MKS INC 10-K

Item 8. Financial Statements and Suppl ementary Data Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of MKS Instruments, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of MKS Instruments, Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2024 appearing after Item 16 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 61 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Certain Product Revenue As described in Note 3 to the consolidated financial statements, revenue is recognized when or as obligations under the terms of a contract with a customer have been satisfied by the Company and control has transferred to the customer. The majority of the Company’s performance obligations, and associated revenue, are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company’s total net product revenue was $3.1 billion for the year ended December 31, 2024, of which a majority relates to certain product revenue. The principal consideration for our determination that performing procedures relating to revenue recognition for certain product revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition for certain product revenue. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the recording of revenue for certain product revenue at the consideration once control passes to the customer. These procedures also included, among others (i) testing revenue recognized for a sample of certain product revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, and proof of shipment or delivery; (ii) testing revenue recognized for a sample of certain product revenue transactions before and after period end by obtaining and inspecting source documents, such as purchase orders, invoices and proof of shipment or delivery; and (iii) confirming a sample of outstanding customer invoice balances as of December 31, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such as purchase orders, invoices, proof of shipment or delivery, and subsequent cash receipts /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 25, 2025 We have served as the Company’s auditor since 1981. 62 MKS Instruments, Inc. Consolidated B alance Sheets (in millions, except per share data) December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 714 $ 875 Trade accounts receivable, net of allowance for doubtful accounts of $ 5 and $ 6 at December 31, 2024 and 2023, respectively 615 603 Inventories 893 991 Other current assets 252 227 Total current assets 2,474 2,696 Property, plant and equipment, net 771 784 Right-of-use assets 238 225 Goodwill 2,479 2,554 Intangible assets, net 2,272 2,619 Other assets 356 240 Total assets $ 8,590 $ 9,118 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Short-term debt $ 50 $ 93 Accounts payable 341 327 Other current liabilities 384 428 Total current liabilities 775 848 Long-term debt, net 4,488 4,696 Non-current deferred taxes 504 640 Non-current accrued compensation 141 151 Non-current lease liabilities 211 205 Other non-current liabilities 149 106 Total liabilities 6,268 6,646 Commitments and contingencies (Note 23) Stockholders’ equity: Preferred stock, $ 0.01 par value, 2 shares authorized; no shares issued and outstanding — — Common stock, no par value, 200 shares authorized; 67.4 and 66.9 shares issued and outstanding at December 31, 2024 and 2023, respectively — — Additional paid-in capital 2,067 2,195 Retained earnings 503 373 Accumulated other comprehensive loss ( 248 ) ( 96 ) Total stockholders’ equity 2,322 2,472 Total liabilities and stockholders' equity $ 8,590 $ 9,118 The accompanying notes are an integral part of the Consolidated Financial Statements. 63 MKS Instruments, Inc. Consolidated Statements of Opera tions and Comprehensive Income (Loss) (in millions, except per share data) Years Ended December 31, 2024 2023 2022 Net revenues: Products $ 3,124 $ 3,200 $ 3,119 Services 462 422 428 Total net revenues 3,586 3,622 3,547 Cost of revenues: Products 1,662 1,748 1,774 Services 216 232 226 Total cost of revenues (exclusive of amortization shown separately below) 1,878 1,980 2,000 Gross profit 1,708 1,642 1,547 Research and development 271 288 241 Selling, general and administrative 674 675 488 Acquisition and integration costs 9 16 52 Restructuring and other 6 20 10 Fees and expenses related to repricing of Term Loan Facility 5 2 — Amortization of intangible assets 245 295 146 Goodwill and intangible asset impairments — 1,902 — Gain on sale of long-lived assets — ( 2 ) ( 7 ) Income (loss) from operations 498 ( 1,554 ) 617 Interest income ( 21 ) ( 17 ) ( 4 ) Interest expense 284 356 177 Loss on extinguishment of debt 57 8 — Other (income) expense, net ( 2 ) 27 11 Income (loss) before income taxes 180 ( 1,928 ) 433 (Benefit) provision for income taxes ( 10 ) ( 87 ) 100 Net income (loss) $ 190 $ ( 1,841 ) $ 333 Other comprehensive income (loss), net of tax: Changes in value of financial instruments designated as cash flow hedges $ ( 1 ) $ ( 24 ) $ 50 Foreign currency translation adjustments ( 213 ) ( 83 ) 18 Change in net investment hedge 36 ( 25 ) — Unrecognized pension gain (loss) 3 ( 9 ) 12 Unrealized loss on investments 23 ( 23 ) — Total comprehensive income (loss) $ 38 $ ( 2,005 ) $ 413 Net income (loss) per share: Basic $ 2.82 $ ( 27.54 ) $ 5.57 Diluted $ 2.81 $ ( 27.54 ) $ 5.56 Weighted average common shares outstanding: Basic 67.3 66.8 59.7 Diluted 67.6 66.8 59.9 The accompanying notes are an integral part of the Consolidated Financial Statements. 