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What changed in MKS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of MKS INC's 2023 and 2024 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 2024 report.

+484 added−496 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-27)

Top changes in MKS INC's 2024 10-K

484 paragraphs added · 496 removed · 365 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

61 edited+11 added−11 removed30 unchanged
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.
Biggest changeWhile these ERGs focus on the unique experiences of these groups, they are open to all employees who want to connect, learn and contribute to a culture of belonging at MKS. • Our recruitment and selection procedures are bolstered by our MKS Hiring Guide & Toolkit, which is designed to attract top talent while mitigating potential bias. • Consistent with our Corporate Governance Guidelines, we actively seek diverse candidates for the pool from which our Board of Director nominees are chosen. • We routinely conduct comprehensive analyses of pay practices in our major regions of operations to identify and, if needed, rectify any disparities promptly and effectively.
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 our proprietary information and to assign to us all inventions while they are employed by us.
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.
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. At its core, MKS is a foundational enabler of miniaturization and complexity.
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.
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 typically range from one to three years, with the majority of the warranties on our products ranging from one to two years.
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.
We believe our long history and deep expertise in solving critical problems position us well to address these challenges for our customers. 5 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.
Regulations include, but are not limited to, those related to the environment, corruption, bribery, import and export controls, competition, product safety, workplace health and safety, employment, labor and data privacy. The following describes certain significant regulations that may have a material effect on our capital expenditures, earnings and competitive position.
Regulations include, but are not limited to, those related to the environment, trade, corruption, bribery, import and export controls, competition, product safety, workplace health and safety, employment, labor and data privacy. The following describes certain significant regulations that may have a material effect on our capital expenditures, earnings and competitive position.
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.
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 and services for innovative and high-technology applications in our electronics and packaging and specialty industrial markets.
Sales and Marketing Our worldwide sales and marketing organizations are also critical to our strategy of maintaining close relationships with a wide array of customers across a diverse set of advanced applications, including semiconductor capital equipment manufacturers, semiconductor device manufacturers, PCB and package substrate manufacturers, and customers across a range of specialty industrial applications.
Sales and Marketing Our worldwide sales and marketing organizations are critical to our strategy of maintaining close relationships with a wide array of customers across a diverse set of advanced applications, including semiconductor capital equipment manufacturers, semiconductor device manufacturers, PCB and package substrate manufacturers, and customers across a range of specialty industrial applications.
In our chemistry and equipment plating businesses, a majority of our research and development investment supports existing customers' product improvement needs and their short-term research and development goals, which enables us to pioneer new high-value solutions while limiting commercial risk.
In our chemistry and equipment plating businesses, a majority of our research and 8 development investment supports existing customers' product improvement needs and their short-term research and development goals, which enables us to pioneer new high-value solutions while limiting commercial risk.
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.
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.
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 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 chemicals, parts, components and subassemblies from suppliers, including contract manufacturers.
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.
Its products include: • Advanced chemical processes and production equipment, 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. 7 • 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.
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.
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, the industry transition to battery-powered vehicles in the automotive market, and the advancement of artificial intelligence (“AI”).
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.
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, 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 (“HDI”) solutions for the creation of blind micro-vias necessary for the manufacturing of PCBs (flexible, rigid-flexible, multilayer, HDI) and package substrates.
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.
For further information on our segments, see Note 21 to the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.
Our manufacturing facilities are located in Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Israel, Italy, Malaysia, Mexico, Romania, Singapore, South Korea and the United States. In addition, we rely on significant subcontracted operations in Mexico and selected contract manufacturers in Asia.
Our manufacturing facilities are located in Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Israel, Italy, Japan, Malaysia, Mexico, Romania, Singapore, Slovenia, South Korea, Taiwan and the United States. In addition, we rely on significant subcontracted operations in Mexico and selected contract manufacturers in Asia.
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.
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. We have instituted MEHS, a formal Global MKS Management System for Environmental, Health, and Safety, to protect our employees, other stakeholders, and the environment.
We accomplish this through strict compliance with applicable laws and regulations regarding workplace safety, including recognition and control of workplace hazards, tracking injury and illness rates, utilizing a global travel health program and maintaining detailed emergency and business continuity plans.
We accomplish this through strict compliance with applicable laws and regulations regarding workplace safety, including recognition and control of workplace hazards, tracking injury and illness rates, utilizing a global travel risk management program and maintaining detailed emergency and business continuity plans.
Our current initiatives include projects to enhance the performance characteristics of older products, to develop new products and to integrate various technologies into subsystems. Manufacturing Manufacturing activities include the assembly and testing of components and subassemblies, which are integrated into our products.
Our current initiatives include projects to enhance the performance characteristics of older products, to develop new products and to integrate various technologies into subsystems. Manufacturing Manufacturing activities for VSD and PSD include the assembly and testing of components and subassemblies, which are integrated into our products.
We believe we are the broadest critical subsystem provider in the wafer fabrication equipment ecosystem and address over 85% of the market. We have characterized our broad and unique offering as Surround the Wafer to reflect the technology enablement we provide across almost every major process in semiconductor manufacturing today.
We believe we are the broadest critical subsystem provider in the wafer fabrication equipment (“WFE”) ecosystem and address over 85% of the market. We characterize our broad and unique offering as Surround the Wafer® to reflect the technology enablement we provide across almost every major process in semiconductor manufacturing today.
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.
The semiconductor market 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 in the semiconductor capital equipment industry.
PSD products are derived from our core competencies in lasers, photonics, optics, temperature sensing, precision motion control and vibration control.
PSD products are derived from our core competencies in lasers, photonics, optics, precision motion control and vibration control.
Its products include: • Pressure and Vacuum Control Solutions Products, which consist of direct and indirect pressure measurement. • Materials Delivery Solutions Products, which include flow and valve technologies as well as integrated pressure measurement and control subsystems, which provide customers with precise control capabilities. • Power Solutions Products, which consist of microwave and radio frequency power delivery systems, radio frequency matching networks and metrology products.
Its products include: • Pressure and Vacuum Control Solutions Products, which consist of direct and indirect pressure measurement. • Materials Delivery Solutions Products, which include flow and valve technologies as well as integrated pressure measurement and control subsystems, which provide customers with precise control capabilities. • Power Solutions Products, which consist of microwave and radio frequency power delivery systems, radio frequency matching networks, metrology products, and fiber optic temperature and position sensors.
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.
We support research at academic institutions targeted at advances in materials science, semiconductor process development and photonics. Our research and development expenses were $271 million, $288 million and $241 million for 2024, 2023 and 2022, respectively.
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.
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.
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.
Of our total workforce, 19% work in research and development, 53% work in operations, manufacturing, service and quality assurance, and 28% work in sales, order administration, marketing, finance, human resources, legal, information technology, general management and other administrative functions.
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.
Net revenues from our top ten customers accounted for 32%, 30% and 42% of net revenues for 2024, 2023 and 2022, respectively. None of our customers in 2024 or 2023 accounted for greater than 10% of net revenues.
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.
Industrial Industrial 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.
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%.
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. MKS has a very stable and committed workforce, as evidenced by low voluntary turnover.
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 vacuum technologies, including 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 fiber optic temperature and position sensing.
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.
For example, due in part to these demand shifts and trade restrictions, our semiconductor market revenue sequentially increased 1% in 2024, but sequentially decreased 28% in 2023 and sequentially increased 12% in 2022. Approximately 42%, 41%, and 58% of our net revenues for 2024, 2023, and 2022, respectively, were from sales to our semiconductor market.
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.
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”). We group our product offerings by our reportable segments: VSD, PSD and MSD. Global Service represents our various service offerings across our three divisions.
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.
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.
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.
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.
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.
As of December 31, 2024, we owned 638 U.S. patents and 2,534 foreign patents that expire at various dates through 2043. As of December 31, 2024, we had 142 pending U.S. patent applications. Foreign counterparts of certain U.S. applications have been filed or may be filed at the appropriate time.
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.
As part of these 10 efforts, we strive to foster an inclusive and welcoming 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. As of December 31, 2024, we had a total workforce of approximately 10,200 individuals, excluding contracted employees.
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.
Comprehensive communication of the results was extended to all employees and 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, with corporate initiatives focusing on communication, innovation and inclusion.
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.
Compensation and Benefits MKS is committed to providing total compensation packages that attract, motivate and retain our employees, as well as 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.
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.
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 sensing products. Inficon, Inc. offers products that compete with our pressure and vacuum control solutions products.
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.
Specialty Industrial Market MKS’ strategy in the specialty industrial market is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial, life and health sciences, and research and defense markets.
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.
We have sites in 37 countries, with 32% of our employees located in the Asia-Pacific region, 34% located in Europe, the Middle East and India and 34% located in the Americas. Of our total workforce, approximately 10,100 were employees and approximately 100 were temporary workers.
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.
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. Approximately 26%, 25%, and 15% of our net revenues for 2024, 2023, and 2022, respectively, were from sales to our electronics and packaging market.
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.
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.
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.
Long-lived assets located outside of the United States accounted for approximately 59% and 58% of our total long-lived assets in 2024 and 2023, respectively. Long-lived assets include property, plant and equipment, net, right-of-use assets, net and certain other assets.
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.
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 9 that compete with our photonics products.
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.
Our voluntary turnover for the year ended December 31, 2024 was below 7%. Our average employee tenure as of December 31, 2024 was more than ten years. Health and Safety MKS is committed to providing a safe and healthy workplace for all employees.
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.
Schmid Group, Process Automation International Limited and Manz AG offer products that compete with our plating equipment products. 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.
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.
Additionally, our executive leadership team routinely engages in direct communication with employees worldwide, ensuring alignment with the Company's strategic goals. Our executive leadership team is committed to continuously enhancing MKS’ 11 workplace environment and steering organizational growth, with the annual engagement survey serving as a pivotal component for gathering employee insights.
