased Rochester, NY 156,000 Manufacturing, Sales, Customer Support, Service and Research and Development VSD Owned Rock Hill, SC 201,000 Manufacturing, Warehouse, Office and Research and Development MSD Owned Wilmington, MA 118,000 Manufacturing, Customer Support, Service and Research and Development VSD Owned In addition to the significant facilities listed above, MKS also has manufacturing, sales and marketing, customer support and services operations in various other leased and owned facilities throughout the world.
Item 2. P roperties The following table provides information concerning MKS’ principal and certain other owned and leased facilities as of December 31, 2022: Country City Sq. Ft.
Item 2. P roperties The following table provides information concerning MKS’ principal and certain other owned and leased facilities as of December 31, 2023: Country City Sq. Ft.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Saf ety Disclosures Not applicable. 38 PART II
Biggest changeMine Saf ety Disclosures Not applicable. 39 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stock price performance in the graph below is not necessarily indicative of future price performance. 39 Performance Graph 2017 2018 2019 2020 2021 2022 MKS Instruments, Inc. $ 100.00 $ 68.93 $ 118.49 $ 163.16 $ 189.85 $ 93.07 Nasdaq Market Index $ 100.00 $ 97.16 $ 132.81 $ 192.47 $ 235.15 $ 158.65 S&P 1500 Composite / Electronic Equipment, Instruments & Components Index $ 100.00 $ 87.48 $ 116.05 $ 143.73 $ 185.67 $ 145.24 Morningstar Global Semiconductor Equipment & Materials Index and Morningstar Global Scientific & Technical Instruments Index* $ 100.00 $ 82.04 $ 136.89 $ 202.42 $ 279.81 $ 186.17 * Morningstar Global Semiconductor Equipment & Materials and Morningstar Global Scientific & Technical Instruments indices weighted equally.
Biggest changeThe stock price performance in the graph below is not necessarily indicative of future price performance. 40 Performance Graph 2018 2019 2020 2021 2022 2023 MKS Instruments, Inc. $ 100.00 $ 171.90 $ 236.70 $ 275.42 $ 135.02 $ 165.51 Nasdaq Market Index $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 S&P 1500 Composite / Electronic Equipment, Instruments & Components Index $ 100.00 $ 132.66 $ 164.30 $ 212.24 $ 166.02 $ 199.92 Item 6.
The timing and quantity of any shares repurchased depends upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities. These repurchases may be commenced, suspended or discontinued at any time without prior notice.
The timing and quantity of any shares repurchased depends upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities. These repurchases may be commenced, suspended or discontinued at any time without prior notice. During 2023 and 2022, we did not repurchase any shares of common stock.
Dividend Policy and Cash Dividends Holders of our common stock are entitled to receive dividends when and if they are declared by our Board of Directors. During 2022, our Board of Directors declared a cash dividend of $0.22 per share during each quarter of the year, which totaled $52 million or $0.88 per share.
Dividend Policy and Cash Dividends Holders of our common stock are entitled to receive dividends when and if they are declared by our Board of Directors. Our Board of Directors declared a cash dividend of $0.22 per share during each quarter of 2023, which totaled $59 million or $0.88 per share.
Comparative Stock Performance The following graph compares the cumulative total shareholder return (assuming reinvestment of dividends) from investing $100 on December 31, 2017, and plotted at the last trading day of each of the fiscal years ended December 31, 2018, 2019, 2020, 2021 and 2022 of MKS’ common stock; a peer group index representing all companies comprising the S&P 1500 Composite Electronic Equipment Instruments & Components Index, which we believe more accurately represents the industries we serve following the Atotech Acquisition; and the Nasdaq Market Index.
Comparative Stock Performance The following graph compares the cumulative total shareholder return (assuming reinvestment of dividends) from investing $100 on December 31, 2018, and plotted at the last trading day of each of the fiscal years ended December 31, 2019, 2020, 2021, 2022 and 2023 of MKS’ common stock; a peer group index representing all companies comprising the S&P 1500 Composite Electronic Equipment Instruments & Components Index and the Nasdaq Market Index.
Item 5. Market for the Registrant’s Common Equity, Related S tockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the Nasdaq Global Select Market under the symbol MKSI. As of March 6, 2023, we had 80 stockholders of record.
Item 5. Market for the Registrant’s Common Equity, Related S tockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the Nasdaq Global Select Market under the symbol MKSI. As of February 20, 2024, we had 65 stockholders of record.
On February 6, 2023, our Board of Directors declared a quarterly cash dividend of $0.22 per share that was paid on March 10, 2023 to shareholders of record as of February 27, 2023. 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.
On February 5, 2024, our Board of Directors declared a quarterly cash dividend of $0.22 per share to be paid on March 8, 2024 to shareholders of record as of February 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.
During 2022 and 2021, the Company did not repurchase any shares of common stock. We have repurchased approximately 2.6 million shares of common stock for approximately $127 million pursuant to the program since its adoption.
We have repurchased approximately 2.6 million shares of common stock for approximately $127 million pursuant to the program since its adoption.
During 2021, our Board of Directors declared a cash dividend of $0.20 per share during the first quarter and $0.22 per share during each of the second, third and fourth quarters, which totaled $47 million or $0.86 per share.
During 2022, our Board of Directors declared a cash dividend of $0.22 per share during each quarter of the year, which totaled $52 million or $0.88 per share.