64 MKS Instruments, Inc. Consolidated Statements of Stockholders’ Equity (in millions, except per share data) Accumulated Additional Other Total Common Stock Paid-In Retained Comprehensive Stockholders' Shares Amount Capital Earnings (Loss) Income Equity Balance at December 31, 2021 55.5 $ 0.1 $ 907 $ 1,991 $ ( 11 ) $ 2,887 Net issuance under stock-based plans 0.4 5 5 Shares issued for Atotech Acquisition 10.7 1,186 1,186 Stock-based compensation 45 45 Cash dividend ($ 0.88 per common share) ( 52 ) ( 52 ) Comprehensive income (net of tax): — Net income 333 333 Other comprehensive income 80 80 Balance at December 31, 2022 66.6 0.1 2,142 2,272 69 4,483 Net issuance under stock-based plans 0.3 ( 1 ) ( 1 ) Stock-based compensation 54 54 Cash dividend ($ 0.88 per common share) ( 59 ) ( 59 ) Comprehensive loss (net of tax): — Net loss ( 1,841 ) ( 1,841 ) Other comprehensive loss ( 164 ) ( 164 ) Balance at December 31, 2023 66.9 0.1 2,195 373 ( 96 ) 2,472 Net issuance under stock-based plans 0.5 ( 9 ) ( 9 ) Stock-based compensation 48 48 Purchase of capped calls related to Convertible Notes ( 167 ) ( 167 ) Cash dividend ($ 0.88 per common share) ( 59 ) ( 59 ) Comprehensive income (loss) (net of tax): — Net income 190 190 Other comprehensive loss ( 152 ) ( 152 ) Balance at December 31, 2024 67.4 $ 0.1 $ 2,067 $ 503 $ ( 248 ) $ 2,322 The accompanying notes are an integral part of the Consolidated Financial Statements. 65 MKS Instruments, Inc. Consolidated Statem ents of Cash Flows (in millions) Years Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income (loss) $ 190 $ ( 1,841 ) $ 333 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 348 397 216 Amortization of inventory step-up to fair value — — 52 Goodwill and intangible asset impairments — 1,902 — Unrealized loss (gain) on foreign currency and derivative instruments 13 32 13 Amortization of debt issuance costs and original issue discount 30 33 56 Loss on extinguishment of debt 57 8 — Gain on sale of long-lived assets — ( 2 ) ( 7 ) Stock-based compensation 48 54 45 Provision for excess and obsolete inventory 56 64 21 Deferred income taxes ( 226 ) ( 234 ) ( 46 ) Other 8 5 3 Changes in operating assets and liabilities, net of acquired assets and liabilities: Trade accounts receivable ( 36 ) 114 ( 4 ) Inventories 20 ( 76 ) ( 236 ) Other current and non-current assets 25 50 28 Accounts payable 21 ( 99 ) 61 Current and non-current accrued compensation ( 32 ) ( 5 ) ( 31 ) Income taxes payable 49 ( 64 ) 19 Other current and non-current liabilities ( 43 ) ( 19 ) 6 Net cash provided by operating activities 528 319 529 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired — — ( 4,473 ) Purchases of investments — — ( 1 ) Maturities of investments — — 77 Proceeds from sale of long-lived assets 1 3 9 Purchases of property, plant and equipment ( 118 ) ( 87 ) ( 164 ) Net cash used in investing activities ( 117 ) ( 84 ) ( 4,552 ) Cash flows from financing activities: Proceeds from borrowing 2,161 216 5,237 Payments of borrowings ( 2,427 ) ( 403 ) ( 962 ) Purchase of capped calls related to Convertible Notes ( 167 ) — — Payments of deferred financing fees ( 33 ) ( 9 ) ( 249 ) Dividend payments ( 59 ) ( 59 ) ( 52 ) Net payments related to employee stock awards ( 9 ) ( 1 ) ( 1 ) Other financing activities ( 15 ) ( 3 ) ( 2 ) Net cash (used in) provided by financing activities ( 549 ) ( 259 ) 3,971 Effect of exchange rate changes on cash and cash equivalents ( 23 ) ( 10 ) ( 5 ) Decrease in cash and cash equivalents ( 161 ) ( 34 ) ( 57 ) Cash and cash equivalents at beginning of period 875 909 966 Cash and cash equivalents at end of period $ 714 $ 875 $ 909 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 268 $ 305 $ 110 Income taxes $ 145 $ 180 $ 133 The accompanying notes are an integral part of the Consolidated Financial Statements. 66 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) (1) B usiness Description MKS Instruments, Inc. (“MKS” or the “Company”) was founded in 1961 and enables technologies that transform the world. The Company delivers foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications. The Company applies its broad science and engineering capabilities to create instruments, subsystems, systems, process control solutions and specialty chemicals technology that improve process performance, optimize productivity and enable unique innovations for many of the world’s leading technology and industrial companies. The Company’s solutions are critical to addressing the challenges of miniaturization and complexity in advanced device manufacturing by enabling increased power, speed, feature enhancement and optimized connectivity. These solutions are also critical to addressing ever-increasing performance requirements across a wide array of specialty industrial applications. (2) Basis of Presentation The terms “MKS” and the “Company” refer to MKS Instruments, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current period presentation. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventory valuation, warranty costs, pension plan valuations, stock-based compensation expense, intangible assets, goodwill, long-lived assets, income taxes and derivatives. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As a result of rounding, there may be immaterial differences in amounts presented and certain calculations may not sum to the total number expressed in each category or tie to a corresponding schedule. The Company has three reportable segments: the Vacuum Solutions Division (“VSD”), the Photonics Solutions Division (“PSD”) and the Materials Solutions Division (“MSD”) as described in Note 21. During the quarter ended March 31, 2024, the Company moved its Optical Sensing Products (“OSP”) product line from the PSD segment to the VSD segment. The purpose of this realignment was to group the OSP products with related semiconductor products within the VSD segment. Prior periods have been recast to reflect this change. (3) Summary of Significant Accounting Policies Revenue from Contracts with Customers The Company accounts for revenue using Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC Topic 606”). The Company applies ASC Topic 606 using the following steps: • Identify the contract with a customer • Identify the performance obligations in the contract • Determine the transaction price • Allocate the transaction price to performance obligations in the contract • Recognize revenue when or as the Company satisfies a performance obligation Revenue is recognized when or as obligations under the terms of a contract with a customer have been satisfied and control has transferred to the customer. The majority of the Company’s performance obligations, and associated revenue, 67 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments. The Company recognizes revenue over time for contracts relating to the manufacturing, modifications and retrofits of its plating equipment, as the equipment is built to customer specification, and the Company has an enforceable right to payment for the performance completed to date. For these sales, the Company uses the cost-to-cost input method to measure progress. In cases, where cost-to-cost is not proportionate to its progress in satisfying the performance obligation because of uninstalled materials, the Company adjusts the measure of progress and recognizes revenue to the extent of cost incurred to satisfy the performance obligation under the contract. Revenue from customized products with no alternative future use to the Company, and that have an enforceable right to payment for performance completed to date, is also recorded over time. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time as the work is performed or service is delivered. Adjustments for custom products were not material for 2024, 2023 or 2022. Installation services, other than those related to the Company’s 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. Extended warranty, service contracts, and repair services, which are transferred to the customer over time, are recorded as revenue as the services are performed. For repair services, the Company makes an accrual at each quarter end based upon historical repair times within its product groups to record revenue based upon the estimated number of days completed to date, which is consistent with ratable recognition. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product or service is separately identifiable from other promises in the contract. Sales tax, value add tax, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company’s normal payment terms are generally 30 to 60 days but vary by the type and location of its customers and the products or services offered. The time between invoicing and when payment is due is not significant . For certain products and services and customer types, the Company requires payment before the products are delivered to, or the services are performed for, the customer. None of the Company’s contracts in each of the periods presented contained a significant financing component. Contracts with Multiple Performance Obligations The Company periodically enters into contracts with its customers in which a customer may purchase a combination of goods and or services, such as products with installation services or extended warranties. These contracts include multiple deliverables that the Company evaluates to determine if the deliverables are separate performance obligations. Once the Company determines the performance obligations, the Company then determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the method the Company expects to better predict the amount of consideration to which it will be entitled. There are no constraints on the variable consideration recorded. The Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price charged separately to customers or using an expected cost-plus-margin method. The