Research and Development Our products incorporate sophisticated technologies to measure, monitor, deliver, analyze, power, control and improve complex semiconductor and advanced manufacturing processes, thereby enhancing uptime, yield and throughput for our customers.
Research and Development Our products incorporate sophisticated technologies to measure, monitor, deliver, analyze, power, control and improve complex semiconductor and advanced manufacturing processes, thereby enhancing uptime, yield and throughput for our customers. 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.
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.
Electronics and Packaging Market MKS is a foundational solutions provider for the electronics and packaging market. Our portfolio includes photonics components, laser drilling systems, electronics chemistries and plating equipment that are critical for the manufacturing of PCBs and package substrates, and critical to wafer level packaging (“WLP”) applications.
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.
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.
Lead times for many of our products are very short, as a large portion of our orders are received and shipped within 90 days. Some of the plating equipment manufactured by MSD has longer lead times of up to 12 months. In many cases, orders may be subject to cancellation or rescheduling by the customer with limited or no penalty.
Some of the plating equipment manufactured by MSD has longer lead times of up to 12 months. In many cases, orders may be subject to cancellation or rescheduling by the customer with limited or no penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period.
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.
Employee Engagement MKS remains dedicated to fostering meaningful connections with its employees. In 2024, MKS conducted its fourth annual global employee engagement survey, with a record 88% participation rate. The survey findings were analyzed and shared with our President and Chief Executive Officer, the executive leadership team and our Board of Directors.
We purchase a wide range of electronic, optical, mechanical and electrical components, some of which are designed to our specifications. We consider our lean manufacturing techniques and responsiveness to customers’ significantly fluctuating product demands to be a competitive advantage. Backlog We generally schedule production of our products based upon our customers’ delivery requirements.
We consider our lean manufacturing techniques and responsiveness to customers’ significantly fluctuating product demands to be a competitive advantage. Backlog We generally schedule production of our products based upon our customers’ delivery requirements. Lead times for many of our products are very short, as a large portion of our orders are received and shipped within 90 days.
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.
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. 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.
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.
VSD delivers foundational technology solutions to semiconductor manufacturing, electronics and packaging and specialty industrial applications.
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.
Approximately 32%, 34%, and 27% of our net revenues for 2024, 2023, and 2022, respectively, were from sales to our specialty industrial market. 6 International Markets Starting in the second quarter of 2024, we changed our basis of reporting geographical net revenues from the location in which the sale originated to the shipped-to location of the end customer.
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.
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. We continue to develop our products as we strive to meet our customers’ evolving needs.
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.
A significant portion of our international net revenues was from customers in China, South Korea, Japan, Taiwan, and Singapore. We expect international net revenues will continue to account for a significant percentage of total net revenues for the foreseeable future.
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.
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. 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.
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.
Our performance management framework is designed to provide ongoing, actionable feedback and facilitate dynamic career development conversations throughout the year. In 2024, we launched a global mentorship program designed to connect our employees across all regions and functions and build mentor and mentee relationships that focus on continuous learning and development.
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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”).
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In addition to these rapid demand shifts, the semiconductor capital equipment industry has recently been subject to significant trade restrictions, especially in key markets, including China, which has impacted our sales.
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Atotech, which we operate as our Materials Solutions Division, develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing. Applying a comprehensive systems-and-solutions approach, Atotech’s portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in a wide variety of end markets.
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Similar to the semiconductor industry, the PCB, package substrate and WLP industries continue to demand smaller features, greater density, and better performance. In addition, the electronics and packaging market also includes sales of our vacuum and photonics solutions for display manufacturing applications.
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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.
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Prior periods have been recast to reflect this change, which was made to better align with how management reviews geographic net revenues. A significant portion of our net revenues is from sales to customers in international markets. For 2024, 2023, and 2022, international net revenues accounted for approximately 78%, 75%, and 69%, respectively, of our total net revenues.
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We continue to develop our products as we strive to meet our customers’ evolving needs.
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Manufacturing activities for MSD consist primarily of the production of chemicals through the mixing of substances and metals to form solutions, and the manufacturing of a range of plating equipment to customer specifications, which utilize these chemicals. Our plating equipment manufacturing process includes design and development, factory installation configuration, assembly and testing.
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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.
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We purchase a wide range of electronic, optical, mechanical and electrical components, some of which are designed to our specifications. For chemical production, we purchase our substances, metals, and compounds from a global supply base. The materials we buy range from commodities, which we buy in bulk, to small quantities of specialty compounds.
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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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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 and the Technical Standards on Environmental Risk Assessment and Control of Chemical Substances (2024) and List of Chemicals under Priority Control in China.
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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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Inclusion and Belonging At MKS, we are committed to cultivating an inclusive environment where every individual is valued, respected and empowered to bring their authentic selves to their work. This commitment stems from our belief that diverse viewpoints not only spur innovation but also fuel exceptional performance and sustainable progress.
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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.
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By embracing our global workforce’s unique backgrounds and perspectives, we strengthen our collective ability to innovate, collaborate and drive sustainable growth.
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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.
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To further foster inclusion and belonging at MKS, we operate several initiatives: • We recently launched programs—including cultural awareness workshops, book-read discussion groups, bias awareness trainings, and inclusive leadership sessions—to strengthen empathy, foster deeper cross-functional collaboration and cultivate a workplace culture where every voice is heard and valued. • We also recently launched two Employee Resource Groups (“ERGs”) — Veterans@MKS and Women@MKS.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeMoreover, we may not realize the benefits we anticipate from these acquisitions, because of significant challenges, such as: • The difficulty, distraction, resource requirements, cost and disruption of integrating the operations, technology and personnel of the acquired companies; • The potential disruption of our ongoing business and distraction of management; • Possible internal control or other compliance weaknesses of the acquired companies; • Significant expenses related to the acquisitions, including any resulting shareholder litigation; • The assumption of unknown or contingent liabilities associated with acquired businesses; • The potential to incur or record significant cash or non-cash charges or write down the carrying value of intangible assets and goodwill obtained in the acquisitions, which could adversely impact our cash flow or lower our earnings in the period or periods for which we incur such charges or write down such assets; • Potentially incompatible cultural differences between us and the companies we acquire; • Incorporating the acquired companies' technology and products into our current and future product lines, and successfully generating market demand for these expanded product lines; • Potential additional geographic dispersion of operations; • The difficulty in achieving anticipated synergies and efficiencies; • The difficulty in leveraging the acquired companies' and our combined technologies and capabilities across our product lines and customer base; • Burdensome requirements or conditions imposed by government regulators in connection with their review of acquisitions, including divestitures and restrictions on the conduct of our business or the business of the acquired companies; and • Our ability to retain key customers, suppliers and employees of the acquired companies.
Biggest changeMoreover, we may not realize the benefits we anticipate from these acquisitions, because of significant challenges, such as: • The difficulty, distraction, resource requirements, cost and disruption of developing sufficient knowledge of, managing, and integrating the operations, personnel, and internal controls, financial reporting and information technology (“IT”) systems of the acquired companies; • The potential disruption of our ongoing business and distraction of management; • Potential internal control or other compliance weaknesses of the acquired companies; • Significant expenses related to the acquisitions, including any resulting shareholder litigation; • The assumption of unknown or contingent liabilities associated with acquired businesses; • Potentially incompatible cultural differences between us and the acquired companies; • The difficulty of incorporating the acquired companies' technology and products into our current and future product lines, and successfully generating market demand for these expanded product lines; • Potential additional geographic dispersion of operations and/or increased exposure to high-risk geographies; • The difficulty in achieving anticipated synergies and efficiencies; • The difficulty in leveraging the acquired companies' and our combined technologies and capabilities across our product lines and customer base; • Burdensome requirements or conditions imposed by government regulators in connection with their review of acquisitions, including divestitures and restrictions on the conduct of our business or the business of the acquired companies; • Competitive disadvantages we may face by selling products that are new to us and/or selling products in markets and geographies that are new to us; • The difficulty of retaining key customers, suppliers and employees of the acquired companies; and • The potential to incur or record significant cash or non-cash charges or write down the carrying value of intangible assets and goodwill obtained in the acquisitions, which could adversely impact our cash flow or lower our earnings in the period or periods for which we incur such charges or write down such assets.
This level of indebtedness could have the effect, among other things, of reducing our flexibility to respond to changing business, industry and economic conditions, limiting our ability to obtain financing in the future and increasing interest expense. We also have incurred and will continue to incur various costs and expenses associated with our indebtedness.
This level of indebtedness could have the effect, among other things, of reducing our flexibility to respond to changing business, industry and economic conditions, limiting our ability to obtain financing in the future and increasing interest expense. We have also incurred and will continue to incur various costs and expenses associated with our indebtedness.
If the matters described in our other risk factors result in a material adverse effect on our business, financial condition or operating results, we may be unable to comply with the terms of our credit facilities or experience an event of default.
If the matters described in our other risk factors result in a material adverse effect on our business, financial condition or operating results, we may be unable to comply with the terms of the Credit Facilities or experience an event of default.
We rely on a combination of patent, trademark and trade secret protection and other agreements, such as nondisclosure agreements and other contractual agreements with our employees and third parties, to protect our proprietary rights.
We rely on a combination of patent, trademark and trade secret protection and agreements, such as nondisclosure agreements and other contractual agreements with our employees and third parties, to protect our proprietary rights.
Our business depends upon capital expenditures of semiconductor device manufacturers (which in turn depends upon the demand for semiconductors), electronics manufacturers and Tier 1 and Tier 2 suppliers for the automotive industry. All of these industries have historically experienced cyclical variations in product supply and demand.
Our business depends upon capital expenditures of semiconductor device manufacturers (which in turn depends upon demand for semiconductors), electronics manufacturers and Tier 1 and Tier 2 suppliers for the automotive industry. All of these industries have historically experienced cyclical variations in product supply and demand.