Removed
The S&P Composite 1500 Electronic Equipment, Instruments & Components Index replaces the blended peer group indices we included in our Annual Report on Form 10-K for the period ended December 31, 2021, comprised of the Morningstar Global Semiconductor Equipment & Materials Index and Morningstar Global Scientific & Technical Instruments Index, with each index weighted equally.
Removed
We have included our former blended peer group index in the graph below for comparative purposes.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWhile there can be no assurance, we do not anticipate any material non-performance by any of these counterparties. 48 Results of Operations The following table sets forth, for the periods indicated, the percentage of total net revenues of certain line items included in our consolidated statements of operations and comprehensive income data: Years Ended December 31, 2022 2021 Net revenues: Products 87.9 % 87.4 % Services 12.1 12.6 Total net revenues 100.0 100.0 Cost of revenues: Products 50.0 46.5 Services 6.4 6.7 Total cost of revenues (exclusive of amortization shown separately below) 56.4 53.2 Gross profit 43.6 46.8 Research and development 6.8 6.8 Selling, general and administrative 13.7 13.1 Acquisition and integration costs 1.5 1.0 Restructuring and other 0.3 0.4 Amortization of intangible assets 4.1 1.9 Gain on sale of long-lived assets (0.2 ) — Income from operations 17.4 23.7 Interest income (0.1 ) — Interest expense 5.0 0.8 Other expense, net 0.3 0.3 Income before income taxes 12.1 22.5 Provision for income taxes 2.7 3.9 Net income 9.4 % 18.7 % Year Ended December 31, 2022 compared to 2021 Net Revenues Years Ended December 31, (Dollars in millions) 2022 2021 Products $ 3,119 $ 2,579 Services 428 371 Total net revenues $ 3,547 $ 2,950 Net product revenues increased $540 million in 2022, compared to 2021, primarily due to the Atotech Acquisition with MSD net product revenues of $486 million in 2022.
Biggest changeResults of Operations The following table sets forth, for the periods indicated, the percentage of total net revenues of certain line items included in our consolidated statements of operations and comprehensive (loss) income data: Years Ended December 31, 2023 2022 Net revenues: Product 88.3 % 87.9 % Service 11.7 12.1 Total net revenues 100.0 100.0 Cost of revenues: Product 48.3 50.0 Service 6.4 6.4 Total cost of revenues (exclusive of amortization shown separately below) 54.7 56.4 Gross profit 45.3 43.6 Research and development 8.0 6.8 Selling, general and administrative 18.6 13.7 Acquisition and integration costs 0.4 1.5 Restructuring 0.6 0.3 Fees and expenses related to repricing of Term Loan Facility 0.1 — Amortization of intangible assets 8.1 4.1 Goodwill and intangible asset impairments 52.5 — Gain on sale of long-lived assets (0.1 ) (0.2 ) (Loss) income from operations (42.9 ) 17.4 Interest income (0.5 ) (0.1 ) Interest expense 9.8 5.0 Loss on extinguishment of debt 0.2 — Other expense, net 0.7 0.3 (Loss) income before income taxes (53.2 ) 12.1 (Benefit) provision for income taxes (2.4 ) 2.7 Net (loss) income (50.8 )% 9.4 % Year Ended December 31, 2023 compared to 2022 The following table sets forth our net revenues for products and services: Net Revenues Years Ended December 31, (Dollars in millions) 2023 2022 Product $ 3,200 $ 3,119 Service 422 428 Total net revenues $ 3,622 $ 3,547 Net product revenues increased $81 million in 2023, compared to 2022, primarily driven by the full-year impact of the Atotech Acquisition with MSD net product revenues increasing by $668 million compared to 2022, partially offset by decreases in VSD and PSD product revenues of $533 million and $52 million, respectively.
For certain products and services and customer types, we require payment before the products or services are delivered to, or performed for, the customer. None of our contracts in each of the periods presented contained a significant financing component.
For certain products and services and customer types, we require payment before the products are delivered to, or the services are performed for, the customer. None of our contracts in each of the periods presented contained a significant financing component.
In performing the qualitative assessment, we consider certain events and circumstances specific to the reporting unit and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
In performing the qualitative assessment, we consider certain events and circumstances specific to the reporting unit and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
We have used derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps and interest rate caps to manage interest rate exposure.
We have used derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps and interest rate caps to manage certain interest rate exposure.
Net cash provided by operating activities was $529 million for 2022 and resulted from net income of $333 million, which included non-cash charges of $353 million, offset by a net increase in working capital of $157 million.
Net cash provided by operating activities was $529 million for 2022 and resulted from net income of $333 million, which included non-cash net charges of $353 million, offset by a net increase in working capital of $157 million.
Under the New Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1.01 billion and (2) 75% of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the New 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).
Under the Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1.01 billion 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).
Revenue from customized products with no alternative future use to us, and that have an enforceable right to payment for performance completed to date, are also recorded over time. We consider this to be a faithful depiction of the transfer to the customer of revenue over time as the work is performed or service is delivered.
Revenue from customized products with no alternative future use to us, and that have an enforceable right to payment for performance completed to date, is also recorded over time. We consider this to be a faithful depiction of the transfer to the customer of revenue over time as the work is performed or service is delivered.
Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Our normal payment terms are 30 to 60 days but vary by the type and location of our customers and the products or services offered. The time between invoicing and when payment is due is not significant.
Sales tax, value add tax, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Our normal payment terms are 30 to 60 days but vary by the type and location of our customers and the products or services offered. The time between invoicing and when payment is due is not significant.