While we continue to adjust our policies and practices to ensure compliance with these regulations, and we will seek to mitigate their impact, there can be no assurances that current or future regulations and tariffs will not have a material adverse effect on our business.
While we continue to adjust our policies and practices to ensure compliance with these regulations, and seek to mitigate their impact, there can be no assurances that current or future regulations and tariffs will not have a material adverse effect on our business.
While we intend to operate in such a manner to maintain and maximize our tax incentives, we can make no assurances that we have so qualified or that we will so qualify for any particular year or jurisdiction.
While we intend to operate in such a manner to maintain and maximize our tax incentives, we can make no assurances that we have so qualified, or that we will qualify, for tax incentives for any particular year or jurisdiction.
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.
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 33 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; • 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.
Although we believe that our safety procedures for using, handling, storing and disposing of such materials comply with the standards required by applicable federal, state, local and international laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials, including risks related to our chemical products, which are inherently hazardous.
Although we believe that our safety procedures for using, handling, storing and disposing of such materials comply with the standards required by applicable federal, state, local and international laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials, including risks related to our chemical products, which are inherently hazardous.
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.
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 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.
If an event of default occurs, the lenders may end their obligation to make loans to us under the credit facilities and may declare any outstanding indebtedness under these credit facilities immediately due and payable. In such case, we would need to obtain additional financing or significantly deplete our available cash, or both, to repay this indebtedness.
If an event of default occurs, the lenders may end their obligation to make loans to us under the Credit Facilities and may declare any outstanding indebtedness under the Credit Facilities immediately due and payable. In such case, we would need to obtain additional financing or significantly deplete our available cash, or both, to repay this indebtedness.
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.
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 economically feasible terms, or at all. Insurers may also deny us coverage as to any future claim.
If significant costs or other liability relating to this site arise in the future, our business, financial condition and operating results would be adversely affected. In addition, some of MSD’s manufacturing facilities and former facilities have an extended history of chemical manufacturing operations or other industrial activities, and contaminants have been detected at some of those sites.
If significant costs or other liability relating to this site arise in the future, our business, financial condition and operating results would be adversely affected. In addition, some of our manufacturing facilities and former facilities have an extended history of chemical manufacturing operations or other industrial activities, and contaminants have been detected at some of those sites.
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.
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 purchase them, which can require a significant upfront investment in time and resources.
Recently, in October 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) implemented new and novel restrictions related to end-uses in semiconductor, semiconductor manufacturing, supercomputer, and advanced computing, along with certain equipment used to develop and produce them, as well as controls around the activities of U.S. persons in certain markets, including China.
In October 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) implemented new and novel restrictions related to end-uses in semiconductor, semiconductor manufacturing, supercomputer, and advanced computing, along with certain equipment used to develop and produce them, as well as controls around the activities of U.S. persons in certain markets, including China.
In each case, the plaintiffs alleged, among other things, that the then-current directors of the 32 acquired company breached their fiduciary duties to their respective shareholders by agreeing to sell the company through an inadequate and unfair process, leading to inadequate and unfair consideration, by agreeing to unfair deal protection devices, and by omitting material information from the proxy statement.
In each case, the plaintiffs alleged, among other things, that the then-current directors of the acquired company breached their fiduciary duties to their respective shareholders by agreeing to sell the company through an inadequate and unfair process, leading to inadequate and unfair consideration, by agreeing to unfair deal protection devices, and by omitting material information from the proxy statement.
We are exposed to significant risks for product liability claims in the event of a significant line down situation or if death, personal injury or property damage results from the handling, use or storage of our products, including our chemical products and laser systems. We may experience material product liability losses in the future.
We are exposed to significant risks for product liability claims in the event of a significant line down 31 situation or if death, personal injury or property damage results from the handling, use or storage of our products, including our chemical products and laser systems. We may experience material product liability losses in the future.
The determination of such allowances requires us to make estimates of product return rates and expected costs to repair or replace the products under warranty. We establish warranty reserves based on historical warranty costs for our products. If actual return rates or repair and replacement costs differ significantly from our estimates, our operating results would be negatively impacted.
The determination of such reserves requires us to make estimates of product return rates and expected costs to repair or replace the products under warranty. We establish warranty reserves based on historical warranty costs for our products. If actual return rates or repair and replacement costs differ significantly from our estimates, our operating results would be negatively impacted.
Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control.
Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, 14 among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control.
This incident required us to temporarily suspend operations at certain of our facilities and had a material impact during the three months ended March 31, 2023 on our ability to process orders, ship products and provide service to our Vacuum Solutions Division (“VSD”) and PSD customers.
This incident required us to temporarily suspend operations at 16 certain of our facilities and had a material impact during the three months ended March 31, 2023 on our ability to process orders, ship products and provide service to our Vacuum Solutions Division (“VSD”) and PSD customers.
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.
The U.S. government’s concerns relate to, among other things, national security 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.
We and our third-party administrators, vendors and partners are subject to ongoing cybersecurity threats, including ransomware and other malware, hacking, phishing, smishing, denial of service attacks, employee errors or malfeasance, telecommunication failures, system failures, natural disasters and other attacks and events.
We and our third-party administrators, vendors, customers and partners are subject to ongoing cybersecurity threats, including ransomware and other malware, hacking, phishing, smishing, denial of service attacks, employee errors or malfeasance, telecommunication failures, system failures, natural disasters and other attacks and events.
In certain instances, these regulations may require obtaining licenses from the administering agency prior to exporting products or technology to international locations or foreign nationals, including foreign nationals employed by us in the United States and abroad. For products and technology subject to the U.S.
In certain instances, these regulations may require obtaining licenses from an administering agency prior to exporting products or technology to international locations or foreign nationals, including foreign nationals employed by us in the United States and abroad. For products and technology subject to the U.S.
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.
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 as a result of the Lunar New Year.
As a result of our previous acquisitions, we presently have several different decentralized operating and accounting systems. We will need to continue to modify our accounting policies, internal controls, procedures and compliance programs to provide consistency across all of our operations.
As a result of previous acquisitions, we presently have several different decentralized operating and accounting systems. We will need to continue to modify our accounting policies, internal controls, procedures and compliance programs to provide consistency across our operations.
We must anticipate trends in our customers' industries and develop products before our customers' products and processes are commercialized. If we do not anticipate our customers' needs and future activities, we may invest substantial resources in developing products that do not achieve broad market acceptance.
We must anticipate trends in our customers' industries and develop products before our customers' products and processes are commercialized. If we do not anticipate our customers’ needs and activities, we may invest substantial resources in developing products that do not achieve broad market acceptance.
These laws and regulations generally create 30 uncertainty about whether existing chemicals important to our business may be designated for restriction and whether the approval process for new chemicals may become more difficult and costly.
These laws and regulations generally create uncertainty about whether existing chemicals important to our business may be designated for restriction and whether the approval process for new chemicals may become more difficult and costly.
In addition, intangible assets and goodwill are subject to an impairment analysis whenever events or changes in circumstances indicate that the carrying value of the intangible asset might not be recoverable.
In addition, intangible assets and goodwill are subject to an impairment analysis whenever events or changes in circumstances indicate that the carrying value of the goodwill or intangible assets might not be recoverable.
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.
If we are unable to promptly identify and fix defects or other problems, we could experience, among other things: • Loss of customers; 20 • Increased costs of product returns and warranty expenses; • 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.
This trade uncertainty has caused, and may continue to cause, customers to delay or cancel orders, as they mitigate their own supply chain and cost exposure by sourcing from locally based suppliers or suppliers based in other countries. Such delays and cancellations could have a material impact on our business, financial condition and operating results.
This trade uncertainty has caused, and may continue to cause, customers to delay or cancel orders, as they mitigate the risk to their own supply chain and cost exposure by sourcing from locally based suppliers or suppliers based in other countries. Such delays and cancellations could have a material impact on our business, financial condition and operating results.
The trade dispute between the U.S. government and the Chinese government has reinforced and broadened this preference, as potential and existing customers seek to avoid the uncertainty related to the trade dispute.
The trade dispute between the U.S. government and the Chinese government has reinforced and broadened this preference, as potential and existing customers seek to avoid the uncertainty related 25 to the trade dispute.
Further, the utilization of overseas manufacturing locations and contract manufacturers may require additional transportation and shipping providers, customs tariffs or export licenses, which may be difficult or costly to obtain. Additionally, qualifying contract manufacturers and commencing volume production is expensive and time-consuming, and there is no guarantee we will continue to do so successfully.
Further, the utilization of overseas manufacturing locations and contract manufacturers may require additional transportation and shipping costs and customs tariffs or export licenses, which may be difficult or costly to obtain. Additionally, qualifying contract manufacturers and commencing volume production is expensive and time-consuming, and there is no guarantee we will continue to do so successfully.
From time to time, we may be involved in legal proceedings, enforcement actions or claims regarding product performance, product warranty, product certification, product liability, patent infringement, misappropriation of trade secrets, other intellectual property rights, data privacy, antitrust, environmental regulations, trade regulations, securities, contracts, unfair competition, employment, workplace safety, and other matters.
From time to time, we may be involved in legal proceedings, enforcement actions or claims regarding product performance, product warranty, product certification, product liability, patent infringement, misappropriation of trade secrets, other intellectual property rights, data privacy, antitrust, environmental regulations, trade regulations, tax regulations, securities, contracts, unfair competition, employment, workplace safety, liability to shareholders, and other matters.
These 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.
These 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; 24 • 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, including, for example, any actions by China to take control over Taiwan, and the implications any such action would have on our customers, other partners, and the global semiconductor ecosystem; and • Increased risk of exposure to civil unrest, terrorism, government sanctioned and non-government sanctioned acts of violence, and military activities.
In the event that the EPA and the California Regional Water Quality Control Board determine that the site cleanup requires additional measures to ensure that it meets current standards for environmental contamination, or if they enhance any of the applicable required standards, we will likely become subject to additional remediation obligations in the future.
If the EPA and the California Regional Water Quality Control Board determine that the site cleanup requires additional measures to ensure that it meets current standards for environmental contamination, or if they enhance any of the applicable required standards, we will likely become subject to additional remediation 30 obligations in the future.
As part of our continuous cost-reduction and business continuity efforts, we continue to relocate the manufacturing of certain of our existing product lines and subassemblies to, and initiate the manufacturing of certain new products in, our facilities in China, Israel, Mexico, Romania and Singapore, as well as to our significant subcontracted operations in Mexico and selected contract manufacturers in Asia.
As part of our continuous cost-reduction and business continuity efforts, we continue to relocate the manufacturing of certain of our existing product lines and subassemblies to, and initiate the manufacturing of certain new products in, our facilities in Mexico, Romania and Singapore, as well as to our significant subcontracted operations in Mexico and selected contract manufacturers in Asia.
In addition, certain of our customers may require us to requalify products supplied to them in connection with the relocation of manufacturing operations.
In addition, our customers may require us to requalify products supplied to them in connection with the relocation of manufacturing operations.
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.
If our customers or the industries we serve shift to other technologies, our business, financial condition and operating results would be harmed. 23 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.
The ratings of our indebtedness reflect each nationally recognized statistical rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations. We cannot make any assurances that we will achieve or maintain a particular rating in the future.
The ratings of our indebtedness reflect each nationally recognized statistical rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations. We cannot make any assurances that we will achieve or maintain a particular rating.
Failure to obtain export licenses to enable product and technology exports could reduce our net revenues, harm our relationships with our customers and could adversely affect our business, financial condition and operating results. Compliance with export regulations may also subject us to additional fees and costs.
Failure to obtain export licenses to enable product and technology exports could reduce our net revenues, harm our relationships with our customers and could adversely affect our business, financial condition and operating results. Compliance with export regulations require resources and may also subject us to additional fees and costs.
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.
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 technologies, which may not be available on commercially acceptable terms or at all.
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.
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.
This diminished control may have an adverse effect on the quality or quantity of services rendered, on our ability to quickly respond to changing market conditions, or on our ability to ensure compliance with all applicable domestic and foreign laws and regulations.
This diminished control may have an adverse effect on the quality or quantity of services rendered, our ability to quickly respond to changing market conditions, or our ability to ensure compliance with all applicable laws and regulations.
Our future success will continue to depend upon: • Our ability to maintain relationships with existing key customers; • Our ability to attract new customers and satisfy any required qualification periods; • Our ability to introduce new products in a timely manner for existing and new customers; 22 • The successes of our original equipment manufacturer (“OEM”) customers in creating demand for their capital equipment products that incorporate our products; and • Our ability to gain significant customers in new, emerging segments of our markets.
Our future success will continue to depend upon: • Our ability to maintain relationships with existing key customers; • Our ability to attract new customers and satisfy any required qualification periods; • Our ability to introduce new products in a timely manner for existing and new customers; 21 • The successes of our original equipment manufacturer (“OEM”) customers in creating demand for their capital equipment products that incorporate our products; and • Our ability to gain significant customers and business in new, emerging segments of our markets.
Additionally, our credit facilities only permit us to make acquisitions under certain circumstances, and also restrict our ability to incur additional indebtedness in certain circumstances. As a result, our ability to pursue our acquisition strategy may be hindered by our indebtedness.
Additionally, our Credit Facilities (as defined below) only permit us to make acquisitions under certain circumstances and also restrict our ability to incur additional indebtedness in certain circumstances. As a result, our ability to pursue our acquisition strategy may be hindered by our indebtedness.
This could in turn harm our business, operating results, financial condition and customer relationships. We provide warranties for our products, and we accrue allowances for estimated warranty costs at the time we recognize revenue for the sale of the products.
This could in turn harm our business, operating results, financial condition and customer relationships. We provide warranties for our products, and we accrue reserves for estimated warranty costs at the time we recognize revenue for the sale of the products.
Virtually all exports from the United States of defense articles subject to the International Traffic in Arms Regulations, administered by the Department of State’s Directorate of Defense Trade Controls, require a license.
Virtually all exports from the United States of defense articles are subject to the International Traffic in Arms Regulations, administered by the Department of State’s Directorate of Defense Trade Controls, and require a license.
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.
The hazards associated with chemical manufacturing and the related storage and transportation of chemical raw materials, products and waste are inherent to our specialty chemicals 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.
Finally, these factors could render the portfolios of products or lines of business from which we generate significant net revenues obsolete. For example, MSD has lost business to customers who identify alternative materials or processes and therefore no longer require as much or any specialty chemicals.
Finally, these factors could render the portfolios of products or lines of business from which we generate significant net revenues obsolete. For example, we have lost business to customers who identify alternative materials or processes and therefore no longer require as much or any specialty chemicals.
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.
Additionally, while we have implemented, and continue to implement and optimize, 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.
We have experienced, and we expect to continue to experience, significant disruptions in our supply chain, interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs, price volatility, and customer order cancellations, which have been, or may in the future be, as a result of: • Volatility in the availability and cost of materials, including electronic components, whether due to interruptions in production by suppliers, allocations of products to other purchasers, fluctuations in foreign currency exchange rates, changes in worldwide price levels (whether due to inflationary pressures or otherwise), environmental limitations, geopolitical issues or other factors; • Pandemics such as COVID-19, natural disasters or other events beyond our control (such as earthquakes at our facilities in California or Oregon, floods or storms, wildfires, power outages, such as rolling blackouts previously experienced in China, regional economic downturns, social unrest, political instability, terrorism, or acts of war), particularly where we or our suppliers, subcontractors and contract manufacturers conduct manufacturing; • Global logistics network challenges, such as limited availability of and constraints on freight capacity; • IT or infrastructure failures; and 19 • New laws or regulations.
We have experienced, and we could experience in the future, significant disruptions in our supply chain, interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs, price volatility, and customer order cancellations, which have been, or may in the future be, as a result of: • Volatility in the availability and cost of materials, including electronic components and raw materials, whether due to interruptions in production by suppliers, allocations of products to other purchasers, fluctuations in foreign currency exchange rates, changes in worldwide price levels (whether due to inflationary pressures or otherwise), environmental limitations, geopolitical issues or other factors; • Pandemics such as COVID-19, natural disasters or other events beyond our control (such as earthquakes, floods or storms, wildfires, power outages, such as rolling blackouts previously experienced in China, regional economic downturns, social unrest, political instability, terrorism, or acts of war), particularly where we or our suppliers, subcontractors and contract manufacturers conduct manufacturing; • Global logistics network challenges, such as limited availability of and constraints on freight capacity; • IT or infrastructure failures; and 18 • New laws or regulations.
Since the beginning of 2019, regulatory changes have been implemented at an extraordinarily high pace, which increases the resources needed to monitor and comply with regulations, while heightening the risk of non-compliance. Such regulatory changes include the addition by BIS of China-based Huawei Technologies Co., Ltd.
Since the beginning of 2019, regulatory changes have been implemented at an unprecedented pace, which increases the resources needed to monitor and comply with regulations, while heightening the risk of non-compliance. Such regulatory changes include the addition by BIS of China-based Huawei Technologies Co., Ltd.
These disputes could result in deterioration of commercial relationships, costly and time-consuming litigation or additional concessions or obligations being offered by us to resolve these disputes, or could impact our net revenue or cost recognition. Any of these outcomes could materially and adversely affect our business, financial condition and operating results.
These disputes could result in deterioration of commercial relationships, costly and time-consuming litigation, concessions or obligations being offered by us to resolve these disputes, as well as impact our net revenue or cost recognition. Any of these outcomes could materially and adversely affect our business, financial condition and operating results.
These hazards may result in personal injury and loss of life, damage to property, and contamination of the environment, which may result in a suspension of operations and the imposition of civil or criminal fines, penalties and other sanctions, cleanup costs, and claims by our employees, governmental entities or third parties.
These hazards may result in personal injury and loss of life, damage to property, and contamination of the environment, which may result in an interruption or suspension of operations, the imposition of civil or criminal fines, penalties and other sanctions, cleanup costs, and claims by our employees, governmental entities or third parties.
We currently maintain insurance for certain product liability claims. However, our insurance coverage may not continue to be available on acceptable terms, if at all. This insurance coverage also may not adequately cover liabilities that we incur. Further, if our products are defective, we may be required to recall or redesign these products.
While we maintain insurance for certain product liability claims, our insurance coverage may not continue to be available on acceptable terms, if at all. This insurance coverage also may not adequately cover liabilities that we incur. Further, if our products are defective, we may be required to recall or redesign these products.
We or our predecessors have in the past been, and are currently, required to remediate contamination at several of these current and former sites, and there remains some risk that further investigation and remediation might be necessary.
We or our predecessors have in the past been required to remediate contamination at several of these current and former sites, and there remains some risk that further investigation and remediation in the future might be necessary.
The extraordinary complexity of these rules, combined with the likelihood of further amendments from BIS, significantly increases our risk of non-compliance, which could result in fines and other penalties, and could change how these rules impact us.
The extraordinary complexity of these rules, combined with their continued modification and the likelihood of further amendments from BIS, significantly increases our risk of non-compliance, which could result in fines and other penalties, and could change how these rules impact us.
Financial Risks Our consolidated indebtedness has increased substantially as a result of the Atotech Acquisition. This increased level of indebtedness could adversely affect us, including by increasing our interest expense and decreasing our business flexibility.