Over the next 12 months, it is reasonably possible that we may recognize approximately $3 million of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal, state and foreign tax positions, primarily due to the expiration of statutes of limitations. We are subject to examination by U.S. federal, state and foreign tax authorities.
Over the next 12 months, it is reasonably possible that we may recognize approximately $12 million of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal, state and foreign tax positions, primarily due to the expiration of statutes of limitations. We are subject to examination by U.S. federal, state and foreign tax authorities.
The total net purchase price, including cash consideration, net of cash acquired, value of MKS shares issued, repayment of Atotech debt and settlement of share-based awards totaled $5.7 billion. We funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the New Term Loan Facility, as defined below.
The total net purchase price, including cash consideration, net of cash acquired, value of MKS shares issued, repayment of Atotech debt and settlement of share-based awards totaled $5.7 billion. We funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the Term Loan Facility, as defined below.
Derivatives We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally, and in the normal course of business, are exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating the business.
Derivatives We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally, and in the normal course of business, are exposed to fluctuations in interest rates and foreign exchange rates. These fluctuations can increase the costs of financing, investing and operating our business.
We apply ASC Topic 606 using the following steps: • Identify the contract with a customer • Identify the performance obligations in the contract • Determine the transaction price • Allocate the transaction price to performance obligations in the contract • Recognize revenue when or as we satisfy a performance obligation Revenue is recognized when or as obligations under the terms of a contract with our customer has been satisfied and control has transferred to the customer.
We apply ASC Topic 606 using the following steps: • Identify the contract with a customer • Identify the performance obligations in the contract • Determine the transaction price • Allocate the transaction price to performance obligations in the contract • Recognize revenue when or as we satisfy a performance obligation Revenue is recognized when or as obligations under the terms of a contract with our customer have been satisfied and control has transferred to the customer.
Adjustments for custom products were not material for 2022 or 2021. Installation services, other than those related to our plating equipment, are not significant, are usually completed in a short period of time and, therefore, are recorded at a point in time when the installation services are completed, rather than over time, as they are not material.
Adjustments for custom products were not material for 2023, 2022 or 2021. Installation services, other than those related to our plating equipment, are not significant, are usually completed in a short period of time and, therefore, are recorded at a point in time when the installation services are completed, rather than over time, as they are not material.
Management determined that blended stock-based compensation, a combination of historical and implied volatility, is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone. 46 Certain RSUs involve stock to be issued upon the achievement of performance conditions (“performance shares”) under our stock incentive plan.
Management determined that blended stock-based compensation, a combination of historical and implied volatility, is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone. Certain RSUs involve stock to be issued upon the achievement of performance conditions (“performance shares”) under our stock incentive plan.
We base our 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 44 assets and liabilities that are not readily apparent from other sources.
We base our 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.
We reviewed these actuarial assumptions and concluded they were reasonable based upon our judgment, considering known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of our pension plans. Stock-Based Compensation Expense.
We reviewed these actuarial assumptions and concluded they 46 were reasonable based upon our judgment, considering known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of our pension plans. Stock-Based Compensation Expense.
Under the New 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 incurrences or issuances of certain debt.
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 incurrences or issuances of certain debt.
To the extent we establish a valuation allowance an expense is recorded within the provision for income taxes line in the consolidated statements of operations and comprehensive income. Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions.
To the extent we establish a valuation allowance, an expense is recorded within the provision for income taxes line in the consolidated statements of operations and comprehensive (loss) income. Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions.
If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the New Revolving Facility exceeds the aggregate commitments under the New Revolving Facility, we are required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.
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.
A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results. Bad debt expense was immaterial in 2022 and 2021. Inventory .
A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results. Bad debt expense was immaterial in 2023, 2022 and 2021. Inventory .
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, excluding non-cash charges and changes in operating assets and liabilities.
The primary driver of our current and anticipated future cash flows is, and we expect will continue to be, cash generated from operations, consisting primarily of our net (loss) income, excluding non-cash charges and changes in operating assets and liabilities.
Accounting principles for qualifying hedges require detailed documentation that describes the relationship between the hedging instrument and the hedged item, including, but not limited to, the risk management objectives and hedging strategy and the methods to assess the effectiveness of the hedging relationship.
Accounting principles for qualifying hedges require detailed documentation that describes the relationship between the hedging instrument and the hedged item, including, but not limited to, the risk management objectives and hedging strategy and 48 the methods to assess the effectiveness of the hedging relationship.
Until such time that our financial performance can ultimately be determined, each quarter we estimate the number of performance shares to be earned based on an evaluation of the probability of achieving the financial performance objectives.
For each quarter until such time that our financial performance can ultimately be determined, we estimate the number of performance shares to be earned based on an evaluation of the probability of achieving the financial performance objectives.
All obligations under the New Credit Facilities are guaranteed by certain of our wholly-owned domestic subsidiaries and are required to be guaranteed by certain of our future wholly-owned domestic subsidiaries and are secured by substantially all of our assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.
All obligations under the Credit Facilities are guaranteed by certain of our wholly-owned domestic subsidiaries and are required to be guaranteed by certain of our future wholly-owned domestic subsidiaries, and are secured by substantially all of our assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.
Specialty Industrial MKS’ strategy in specialty industrial is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial technologies, life and health sciences, and research and defense markets.
Specialty Industrial Market MKS’ strategy in specialty industrial is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial technologies, life and health sciences, and research and defense markets.