Financial Risks Our consolidated indebtedness has increased substantially as a result of the Atotech Acquisition in August 2022. This increased level of indebtedness could adversely affect us, including by increasing our interest expense and decreasing our business flexibility. Our consolidated indebtedness has increased substantially as a result of the Atotech Acquisition in August 2022.
The defense of any such claims, investigations or enforcement actions could cause the diversion of the Company’s attention and resources and could cause us to incur significant legal and other expenses even if the matters are resolved in our favor.
The defense of any such claims, investigations or enforcement actions could divert our attention and resources and could cause us to incur significant legal and other expenses even if the matters are resolved in our favor.
We have been named as a defendant in a lawsuit related to PFAS and we have received a request for information from, and responded to, a state agency.
We have been named as a defendant in lawsuits related to PFAS and we have received a request for information from, and responded to, a state agency.
Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. Our credit facilities restrict our ability to pay dividends on our capital stock under certain circumstances.
We may not pay dividends on our common stock. Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. Our credit facilities restrict our ability to pay dividends on our capital stock under certain circumstances.
Spectra-Physics, which we acquired as part of the Newport acquisition in April 2016 and which had been acquired by Newport in 2004, along with other entities with facilities located near the Mountain View, California facility, were identified as responsible parties with respect to this Superfund site, due to releases of hazardous substances during the 1960s, 1970s and 1980s.
Spectra-Physics, which we acquired as part of our acquisition of Newport Corporation (“Newport”) in April 2016 (the “Newport Acquisition”) and which had been acquired by Newport in 2004, along with other entities with facilities located near the Mountain View, California facility, were identified as responsible parties with respect to this Superfund site, due to releases of hazardous substances during the 1960s, 1970s and 1980s.
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.
However, while we benefited from the indemnification of 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 in the future. Our ultimate costs of remediation and other potential liabilities are difficult to predict.
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.
If we fail to remediate any future material weaknesses and maintain effective 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.
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.
Increased restrictions on China have led to and may continue to 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 that could have an adverse effect on our operations.
In addition, in 2023, China adopted export curbs on crucial raw materials, including gallium, germanium, and graphite, that may have both direct and indirect adverse impacts on our business and supply chain.
In addition, in 2023, China adopted export curbs on crucial raw materials, including gallium, germanium, and graphite, that had both direct and indirect adverse impacts on our business and supply chain.
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.
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, including as a result 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; • Difficulty obtaining raw materials concentrated in limited geographies at reasonable prices or at all due to trade restrictions for those materials; • 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.
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.
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 patents may not be sufficient in scope or strength to provide meaningful protection or a commercial advantage to us.
It is possible that additional trade restrictions will be imposed, and that existing tariffs will be increased on imports of our products or the components used in our products and/or that our business will be impacted by additional retaliatory tariffs or restrictions imposed and/or increased by China or other countries in response to existing or future tariffs.
It is possible that additional trade restrictions will be imposed, and that existing tariffs will be increased on imports of our products or the components used in our products and/or that our business will be impacted by additional retaliatory tariffs, policies that favor domestic industries, or restrictions imposed and/or increased by China or other countries in response to existing or future tariffs.
In addition, we have relocated certain segments of other functions to, or initiated certain segments 20 of other functions in, centralized locations, including relocating certain procurement activity to Mexico and Romania, relocating certain IT and research and development activity to India, relocating certain administrative finance, payroll, software and IT activity to Poland, and initiating engineering activity in India.
In addition, we have relocated certain segments of other functions to, or initiated certain segments of other 19 functions in, centralized locations, including relocating certain procurement activity to Mexico and Romania, relocating certain IT and research and development activity to India, relocating certain administrative finance, payroll, software and IT activity to Poland, and continuing certain engineering activity in India.
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 a result of our extensive 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; • 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; and • The escalation of trade tensions between China and other countries, including the United States, and the imposition of tariffs, sanctions and export controls by various government agencies, has impacted international trade.
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.
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 32%, 30% and 42% of our net revenues for 2024, 2023 and 2022, respectively.
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.
There is significant competition for personnel in the technology and sciences marketplace, particularly in certain geographies where we are located, including the Boston, Massachusetts area, Orange County and the San Francisco Bay area of California, Tokyo, Japan, and Singapore.
None of our significant customers has entered into an agreement with us requiring it to purchase any minimum quantity of our products. Attempts to lessen the adverse effect of any loss or reduction of net revenues through the rapid addition of new customers would be difficult because a relatively small number of companies dominate the semiconductor and electronics manufacturing industries.
None of our significant customers has entered into an agreement with us that requires it to purchase any minimum quantity of our products. Attempts to offset the effect of any loss or reduction of net revenues through the rapid addition of new customers would be difficult because a relatively small number of companies dominate the semiconductor and electronics manufacturing industries.
In addition to targeted comprehensive sanctions against specific firms, in recent years, “Entity List” designations and “military end-user” controls have been significantly modified, as were some rules relating to items produced outside the United States that incorporate more than de minimis levels of U.S. controlled content or derived from (i.e., the “direct product” of) U.S. origin technologies.
In addition to tariffs and targeted comprehensive sanctions against specific firms, in recent years, “Entity List” designations and “military end-user” controls have been significantly expanded, as have some rules relating to items produced outside the United States that incorporate more than de minimis levels of U.S. controlled content or that are derived from (i.e., the “direct product” of) U.S. origin technologies, equipment or software.
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.
As a manufacturer of 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.
Risks Related to Our Operations Supply chain disruptions and other manufacturing interruptions or delays have affected our ability to meet customer demand and have led to higher costs, while the failure to estimate customer demand accurately has resulted in excess or obsolete inventory, all of which has negatively impacted, and we expect will continue to impact, our business.
Risks Related to Our Operations Supply chain disruptions and other manufacturing interruptions or delays have affected our ability to meet customer demand and have led to higher costs, while the failure to estimate customer demand accurately has resulted in excess or obsolete inventory, all of which has negatively impacted, and could in the future negatively impact, our business.
Further, the manufacturing of these products often involves a highly complex and precise process and the utilization of specially qualified materials or components that conform to stringent specifications. Many of our products also require highly skilled labor.
Further, the manufacturing of these products often involves a highly complex and precise process, the utilization of specially qualified materials or components that conform to stringent specifications, and highly skilled labor.
For example, MSD uses certain raw materials derived from petrochemical based feedstocks, the prices of which have historically been subject to periods of rapid and significant upward and downward movement.
For example, we use certain raw materials derived from petrochemical based feedstocks, the prices of which have historically been subject to periods of rapid and significant upward and downward movement.
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.
Factors that could harm our competitive position include: 22 • 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 technical sophistication and complexity; • Inadequate manufacturing capabilities, customer service or support; • Semiconductor device manufacturers failing to direct semiconductor capital equipment manufacturers to use our products at their semiconductor fabrication facilities; • Global electronics OEMs failing to specify our products in their manufacturing processes for the rigid PCB manufacturers they use; • Customers failing 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; • Implementation by our customers of dual source strategies, after historically relying on sole or limited source suppliers; • Competitors that develop products that offer superior performance, technological features or value than our products; • 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; • Competitors that are able to adopt new technologies and technological advancements using AI and machine learning to pursue new products and approaches more quickly, successfully and effectively than us; • 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.

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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 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.
Biggest changeActivity Reportable Segment Owned/Leased China Guangzhou 704,000 Manufacturing, Warehouse, Sales, and Research and Development MSD Owned Shenzhen 253,000 Manufacturing and Service VSD Leased Tianjin 179,000 Manufacturing, Office, Warehouse, and Sales MSD Owned Yangzhou 156,000 Manufacturing, Warehouse, and Office MSD Owned Germany Berlin 200,000 Manufacturing, Office, and 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 Romania Bucharest 131,000 Manufacturing, Office, Research and Development, Service, and Warehouse PSD Leased South Korea Hwasung 100,000 Manufacturing, Sales, and Office MSD Owned Yongin-si 179,000 Research and Development, Office, Warehouse, Service, and Sales VSD Owned United States Andover, MA 76,000 Corporate Headquarters, Manufacturing, 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, 2023: 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, 2024: 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. 39 PART II
Biggest changeMine Saf ety Disclosures Not applicable. 37 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. 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.
Biggest changeThe stock price performance in the graph below is not necessarily indicative of future price performance. 38 Performance Graph 2019 2020 2021 2022 2023 2024 MKS Instruments, Inc. $ 100.00 $ 137.70 $ 160.22 $ 78.55 $ 96.28 $ 98.41 Nasdaq Market Index $ 100.00 $ 144.92 $ 177.06 $ 119.45 $ 172.77 $ 223.87 S&P 1500 Composite / Electronic Equipment, Instruments & Components Index $ 100.00 $ 123.86 $ 160.00 $ 125.15 $ 150.70 $ 175.92 Item 6.
The Board of Directors intends to declare and pay cash dividends on our common stock based on our financial conditions and results of operations of the Company, although it has no obligation to do so. Our credit facilities contain covenants that restrict our ability to grant cash dividends in certain circumstances.
The Board of Directors intends to declare and pay cash dividends on our common stock based on our financial conditions and results of operations, although it has no obligation to do so. Our credit facilities contain covenants that restrict our ability to grant cash dividends in certain circumstances.
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.
Comparative Stock Performance The following graph compares the cumulative total shareholder return (assuming reinvestment of dividends) from investing $100 on December 31, 2019, and plotted at the last trading day of each of the fiscal years ended December 31, 2020, 2021, 2022, 2023 and 2024 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.
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.
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 2024 and 2023, 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. 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.
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 2024, which totaled $59 million or $0.88 per share.
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.
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 18, 2025, we had 62 stockholders of record.
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.
During 2023, our Board of Directors declared a cash dividend of $0.22 per share during each quarter of the year, which totaled $59 million or $0.88 per share.
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.
On February 10, 2025, our Board of Directors declared a quarterly cash dividend of $0.22 per share to be paid on March 7, 2025 to shareholders of record as of February 24, 2025. 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.

Item 7. Management's Discussion & Analysis

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

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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.
Biggest changeWhile there can be no assurance, we do not anticipate any material non-performance by any of these counterparties. 46 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 (loss) data: Years Ended December 31, 2024 2023 Net revenues: Product 87.1 % 88.3 % Service 12.9 11.7 Total net revenues 100.0 100.0 Cost of revenues: Cost of product revenues 46.3 48.3 Cost of service revenues 6.0 6.4 Total cost of revenues (exclusive of amortization shown separately below) 52.4 54.7 Gross profit 47.6 45.3 Research and development 7.6 8.0 Selling, general and administrative 18.8 18.6 Acquisition and integration costs 0.3 0.4 Restructuring and other 0.2 0.6 Fees and expenses related to amendments to the Term Loan Facility 0.1 0.1 Amortization of intangible assets 6.8 8.1 Goodwill and intangible asset impairments — 52.5 Gain on sale of long-lived assets — (0.1 ) Income (loss) from operations 13.9 (42.9 ) Interest income (0.6 ) (0.5 ) Interest expense 7.9 9.8 Loss on extinguishment of debt 1.6 0.2 Other (income) expense, net (0.1 ) 0.7 Income (loss) before income taxes 5.0 (53.2 ) Provision (benefit) for income taxes (0.3 ) (2.4 ) Net income (loss) 5.3 % (50.8 )% Year Ended December 31, 2024 compared to 2023 The following table sets forth our net revenues for products and services: Net Revenues Years Ended December 31, (Dollars in millions) 2024 2023 Product $ 3,124 $ 3,200 Service 462 422 Total net revenues $ 3,586 $ 3,622 Net product revenues decreased $76 million in 2024, compared to 2023, primarily driven by a decrease of $63 million in net product revenues from our specialty industrial market mainly due to lower solar, general industrial, and material processing sales and a decrease of $12 million in net product revenues from our electronics and packaging market, primarily due to lower equipment revenues at MSD as customers postponed investment decisions and also as a result of lower palladium prices for chemistry products which lower prices are passed through to our customers in our electronics component business at MSD, partially offset by volume increases in chemistry materials.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes principal factors affecting the results of our operations, financial condition, cash flows and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements, and is intended to better allow investors to view the Company from management’s perspective.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes principal factors affecting the results of operations, financial condition, cash flows and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our consolidated financial statements, and is intended to better allow investors to view the Company from management’s perspective.
This quantitative assessment resulted in a non-cash goodwill impairment of $826 million for the EL reporting unit, $428 million for the GMF reporting unit and $372 million for the ESB reporting unit.
This quantitative assessment resulted in a non-cash goodwill impairment of $826 million for the EL reporting unit, $428 million for the GMF reporting unit and $372 million for the ESB reporting unit.
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.
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 income (loss), excluding non-cash charges and changes in operating assets and liabilities.
An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all period presented.
An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods or may apply the amendments retrospectively by providing the revised disclosures for all periods presented.
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.
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.
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.
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.
As a result of higher WACC mainly caused by overall higher market interest rates, we recorded additional non-cash goodwill impairment charges of 52 $48 million and $13 million at our EL and ESB reporting units, respectively. In addition, we recorded a $14 million impairment of IPR&D allocated to the EL reporting unit.
As a result of higher WACC mainly caused by overall higher market interest rates, we recorded additional non-cash goodwill impairment charges of $48 million and $13 million at our EL and ESB reporting units, respectively. In addition, we recorded a $14 million impairment of IPR&D allocated to the EL reporting unit.
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.
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 estimate the fair value of shares issued under our ESPP using the Black-Scholes pricing model, which incorporates a number of complex and subjective variables, including expected stock price volatility over the term of the awards, expected life, risk-free interest rate and expected dividends.
We estimate the fair value of shares issued under our ESPP using the Black-Scholes model, which incorporates a number of complex and subjective variables, including expected stock price volatility over the term of the awards, expected life, risk-free interest rate and expected dividends.
Similar to the semiconductor industry, the 43 PCB, package substrate and WLP industries demand smaller features, greater density, and better performance. In addition, the electronics and packaging market also includes sales of our vacuum and photonics solutions for display manufacturing applications.
Similar to the semiconductor industry, the PCB, package substrate and WLP industries demand smaller features, greater density, and better performance. In addition, the electronics and packaging market also includes sales of our vacuum and photonics solutions for display manufacturing applications.
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 Industrial 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.
In addition, we recorded a $49 million impairment of IPR&D allocated to the EL reporting unit and a $152 million impairment related to completed technology allocated to the ESB reporting unit. On October 31, 2023, we performed our annual goodwill and intangible asset impairment assessment.
In addition, we recorded a $49 million impairment 50 of IPR&D allocated to the EL reporting unit and a $152 million impairment related to completed technology allocated to the ESB reporting unit. On October 31, 2023, we performed our annual goodwill and intangible asset impairment assessment.
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.
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.
In cases, where cost-to-cost is not proportionate to our progress in satisfying the performance obligation because of uninstalled materials, we adjust the measure of progress and recognize revenue to the extent of cost incurred to satisfy the performance obligation under the contract.
In cases, where 42 cost-to-cost is not proportionate to our progress in satisfying the performance obligation because of uninstalled materials, we adjust the measure of progress and recognize revenue to the extent of cost incurred to satisfy the performance obligation under the contract.
Projects typically have a duration of 3 to 36 months but may be extended for development of new products. We continue to make product advancements to meet our customers' evolving needs.
Projects typically have a duration of 3 to 36 months but may be extended for development of new products. We continue to make product advancements designed to meet our customers’ evolving needs.
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.
Specialty Industrial Market MKS’ strategy in the specialty industrial market is to leverage our domain expertise and proprietary technologies across a broad array of applications in industrial, life and health sciences, and research and defense markets.
Goodwill and Intangible Asset Impairments Years Ended December 31, (Dollars in millions) 2023 2022 Goodwill and intangible asset impairments $ 1,902 $ — During the quarter ended June 30, 2023, as a result of softer industry demand, particularly in the personal computer and smartphone markets, we concluded there was a triggering event at our EL and GMF reporting units, which together constitute MSD, and the ESB reporting unit of PSD.
Goodwill and Intangible Asset Impairments Years Ended December 31, (Dollars in millions) 2024 2023 Goodwill and intangible asset impairments — $ 1,902 During the quarter ended June 30, 2023, as a result of softer industry demand, particularly in the personal computer and smartphone markets, we concluded there was a triggering event at our EL and GMF reporting units, which together constitute MSD, and the ESB reporting unit of PSD.
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.
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.
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.
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, 2024 compared to the year ended December 31, 2023.
We have elected to use the practical expedient related to disclosing remaining performance obligations as of December 31, 2023 and 2022, as the majority have a duration of less than one year.
We have elected to use the practical expedient related to disclosing remaining performance obligations as of December 31, 2024 and 2023, as the majority have a duration of less than one year.
We enter into derivative instruments with a diversified group of major investment grade financial institutions and no collateral is required. We have policies to monitor the credit risk of these counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
We enter into derivative instruments with major investment grade financial institutions and no collateral is required. We have policies to monitor the credit risk of these counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, warranty costs, pension plan valuations, stock-based compensation expense, intangible assets, goodwill and other long-lived assets and income taxes.
On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation, warranty costs, pension plan valuations, stock-based compensation expense, intangible assets, goodwill and long-lived assets, income taxes and derivatives.
Net cash used in investing activities was $84 million for 2023, consisting primarily of $87 million in capital expenditures, offset by $3 million in proceeds from the sale of long-lived assets.
Net cash used in investing activities was $117 million for 2024, consisting primarily of $118 million in capital expenditures. Net cash used in investing activities was $84 million for 2023, consisting primarily of $87 million in capital expenditures, offset by $3 million in proceeds from the sale of long-lived assets.
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.
Under the Amended Credit Agreement, we are required to prepay outstanding term loans, subject to certain exceptions, with portions of our annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrence or issuances of certain debt.
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.
The semiconductor market 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, especially in China.
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%.
As of December 31, 2024, borrowings under the Credit Facilities bore interest at a rate per annum equal to, at our option, any of the following, plus, in each case, an applicable margin: (a) with respect to the USD Tranche B and the Revolving Facility, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the prime rate quoted in The Wall Street Journal, or (3) a forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00%, and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50% and (II) with respect to the Revolving Facility, 0.0%; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0%.
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.
The lines of credit and financing facility provided for aggregate borrowings as of December 31, 2024 and December 31, 2023 of up to an equivalent of $19 million and $14 million, respectively. There were no borrowings outstanding under these arrangements at December 31, 2024 or December 31, 2023.
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.
We have used derivative instruments, such as foreign exchange forward contracts, options and net investment hedges, to manage certain foreign currency exposure, and interest rate swaps and interest rate caps to manage certain interest rate exposure.
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. Approximately 25% and 15% of our net revenues for 2023 and 2022, respectively, were from sales to customers in our electronic and packaging market.
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. Approximately 26% and 25% of our net revenues for 2024 and 2023, respectively, were from sales to customers in our electronics and packaging market.
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.
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 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.
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.
For the discussion and analysis covering the year ended December 31, 2023 compared to the year ended December 31, 2022, 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, 2023, as filed with the SEC on February 27, 2024.
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.
Gain on Sale of Long-Lived Assets Years Ended December 31, (Dollars in millions) 2024 2023 Gain on sale of long-lived assets — $ (2 ) In 2023, we recorded a gain as a result of receiving cash from the sale of a minority interest investment in a private company.