There is no scheduled amortization under the New Revolving Facility. Any principal amount outstanding under the New Revolving Facility is due and payable in full on the fifth anniversary of the closing 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 closing date.
Our effective tax rate for 2022 was higher than the U.S. statutory tax rate, mainly due to additional withholding taxes related to the change of indefinite reinvestment assertion, the U.S. global intangible low-taxed income (“GILTI”) inclusion, offset by the U.S. deduction for foreign derived intangible income (“FDII”) and the geographic mix of income earned by our international subsidiaries being taxed at rates lower than the U.S. statutory tax rate.
Our effective tax rate for 2022 was higher than the U.S. statutory tax rate, mainly due to additional withholding taxes related to the change of indefinite reinvestment assertion, the U.S. global intangible low-taxed income inclusion, offset by the U.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries being taxed at rates lower than the U.S. statutory tax rate.
Once we determine the performance obligations, we then determine the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any.
Once we determine the performance obligations, we then determine the transaction price, which includes estimating the amount of variable consideration to be included in the 45 transaction price, if any.
We are subject to risks from products not being developed in a timely manner, as well as from rapidly changing customer requirements and competitive threats from other companies and technologies. Our success primarily depends on our products being designed into new generations of equipment for the semiconductor, electronics and packaging, and specialty industrial markets.
We are subject to risks from products not being developed in a timely manner, as well as from rapidly changing customer requirements and competitive threats from other companies and technologies. Our success depends on many of our products being designed into new generations of equipment for the semiconductor, electronics and packaging, and specialty industrial markets.
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 with original issue discount of 2.00% of the principal amount thereof.
The USD Tranche A was issued with original issue discount of 0.25% of the principal amount thereof. The 2022 USD Tranche B and the Euro Tranche B were issued with original issue discount of 2.00% of the principal amount thereof.
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 of our future financial condition. This section provides an analysis of our financial results for the year ended December 31, 2022 compared to the year ended December 31, 2021.
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 of our future financial condition. This section provides an analysis of our financial results for the year ended December 31, 2023 compared to the year ended December 31, 2022.
When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.
When we determine that the carrying value of intangible assets or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.
While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax law and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgment by management.
While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could materially differ from our accrued positions as a result of uncertain and complex application of tax laws and regulations. Additionally, the recognition and measurement of certain tax benefits include estimates and judgment by management.
We are also 47 permitted to bypass the qualitative assessment and proceed directly to the quantitative test. If we choose to undertake the qualitative assessment and we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we would then proceed to the quantitative impairment test.
We are also permitted to bypass the qualitative assessment and proceed directly to the quantitative assessment. If we choose to undertake the qualitative assessment and we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we would then proceed to the quantitative impairment assessment.
The New 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 us 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 it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions.
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 its capital stock or redeem, repurchase or retire its capital stock or its 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 its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions.
We expect to incur these and other costs related to this incident in the future.
We expect to continue to incur these and other costs related to this incident in the future.
Additionally, we may voluntarily reduce the unutilized portion of the commitment amount under the New Revolving Facility.
Additionally, we may voluntarily reduce the unutilized portion of the commitment amount under the Revolving Facility.
The estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.
The estimation of useful lives and expected cash flows requires us to make significant judgments regarding future periods that are subject to factors outside of our control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.
The cash flows resulting from foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. All derivatives are stated at fair value in the balance sheet.
The cash flows resulting from foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. All derivatives are stated at fair value in the consolidated balance sheets.
Changes in fair value of derivative instruments are recognized in the consolidated statement of operations or, if hedge accounting is applied, in other comprehensive income for the effective portion of the changes in fair value.
Changes in fair value of derivative instruments are recognized in the consolidated statement of operations or, if hedge accounting is applied, in Other Comprehensive (Loss) Income (“OCI”) for the effective portion of the changes in fair value.
Our future effective tax rate depends on various factors, including the impact of tax legislation, further interpretations and guidance from U.S. federal and state governments on the impact of proposed regulations issued by the IRS, as well as the geographic composition of our pre-tax income and changes in income tax reserves for unrecognized tax benefits.
Our future effective tax rate depends on various factors, including the impact of tax legislation, further interpretations and guidance from U.S. federal and state governments on the impact of proposed regulations issued by the Internal Revenue Service, as well as the geographic composition of our pre-tax income and changes in income tax reserves for unrecognized tax benefits.
We had foreign exchange forward contracts with notional amounts totaling $702 million outstanding at December 31, 2022, of which $485 million was outstanding to exchange euro to U.S. dollars and $75 million was outstanding to exchange South Korean won to U.S. dollars.
We had foreign exchange forward contracts with notional amounts totaling $702 million outstanding at December 31, 2022, which included $485 million outstanding to exchange U.S. dollars to Euro and $75 million outstanding to exchange South Korean won to U.S. dollars.
The U.S. federal statute of limitations remains open for tax years 2018 through the present. The statute of limitations for our tax filings in other jurisdictions varies between fiscal years 2015 through the present. We also have certain federal credit carryforwards and state tax loss and credit carryforwards that are open to examination for tax years 2002 through the present.
The U.S. federal statute of limitations remains open for tax years 2020 through the present. The statute of limitations for our tax filings in other jurisdictions varies between fiscal years 2017 through the present. We also have certain federal credit carryforwards and state tax loss and credit carryforwards that are open to examination for tax years 2002 through the present.