Excess and obsolete expense was $64 million, $21 million and $16 million for 2023, 2022 and 2021, respectively. The higher excess and obsolete charge in 2023 was partially the result of an inventory write-off related to the discontinuation of a product line and partially the result of reduced forecasted usage. Warranty Costs.
Excess and obsolete expense was $56 million, $64 million and $21 million for 2024, 2023 and 2022, respectively. The higher excess and obsolete charge in 2023 was partially the result of an inventory write-off related to the discontinuation of a product line in 2023 and partially the result of reduced forecasted usage.
We record compensation expense for all stock-based compensation awards to employees and directors based upon the estimated fair market value of the underlying instrument. Accordingly, stock-based compensation cost is measured at the grant date, based upon the fair value of the award. We typically issue restricted stock units (“RSUs”) as stock-based compensation.
We record compensation expense for all stock-based compensation awards to employees and directors based upon the estimated fair market value of the underlying instrument. Accordingly, stock-based compensation cost is measured at the grant date, based upon the fair value of the award.
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.
Adjustments for custom products were immaterial in each of the periods presented. 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.
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.
Foreign Exchange Forward Contracts We hedge a portion of our forecasted foreign currency denominated intercompany sales of inventory, over a maximum period of twenty-four months, using foreign exchange forward contracts accounted for as cash-flow hedges.
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 .
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 each period presented. Inventory Valuation .
As of December 31, 2023 and 2022, we accrued interest on unrecognized tax benefits of approximately $7 million and $6 million, respectively.
As of December 31, 2024 and 2023, we accrued interest on unrecognized tax benefits of approximately $8 million and $7 million, respectively.
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.
Accordingly, the number of performance shares earned will vary based on the level of achievement of financial performance objectives for the applicable period. 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.
Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the most significant judgments, assumptions and estimates we use in preparing our Consolidated Financial Statements: Revenue Recognition . We account for revenue using Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC Topic 606”).
We believe the following critical accounting policies affect the most significant judgments, assumptions and estimates we use in preparing our Consolidated Financial Statements: Revenue Recognition . We account for revenue using Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC Topic 606”).
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 and tablet market, the transition to 5G for both devices and infrastructure, the growth in units and via counts in the high-density interconnect PCB drilling market, and the industry transition to electric cars in the automotive market.
We have developed, and continue to develop, new products designed to address industry trends, such as the rising demand for more complex hardware architecture related to increasing investments in artificial intelligence, 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 and tablet market, the transition to 5G for both devices and infrastructure, the growth in units and via counts in the high density interconnect PCB drilling market, and the transition from internal combustion to electric vehicles.
This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. Derivatives.
We re-evaluate these uncertain tax positions on a quarterly basis based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. Derivatives.
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 vacuum technologies, including 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 fiber optic temperature and position sensing.
Interest Rate Swap and Interest Rate Cap Agreements We have various interest rate swap agreements that exchange a forward-looking term rate based on Term SOFR paid on the outstanding balance of our Term Loan Facility, to a fixed rate.
Interest Rate Swap and Interest Rate Cap Agreements We have various interest rate swap agreements maturing through January 31, 2029 that exchange a one-month forward-looking term rate based on Term SOFR paid on the outstanding balance of our USD Term Loan Facility, to a fixed rate.
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).
Under the Amended Credit Agreement, we have the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $1,011 million and (2) 75% of consolidated last twelve months earnings before interest, taxes, depreciation, and amortization, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt).
Intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment. If our expectations of future results and cash flows are significantly diminished, intangible assets, goodwill and other long-lived assets may be impaired and the resulting charge to operations may be material.
If our expectations of future results and cash flows are significantly diminished, intangible assets, goodwill and other long-lived assets may be impaired and the resulting charge to operations may be material.
Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by our management. There are inherent uncertainties and management judgment required in these determinations.
Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by our management.
Our total cash and cash equivalents at December 31, 2023 consisted of $319 million held in the United States and $556 million held by our foreign subsidiaries.
Our total cash and cash equivalents at December 31, 2024 consisted of $268 million held in the United States and $446 million held by our foreign subsidiaries.
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.
Any principal amount outstanding under the Revolving Facility is due and payable in full on the fifth anniversary of the Effective Date.
We make every effort to forecast these future cash flows as accurately as possible with the information available at the time the forecast is developed. 47 During the quarter ended June 30, 2023, as a result of softer industry demand, particularly in the personal computer and smartphone markets, we concluded there was a triggering event at our Electronics (“EL”) and general metal finishing (“GMF”) reporting units, which together constitute MSD, and our Equipment Solutions Business (“ESB”) reporting unit of PSD.
During the quarter ended June 30, 2023, as a result of softer industry demand, particularly in the personal computer and smartphone markets, we concluded there was a triggering event at our Electronics (“EL”) and general metal finishing (“GMF”) reporting units, which together constitute MSD, and our Equipment Solutions Business (“ESB”) reporting unit of PSD.
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.
We have used derivative instruments, such as foreign exchange forward contracts, options, and net investment hedges, to manage certain foreign currency exposure, and interest rate swaps and caps to manage certain interest rate exposure. We do not enter into derivative instruments for trading or speculative purposes. By nature, all financial instruments involve market and credit risks.
We enter into derivative instruments with a diversified group of major investment grade financial institutions, for which no collateral is required. We have policies to monitor the credit risk of these counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties.
We enter into derivative instruments with a diversified group of major investment grade financial institutions, for which no collateral is required. We have policies to monitor the credit risk of these counterparties.
We regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less than cost, based primarily on our estimated forecast of product demand. Once our inventory value is written-down and a new cost basis has been established, the inventory value is not increased due to demand increases.
We regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less 43 than cost, based primarily on our estimated forecast of product demand.
The net increase was primarily attributable to the addition of unrecognized U.S. federal tax credits. 53 We accrue interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense.
The net increase was primarily due to the addition of income tax reserves related to intercompany transactions. We accrue interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense.
Long-lived assets include property, plant and equipment, net, right-of-use assets, and certain other assets. 44 Critical Accounting Policies and Estimates MD&A discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Critical Accounting Policies and Estimates MD&A discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
The following table sets forth gross profit as a percentage of net revenues by reportable segment: Gross Profit Excluding Amortization Years Ended December 31, % Points (As a percentage of net revenues) 2023 2022 Change Vacuum Solutions Division 41.3 % 43.5 % (2.2 )% Photonics Solutions Division 43.7 46.9 (3.2 ) Materials Solutions Division 51.4 37.1 14.3 Total gross profit percentage 45.3 % 43.6 % 1.7 % 50 Gross profit as a percentage of net revenues for VSD decreased in 2023, primarily due to lower revenue volumes and unfavorable overhead absorption as a result of softening demand in our semiconductor market, and higher excess and obsolete inventory charges, partially offset by lower material costs.
The following table sets forth gross profit as a percentage of net revenues by reportable segment: Gross Profit Excluding Amortization Years Ended December 31, % Points (As a percentage of net revenues) 2024 2023 Change Vacuum Solutions Division 42.9 % 42.6 % 0.3 % Photonics Solutions Division 44.9 % 43.4 % 1.5 % Materials Solutions Division 56.1 % 51.4 % 4.7 % Total gross profit percentage 47.6 % 45.3 % 2.3 % Gross profit as a percentage of net revenues for VSD increased in 2024, compared to 2023, primarily due to higher factory utilization and lower material costs, partially offset by unfavorable product mix, higher excess and obsolete inventory charges and higher warranty costs.
Credit Facilities In connection with the completion of the Atotech Acquisition, we entered into the Credit Agreement, dated as of August 17, 2022, by and among us, the lenders and letter of credit issuers party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (as amended from time to time, the “Credit Agreement”).
Credit Facilities In connection with the completion of the Atotech Acquisition, on August 17, 2022 (the “Effective Date”) we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto, which we have amended several times since (as amended, the “Amended Credit Agreement”).
We acquired USD London Interbank Offered Rate (“USD LIBOR”) based interest rate cap agreements as a result of the Atotech Acquisition and had utilized these agreements to offset Term SOFR on our Term Loan Facility. Effective June 30, 2023, our USD LIBOR based interest rate caps were converted to Term SOFR.
The notional value of the agreements was $2,600 million and $2,300 million as of December 31, 2024 and December 31, 2023, respectively. We acquired USD London Interbank Offered Rate (“USD LIBOR”) based interest rate cap agreements as a result of the Atotech Acquisition and had utilized these agreements to offset Term SOFR on our Term Loan Facility.
Years Ended December 31, (dollars in millions) 2023 % Total 2022 % Total Semiconductor $ 1,479 41 % $ 2,041 58 % Electronics and Packaging 916 25 % 541 15 % Specialty Industrial 1,227 34 % 964 27 % Total net revenues $ 3,622 100 % $ 3,547 100 % Semiconductor Market MKS is a critical solutions provider for semiconductor manufacturing.
Markets Net Revenues by End Market Years Ended December 31, (dollars in millions) 2024 % Total 2023 % Total Semiconductor $ 1,498 42 % $ 1,479 41 % Electronics and Packaging 922 26 % 916 25 % Specialty Industrial 1,166 32 % 1,227 34 % Total net revenues $ 3,586 100 % $ 3,622 100 % 40 Semiconductor Market MKS is a critical solutions provider for semiconductor manufacturing.
Restructuring Years Ended December 31, (Dollars in millions) 2023 2022 Restructuring $ 20 $ 10 Restructuring charges incurred in 2023 were related to severance costs as a result of various global cost savings initiatives implemented during the year.
Restructuring and other Years Ended December 31, (Dollars in millions) 2024 2023 Restructuring and other $ 6 $ 20 Restructuring and other charges incurred in 2024 and 2023 were primarily related to severance costs as a result of global cost-saving initiatives.
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.
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. 41 Research and Defense Our products for research and defense are sold to government, university and industrial laboratories for applications involving research and development in materials science, physical chemistry, photonics, optics and electronics materials.