We incurred $7 million of costs in connection with the New Revolving Facility, which were capitalized and included in other assets in the accompanying consolidated balance sheet and are being amortized to interest expense over the estimated life of four years.
We incurred $7 million of costs in connection with the Revolving Facility, which were capitalized and included in other assets in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of four 56 years.
We incurred $242 million of deferred financing fees and original issue discount fees related to the term loans under the New Term Loan Facility, which are included in long-term debt 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.
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.
To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives’ fair value are not included in current earnings but are included in accumulated other comprehensive income in stockholders’ equity.
To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives’ fair value are not included in current earnings but are included in accumulated OCI in stockholders’ equity.
The lines of credit and financing facility provided for aggregate borrowings as of December 31, 2022 and December 31, 2021 of up to an equivalent of $27 million and $29 million, respectively. There were no borrowings outstanding under these arrangements at December 31, 2022 or December 31, 2021.
The lines of credit and financing facility provided for aggregate borrowings as of December 31, 2023 and December 31, 2022 of up to an equivalent of $14 million and $27 million, respectively. There were no borrowings outstanding under these arrangements at December 31, 2023 or December 31, 2022.
Borrowings under the New Credit Facilities bear 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 USD Tranche B and the New 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 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 USD Tranche A and the New Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a 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%.
Borrowings under the Credit Facilities bear 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, prior to the effectiveness of the First Amendment (as defined below), 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 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 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%.
Industrial Technologies Industrial technologies encompasses a wide range of diverse applications, including chemistries for functional coatings, surface finishing and wear resistance in the automobile industry, vacuum solutions for synthetic diamond manufacturing and photonics for solar manufacturing. Other applications include, but are not limited to, vacuum and photonics solutions for light emitting diode and laser diode manufacturing.
Industrial Technologies Industrial technologies encompasses a wide range of diverse applications, including chemistries for functional coatings, surface finishing and wear resistance in the automobile industry, vacuum solutions for synthetic diamond manufacturing and photonics for solar manufacturing. Other applications include vacuum and photonics solutions for light emitting diode and laser diode manufacturing.
The impact of variable consideration was immaterial in each of the periods presented. We sell separately priced service contracts and extended warranty contracts related to certain of our products, in particular related to our plating and laser-based products. These separately priced contracts generally range from 12 to 60 months.
The impact of variable consideration was immaterial in each of the periods presented. Our standard assurance warranty is normally 12 to 24 months. We sell separately priced service contracts and extended warranty contracts related to certain of our products, in particular related to our plating and laser-based products. These separately priced contracts generally range from 12 to 60 months.
For the discussion and analysis covering the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022.
For the discussion and analysis covering the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 14, 2023.
This incident required us to temporarily suspend operations at certain of our facilities and has had a material impact in the first quarter of 2023 on our ability to process orders, ship products and provide service to our Vacuum Solutions Division and Photonics Solutions Division customers. The incident did not impact the operations of our Materials Solutions Division.
This incident required us to temporarily suspend operations at certain of our facilities and had a material impact in the first quarter of 2023 on our ability to process orders, ship products and provide service to our Vacuum Solutions Division (“VSD”) and Photonics Solutions Division (“PSD”) customers.
We also paid certain customary fees and expenses of JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Mizuho Bank, Ltd. in their respective capacities as lead arrangers and bookrunners in connection with the New Credit Facilities.
We also paid certain customary fees to and expenses of 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.
Accordingly, we could record additional provisions or benefits for U.S. federal, state, and foreign tax matters in future periods as new information becomes available. Liquidity and Capital Resources Cash, cash equivalents and short-term marketable investments at December 31, 2022 and December 31, 2021 totaled $910 million and $1.0 billion, respectively.
Accordingly, we could record additional provisions or benefits for U.S. federal, state, and foreign tax matters in future periods as new information becomes available. Liquidity and Capital Resources Cash, cash equivalents and short-term investments at December 31, 2023 and 2022 totaled $875 million and $910 million, respectively.
We are required to make scheduled quarterly payments each equal to 1.25% of the original principal amount of the USD Tranche A (increasing to 1.875% in years 3 and 4 and 2.50% in year 5) and 0.25% of the original principal amount of the USD Tranche B and the Euro Tranche B, beginning with the fiscal quarter ending December 31, 2022, with the balance due thereunder on the fifth anniversary of the closing date in the case of the USD Tranche A and the seventh anniversary of the closing date in the case of the USD Tranche B and the Euro Tranche B.
We are required to make scheduled quarterly payments each equal to 1.25% of the original principal amount of the USD Tranche A (increasing to 1.875% in years 3 and 4 and 2.50% in year 5), 0.25% of the original principal amount of the Euro Tranche B and 0.25% of the original principal amount of the 2023 USD Tranche B, with the balance due thereunder on the fifth anniversary of the closing date in the case of the USD Tranche A and the seventh anniversary of the closing date in the case of the USD Tranche B and the Euro Tranche B.
We develop products that are technologically advanced so that they are positioned to be chosen for use in each successive generation of semiconductor capital equipment and advanced markets applications. If our products are not chosen to be designed into our customers’ products, our net revenues may be reduced during the lifespan of those products.
We seek to develop products that are technologically advanced so that they are positioned to be chosen for use in each successive generation of semiconductor, electronics and packaging, and specialty industrial markets applications. If our products are not chosen to be designed into our customers’ products, our net revenues may be reduced during the lifespan of those products.
In addition, we have certain pension assets and liabilities relating to our former employees in the United Kingdom. As of December 31, 2022, our estimated benefit payments over the next 10 years amount to $88 million. The majority of the benefit payments covered by these arrangements occurs after 2027. 58
In addition, we have certain pension assets and liabilities relating to our former employees in the United Kingdom. As of December 31, 2023, our estimated benefit payments over the next 10 years amount to $101 million. The majority of the benefit payments covered by these arrangements occurs after 2028.
Other Expense, Net Years Ended December 31, (Dollars in millions) 2022 2021 Other expense, net $ 11 $ 9 Other expense, net, for 2022 and 2021 primarily related to changes in foreign exchange rates.
Other Expense, Net Years Ended December 31, (Dollars in millions) 2023 2022 Other expense, net $ 27 $ 11 Other expense, net, for 2023 and 2022 primarily related to changes in foreign exchange rates.
The applicable margin for 54 borrowings under the USD Tranche A is 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings. The applicable margin for borrowings under the USD Tranche B is 1.75% with respect to base rate borrowings and 2.75% with respect to Term SOFR borrowings.
The applicable margin for borrowings under the USD 55 Tranche A is 1.50% with respect to base rate borrowings and 2.50% with respect to Term SOFR borrowings.
We expect that international revenues will continue to account for a significant percentage of total net revenues for the foreseeable future as a result of the Atotech Acquisition. Long-lived assets located outside of the United States accounted for approximately 57% and 28% of our total long-lived assets at December 31, 2022 and 2021, respectively.
We expect that international revenues will continue to account for a significant percentage of total net revenues for the foreseeable future. Long-lived assets located outside of the United States accounted for approximately 58% and 57% of our total long-lived assets as of December 31, 2023 and 2022, respectively.
The cash flows resulting from foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. We do not enter into derivative instruments for trading or speculative purposes. We also enter into foreign exchange forward contracts to hedge certain balance sheet amounts.
The cash flows resulting from foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. We do not enter into derivative instruments for trading or speculative purposes.
The proceeds of the New 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 the Prior Term Loan Facility, the Prior ABL Credit Facility and certain indebtedness of Atotech.
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 the existing term loan and revolving credit facilities of ours and certain indebtedness of Atotech.
Net cash provided by financing activities was $4.0 billion for 2022, primarily due to $5.0 billion in net proceeds from our New Term Loan Facility offset by $962 million of payments on borrowings, primarily related to payment of the Prior Term Loan Facility (as defined below), a $100 million optional pre-payment and $22 million regularly scheduled payment on the New Term Loan Facility and $52 million in dividend payments.
Net cash provided by financing activities was $4.0 billion for 2022, primarily due to $5.2 billion in net proceeds from our Term Loan Facility offset by $962 million of payments on borrowings, primarily related to payment of our prior term loan facility, a $100 million voluntary prepayment on the USD Tranche A (as defined below), a $22 million regularly scheduled payment on the Term Loan Facility, $52 million in dividend payments and $249 million in payments of deferred financing costs.
The semiconductor capital equipment industry is subject to rapid demand shifts, which are difficult to predict, and we cannot be certain as to the timing or extent of future demand or any future weakness in the semiconductor capital equipment industry.
In general, the semiconductor capital equipment industry is subject to rapid demand shifts, which are difficult to predict, and we cannot be certain as to the timing or extent of future demand or any future softening in the semiconductor capital equipment industry. In addition to these rapid demand shifts, the semiconductor capital equipment industry is subject to significant trade restrictions.
We may voluntarily prepay outstanding loans under the New 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 twelve months after the closing date of the New Term Loan Facility, 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.
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, (i) if on or prior to the date that was twelve months after the Effective Date, we prepaid any loans under the 2022 USD Tranche B or the Euro Tranche B in connection with a repricing transaction, we would have been required to pay a prepayment premium of 1.00% of the aggregate principal amount of the loans so prepaid and (ii) if on or prior to the date that is six months after the First Amendment Effective Date, we prepaid any loans under the 2023 USD 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.
The Organisation for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules (Pillar Two) for a global 15% minimum tax are in the process of being adopted by a number of jurisdictions in which we operate. Pillar Two may materially increase our future effective tax rate.
A number of jurisdictions in which we operate are in the process of adopting Pillar Two Model Rules (“Pillar Two”) for a global 15% minimum tax as promulgated by the Organisation for Economic Co-operation and Development. Pillar Two could materially increase our future effective tax rate.
In the first quarter of 2023, these costs have been primarily comprised of various third-party consulting services, including forensic experts, restoration experts, legal counsel, and other information technology and accounting professional expenses, enhancements to our cybersecurity measures, costs to restore our systems and access our data, and employee-related expenses, including with respect to increased overtime.
These costs were primarily comprised of various third-party consulting services, including forensic experts, restoration experts, legal counsel, and other IT and accounting professional expenses, enhancements to our cybersecurity measures, costs to restore our systems and access our data, and employee-related expenses, including with respect to increased overtime.
This increase was driven primarily by the Atotech Acquisition, with MSD net revenues of $334 million in 2022, mainly from customers in PCB manufacturing. This increase was offset by a decrease of $134 million in PSD net revenues, in part due to decreased industry demand for flexible PCB via drilling systems as customers have temporarily slowed capacity expansion.
This increase was driven primarily by the full-year impact of the Atotech Acquisition, with MSD net revenues increasing by $403 million. This increase was primarily offset by a decrease of $26 million in PSD net revenues, in part due to decreased industry demand for flexible PCB via drilling systems as customers have temporarily slowed capacity expansion.