The cash flows resulting from foreign exchange forward contracts are classified in our consolidated statements of cash flows as part of cash flows from operating activities. We do not hold or issue derivative financial instruments for trading purposes.
The cash flows resulting from foreign exchange forward contracts are classified in our consolidated statements of cash flows as part of cash flows from operating activities.
We are currently evaluating the impact of this ASU on our disclosures within the consolidated financial statements. Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid.
Recent Accounting Pronouncements Income Taxes (Topic 740): Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid.
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 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.
The following table sets forth gross profit as a percentage of net revenues by product and service: Gross Profit Excluding Amortization Years Ended December 31, % Points (As a percentage of net revenues) 2023 2022 Change Product 45.4 % 43.1 % 2.3 % Service 45.0 47.4 (2.4 ) Total gross profit percentage 45.3 % 43.6 % 1.7 % Gross profit as a percentage of net product revenues increased by 2.3 percentage points in 2023, compared to 2022, primarily due to the full-year impact of the Atotech Acquisition, as MSD had higher gross margins than VSD and PSD, as well as favorable product mix, including contributions from MSD and lower warranty costs.
The following table sets forth gross profit as a percentage of net revenues by product and service: Gross Profit Excluding Amortization Years Ended December 31, % Points (As a percentage of net revenues) 2024 2023 Change Product 46.8 % 45.4 % 1.4 % Service 53.3 % 45.0 % 8.3 % Total gross profit percentage 47.6 % 45.3 % 2.3 % Gross profit as a percentage of net product revenues increased by 1.4 percentage points in 2024, compared to 2023, primarily due to favorable product mix, higher factory utilization and lower excess and obsolete inventory charges, partially offset by higher warranty costs.
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.
As of December 31, 2024, the Amended Credit Agreement provided for (i) a senior secured term loan facility comprised of two tranches: a $2.6 billion loan (the “USD Tranche B”) and a €596 million loan (the “Euro Tranche B” and together with the USD Tranche B, the “Term Loan Facility”) and (ii) a senior secured revolving credit facility of $675 million (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions.
The USD Tranche A was repaid in January 2024, as described below. The Revolving Facility has a maturity date in August 2027 while the USD Tranche B and Euro Tranche B have a maturity date in August 2029.
The Revolving Facility has a maturity date in August 2027 while the USD Tranche B and Euro Tranche B have a maturity date in August 2029. As of December 31, 2024, there were no borrowings under the Revolving Facility.
Segments and Markets We have three divisions, which are our reportable segments, known as VSD, PSD and MSD. 42 VSD delivers foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging and specialty industrial applications.
Segments We have three divisions, which are our reportable segments: Vacuum Solutions Division (“VSD”), Photonics Solutions Division (“PSD”) and Materials Solutions Division (“MSD”). VSD delivers foundational technology solutions to semiconductor manufacturing, electronics and packaging and specialty industrial applications.
There were no impairments at any of our other reporting units. We will continue to monitor and evaluate the carrying value of goodwill and intangible assets. If market and economic conditions or business performance deteriorate, the likelihood that we would record an impairment charge would increase, which could materially and adversely affect our financial condition and operating results. .
If market and economic conditions or business performance deteriorate, the likelihood that we would record an impairment charge would increase, which could materially and adversely affect our financial condition and operating results.
In addition, we recorded a $49 million impairment of in-process research and development (“IPR&D”) allocated to the EL reporting unit and a $152 million impairment related to completed technology allocated to the ESB reporting unit.
In addition, we recorded a $49 million impairment of in-process research and development (“IPR&D”) allocated to the EL reporting unit and a $152 million impairment related to completed technology allocated to the ESB reporting unit. 45 As of October 31, 2023, we performed our annual impairment assessment of goodwill by bypassing the qualitative assessment and using a quantitative assessment for all of our reporting units.
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.
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 2019 through the present.
Future payments related to operating and finance leases are as follows: (Dollars in millions) Operating Finance Year Ending December 31, Leases Leases 2024 $ 32 $ 6 2025 25 6 2026 21 6 2027 18 3 2028 14 3 Thereafter 135 21 Total lease payments 245 45 Less: imputed interest 44 11 Total lease liabilities $ 201 $ 34 Contractual maturities of our debt obligations as of December 31, 2023 are as follows: (Dollars in millions) Year Amount 2024 $ 93 2025 110 2026 116 2027 586 2028 43 Thereafter 4,005 We have a number of defined benefit pension plans, which cover some of our employees outside the United States.
Future payments related to operating and finance leases are as follows: (Dollars in millions) Operating Finance Year Ending December 31, Leases Leases 2025 33 7 2026 30 5 2027 26 3 2028 19 2 2029 18 2 Thereafter 133 19 Total lease payments 259 38 Less: imputed interest 46 9 Total lease liabilities $ 213 $ 29 Contractual maturities of our debt obligations as of December 31, 2024 are as follows: (Dollars in millions) Year Amount 2025 $ 50 2026 50 2027 50 2028 50 2029 3,049 Thereafter 1,400 We have a number of defined benefit pension plans, which cover some of our employees outside the United States.
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.
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.
Our effective tax rate for 2023 was lower than the U.S. statutory tax rate, mainly due to the impairment of goodwill and intangible assets.
Our effective tax rate for 2023 was lower than the U.S. statutory tax rate, mainly due to the impairment of goodwill and intangible assets. As of December 31, 2024 and 2023, total gross unrecognized tax benefits, which excludes interest and penalties, was $94 million and $86 million, respectively.
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.
Net Investment Hedge We have 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. As of December 31, 2024, we designated as a net investment hedge €596 million in aggregate principal amount of our Euro Tranche B loan.
We have characterized our broad and unique offering as Surround the Wafer to reflect the technology enablement we provide across almost every major process in semiconductor manufacturing today. Approximately 41% and 58% of our net revenues for 2023 and 2022, respectively, were from sales to customers in the semiconductor market.
We characterize our broad and unique offering as Surround the Wafer® to reflect the technology enablement we provide across almost every major process in semiconductor manufacturing today.
Net revenues from customers in our semiconductor market decreased by $562 million, or 28%, in 2023, compared to 2022, due primarily to a decrease of $541 million in VSD given decreased industry spending on deposition and etch equipment for memory applications, particularly NAND, where MKS is a critical solutions provider.
Net revenues from customers in our semiconductor market increased by $19 million, or 1%, in 2024, compared to 2023, due primarily to an increase in sales of our lithography, metrology and inspection products, which we refer to as our World Class Optics portfolio, partially offset by decreased industry spending on deposition and etch equipment for memory applications, particularly NAND, where MKS is a critical solutions provider.
Gross profit as a percentage of net revenues for PSD decreased in 2023, primarily due to higher excess and obsolete inventory charges, mainly related to the discontinuation of a product line, lower revenue volumes and unfavorable product mix.
Gross profit as a percentage of net revenues for PSD increased in 2024, compared to 2023, primarily due to higher revenue volumes, lower excess and obsolete inventory charges and lower freight and duty costs, partially offset by unfavorable product mix. 48 Gross profit as a percentage of net revenues for MSD increased in 2024, compared to 2023, primarily due to lower palladium prices and favorable product mix, partially offset by higher warranty costs.
The assumptions used in calculating the fair value of share-based compensation awards represents management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. Intangible Assets, Goodwill and Other Long-Lived Assets .
As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. Intangible Assets, Goodwill and Long-Lived Assets . As a result of our acquisitions, we have identified intangible assets and generated significant goodwill.

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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 changeWe 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.
Biggest changeWe had foreign exchange forward contracts not designated as hedging instruments with notional amounts totaling $154 million and $155 million outstanding at December 31, 2024 and December 31, 2023, respectively.
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.
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, as well as fluctuations in foreign currency exchange rates.
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.
We have various interest rate swap 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 one-month 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.
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.
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, 2024 and 2023 would be immaterial.
Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income.
Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our cash equivalents as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income.
This means that a change in prevailing interest rates may cause the principal amount of such investments to fluctuate. To minimize this risk, we maintain our portfolio of cash, cash equivalents and short-term investments in a variety of securities, including money market funds and government debt securities.
This means that a change in prevailing interest rates may cause the principal amount of such cash equivalents to fluctuate. To minimize this risk, we maintain a portion of our portfolio of cash and cash equivalents in money market funds.
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
Because the notional amount of our interest rate hedges as of December 31, 2024 equaled approximately 91% of the principal outstanding on our Term Loan Facility, the resulting net impact to interest expense would be approximately $4 million. 60
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.
A 10% increase or decrease in the weighted average interest rate as of December 31, 2024 would increase or decrease annual interest expense by approximately $13 million, excluding the effect of our interest rate hedges.
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.
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. As of December 31, 2024, we designated as a net investment hedge €596 million in aggregate principal amount of our Euro Tranche B loan.
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.
For these nonderivative instruments, we defer recognition of the foreign currency remeasurement gains and losses within the foreign currency translation adjustment component of OCI. Interest Rate Risk We hold our cash and cash equivalents for working capital purposes. Some of the cash equivalents are subject to market risk.
Removed
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
We had foreign exchange forward contracts designated as cash flow hedges with notional amounts totaling $74 million and $178 million outstanding at December 31, 2024 and December 31, 2023, respectively, with the Japanese yen and the South Korean won being the largest notional contracts in both periods.
Removed
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.
Added
For 2024, the British pound and Chinese yuan were the largest notional contracts and for 2023 the Euro and British pound were the largest notional contracts for balance sheet hedges not designated as a hedging instrument.
Removed
We 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.
Added
We are exposed to market risks related to fluctuations in interest rates related to our Term Loan Facility. As of December 31, 2024, the principal outstanding on our Term Loan Facility was $3.2 billion, at a weighted average interest rate of 6.4%.

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