We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. We do not enter into derivative instruments for trading or speculative purposes.
We operate the program pursuant to documented corporate risk management policies. We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. We do not enter into derivative instruments for trading or speculative purposes.
The New Credit Agreement provides for (i) a senior secured term loan facility (the “New Term Loan Facility”) comprised of three tranches: a USD 1 billion loan (the “USD Tranche A”), a USD 3.6 billion loan (the “USD Tranche B”) and a EUR 600 million loan (the “Euro Tranche B”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of USD 500 million (the “New Revolving Facility” and, together with the New Term Loan Facility, the “New Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions.
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 (the “2022 USD Tranche B” and together with the 2023 USD Tranche B (as defined below), as the context may require, the “USD Tranche B”) and a €600 million loan (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 (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.
Our products are used in major semiconductor processing steps, such as depositing thin films of material onto silicon wafer substrates, etching, cleaning, lithography, metrology and inspection. The semiconductor industry continually faces new challenges as products become smaller, more powerful and highly mobile.
Our products are used in major semiconductor processing steps, such as deposition, etching, cleaning, lithography, metrology, and inspection. The semiconductor industry continually faces new challenges as products become smaller, more powerful and highly mobile.
Gain on Sale of Long-Lived Assets Years Ended December 31, (Dollars in millions) 2022 2021 Gain on sale of long-lived assets $ (7 ) $ — We recorded a gain from the sale of a minority interest investment in a private company in 2022.
Gain on Sale of Long-Lived Assets Years Ended December 31, (Dollars in millions) 2023 2022 Gain on sale of long-lived assets $ (2 ) $ (7 ) In 2023 and 2022, we recorded gains as a result of receiving cash from the sale of a minority interest investment in a private company.
As a result of our global operating activities and variable interest rate borrowings, we are exposed to market risks from changes in foreign currency exchange rates and interest rates, which may adversely affect our operating results and financial position.
As a result of our global operating activities and variable interest rate borrowings, we are exposed to market risks from changes in foreign currency exchange rates and interest rates, which may adversely affect our operating results and financial position. We address these risks through a risk management program that includes the use of derivative financial instruments.
Provision for Income Taxes Years Ended December 31, (Dollars in millions) 2022 2021 Provision for income taxes $ 100 $ 114 Our effective tax rates for 2022 and 2021 were 23.1% and 17.1%, respectively.
(Benefit) Provision for Income Taxes Years Ended December 31, (Dollars in millions) 2023 2022 (Benefit) provision for income taxes $ (87 ) $ 100 Our effective tax rates for 2023 and 2022 were 4.5% and 23.1%, respectively.
We have used derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps and caps to manage interest rate exposure. By nature, all financial instruments involve market and credit risks. We enter into derivative instruments with major investment grade financial institutions and no collateral is required.
We have used derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps and caps to manage certain interest rate exposure. By nature, all financial instruments involve market and credit risks.
International net revenues accounted for approximately 58% and 57% of our total net revenues in 2022 and 2021, respectively. A significant portion of our international net revenues was from customers in China, Germany and South Korea.
International Markets A significant portion of our net revenues is from sales to customers in international markets. International net revenues accounted for approximately 66% and 58% of our total net revenues in 2023 and 2022, respectively. A significant portion of our international net revenues was from customers in China, Germany, Japan and South Korea.
As a result of our Prior ABL Credit Facility (as defined below) being terminated concurrently with our entry into the New Revolving Facility, we wrote off an immaterial amount of previously capitalized debt issuance costs.
As a result of the termination of our previously existing revolving credit facility concurrently with our entry into the Revolving Facility, we wrote off an immaterial amount of previously capitalized debt issuance costs.
Foreign Exchange Contracts We hedge a portion of our forecasted foreign currency denominated intercompany sales of inventory, over a maximum period of eighteen months, using foreign exchange forward contracts accounted for as cash-flow hedges related to British, Euro, Japanese, South Korean and Taiwanese currencies.
Foreign Exchange Contracts and Net Investment Hedge We hedge a portion of our forecasted foreign currency denominated intercompany sales of inventory, over a maximum period of eighteen months, using foreign exchange forward contracts accounted for as cash-flow hedges.
As a result of the incident, our relationship with our customers may be negatively impacted and we may be subject to subsequent investigations, claims or actions, in addition to other costs, fines, penalties, or other obligations related to impacted data, whether or not such data is misused.
As a result of the incident, we were previously subject to two lawsuits, and we may be subject to future litigation, investigations, claims or actions, in addition to fines, penalties, or other obligations related to impacted data, whether or not such data is misused.
Under the USD Tranche A and the New 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 5.50 to 1.00, 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 period following any material acquisition, not to exceed 5.50 to 1.00. 55 In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter of ours when the aggregate amount of loans outstanding under the New Revolving Facility (net of (a) all letters of credit (whether cash collateralized or not) and (b) unrestricted cash of ours and our restricted subsidiaries) exceeds 35% of the aggregate amount of all commitments under the New 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.
In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter of ours when the 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 ours 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 its first lien net leverage ratio as of the end of each such fiscal quarter to be greater than 6.00 to 1.00.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur USD LIBOR-based swaps and USD LIBOR-based interest rate caps will convert to Term SOFR after LIBOR's termination in June 2023, according to the terms of each instrument. We are exposed to market risks related to fluctuations in interest rates related to our New Term Loan Facility.
Biggest changeWe also had two USD LIBOR based swaps that were converted to Term SOFR, effective June 30, 2023. The conversions from USD LIBOR to Term SOFR did not have a material impact on our results of operations. We are exposed to market risks related to fluctuations in interest rates related to our Term Loan Facility.
We have various interest rate swap and cap agreements as described further in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Derivatives” that exchange the variable Term SOFR interest rate to a fixed rate in order to manage the exposure to interest rate fluctuations associated with the variable Term SOFR interest rate paid on the outstanding balance of the New Term Loan Facility.
We have various interest rate swap and cap agreements as described further in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Derivatives” that exchange the variable Term SOFR interest rate to a fixed rate in order to manage the exposure to interest rate fluctuations associated with the variable Term SOFR interest rate paid on the outstanding balance of the Term Loan Facility.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Market Risk and Sensitivity Analysis Our primary exposures to market risks include fluctuations in interest rates on our New Term Loan Facility, as defined and as described further in Item 7 of this Annual Report on Form 10-K, and investment portfolio, as well as fluctuations in foreign currency exchange rates.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Market Risk and Sensitivity Analysis Our primary exposures to market risks include fluctuations in interest rates on our Term Loan Facility, as defined and as described further in Item 7 of this Annual Report on Form 10-K, and investment portfolio, as well as fluctuations in foreign currency exchange rates.
Foreign Exchange Rate Risk We mainly enter into foreign exchange forward contracts to reduce currency exposure arising from intercompany sales of inventory. We also enter into foreign exchange forward contracts to reduce foreign exchange risks arising from the change in fair value of certain foreign currency denominated assets and liabilities.
We mainly enter into foreign exchange forward contracts to reduce currency exposure arising from intercompany sales of inventory. We also enter into foreign exchange forward contracts to reduce foreign exchange risks arising from the change in fair value of certain foreign currency denominated assets and liabilities.
We had foreign exchange forward contracts with notional amounts totaling $702 million outstanding and a net fair value liability of $1 million at December 31, 2022. We had foreign exchange forward contracts with notional amounts totaling $241 million outstanding and a net fair value asset of $3 million at December 31, 2021.
We had foreign exchange forward contracts with notional amounts totaling $266 million outstanding and a net fair value liability of $3 million at December 31, 2023. We had foreign exchange forward contracts with notional amounts totaling $702 million outstanding and a net fair value liability of $1 million at December 31, 2022.
Because the notional amount of our interest rate hedges as of December 31, 2022 equals approximately 50% of the principal outstanding on our New Term Loan Facility, the resulting net impact to interest expense would be approximately $18 million. 59
Because the notional amount of our interest rate hedges as of December 31, 2023 equals approximately 61% of the principal outstanding on our Term Loan Facility, the resulting net impact to interest expense would be approximately $13 million. 62
As of December 31, 2022, the principal outstanding on our New Term Loan Facility was $5.1 billion, at a weighted average interest rate of 6.8%. A 10% increase or decrease in the weighted average interest rate as of December 31, 2022 would increase or decrease annual interest expense by approximately $36 million, excluding the effect of our interest rate hedges.
As of December 31, 2023, the principal outstanding on our Term Loan Facility was $4.95 billion, at a weighted average interest rate of 7.7%. A 10% increase or decrease in the weighted average interest rate as of December 31, 2023 would increase or decrease annual interest expense by approximately $26 million, excluding the effect of our interest rate hedges.
We acquired USD LIBOR interest rate cap agreements as a result of the Atotech Acquisition and we are utilizing these agreements to offset the variable Term SOFR rate on our New Term Loan Facility.
We acquired USD LIBOR interest rate cap agreements as a result of the Atotech Acquisition and had utilized these agreements to offset the variable Term SOFR rate on our Term Loan Facility. Effective June 30, 2023, our USD LIBOR based interest rate caps were converted to Term SOFR.
The potential fair value loss for a hypothetical 10% adverse change in the currency exchange rate on our foreign exchange forward contracts at December 31, 2022 and 2021 would be immaterial. Interest Rate Risk We hold our cash, cash equivalents and short-term investments for working capital purposes. Some of the securities we invest in are subject to market risk.
The potential fair value loss for a hypothetical 10% adverse change in the currency exchange rate on our foreign exchange forward contracts at December 31, 2023 and 2022 would be immaterial.
Added
Foreign Exchange Rate Risk Our currency risk consists primarily of foreign currency denominated firm commitments, forecasted foreign currency denominated intercompany and third-party transactions, and net investments in certain subsidiaries. We use both nonderivative and derivative instruments to manage our earnings and cash flow exposure to changes in currency exchange rates.
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On January 1, 2023, we designated certain Euro-denominated debt as a net investment hedge to hedge a portion of our net investments in certain of our entities with functional currencies denominated in the Euro.
Added
As of December 31, 2023, we designated as a net investment hedge €593 million in aggregate principal amount of our Euro Tranche B issued in August 2022. For these nonderivative instruments, we defer recognition of the foreign currency remeasurement gains and losses within the foreign currency translation adjustment component of OCI.
Added
There was no net investment hedge designated in 2022 and all remeasurement gains and losses went directly to the statement of operations. Interest Rate Risk We hold our cash, cash equivalents and short-term investments for working capital purposes. Some of the securities we invest in are subject to market risk.

Other MKSI 10-K year-over-year comparisons