corresponding revenues are recognized when or as the related performance obligations are satisfied, which are noted above. The impact of variable consideration was immaterial in each of the periods presented. The Company’s standard assurance warranty period is normally 12 to 24 months. The Company sells separately priced service contracts and extended warranty contracts related to certain of its products, in particular related to its plating and laser-based products. The separately priced contracts generally range from 12 to 60 months. The Company normally receives payment at the inception of the contract and recognizes revenue over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract. The Company has elected to use the practical expedient related to disclosing the remaining performance obligations as of December 31, 2024 and 2023 , as the majority have a duration of less than one year . 68 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Costs to Obtain and Fulfill a Contract The Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administration expenses. The Company has elected to recognize the costs for freight and shipping when control over products has transferred to the customer as an expense in cost of sales. Accounts Receivable Allowances Accounts receivable allowances include sales returns and bad debt allowances. The Company monitors and tracks the amount of product returns and reduces revenue at the time of shipment for the estimated amount of such future returns, based on historical experience. The Company makes estimates evaluating its allowance for doubtful accounts. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience, current economic conditions and any specific customer collection issues that it has identified. Research and Development Research and development costs are expensed as incurred and consist mainly of compensation-related expenses and project materials. The Company’s research and development efforts include numerous projects, which generally have a duration of 3 to 36 months. Acquired in-process research and development (“IPR&D”) expenses, if acquired in a business combination, are capitalized at fair value as an intangible asset until the related project is completed and are then amortized over the estimated useful life of the product. The Company monitors projects and, if they are abandoned, writes them off. Advertising Costs Advertising costs are expensed as incurred and were immaterial in 2024, 2023 and 2022. Leases The Company accounts for leases under ASC Topic 842, “Leases” (“ASC Topic 842”). Under ASC Topic 842, a contract is or contains a lease when the Company has the right to control the use of the identified asset. The Company determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use. The Company determines if the lease is an operating or finance lease at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The Company measures the lease liability as the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. The Company is typically unable to determine the implicit interest rate, so it uses an incremental borrowing rate based on the lease term and economic environment at commencement date. The right-of-use (“ROU”) asset is initially measured as the amount of the lease liability, adjusted for any initial lease costs, prepaid lease payments and reduced by any lease incentives. The Company’s contracts often include non-lease components such as common area maintenance. MKS has elected the practical expedient to account for the lease and non-lease components as a single lease component. For leases with a term of one year or less the Company has elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statements of operations and comprehensive income (loss) on a straight-line basis over the lease term. The Company includes lease costs within cost of revenues and operating expenses. Stock-Based Compensation The accounting for share-based compensation expense requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors based on estimated fair values. Stock-based 69 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) awards include (i) time-based restricted stock units (“RSUs”), (ii) performance-based RSUs based on the achievement of adjusted EBITDA targets (the “Adjusted EBITDA RSUs”), (iii) performance-based RSUs based on the Company’s total shareholder return relative to a group of peers over a three-year performance period (the “rTSR RSUs”) and (iv) employee stock purchase plan rights. For RSUs, the fair value is measured on the date of grant and expensed normally over a three-year period. The Company does not include a forfeiture rate in the fair value measurement at the date of grant. The Company determines the fair value of time-based RSUs based on the closing market price of the Company’s common stock on the date of the award. The Company determines the original fair value of Adjusted EBITDA RSUs based upon the closing market price of the Company’s stock on the date of the award and adjusts the fair value quarterly during the first year based upon actual and forecasted results against Adjusted EBITDA targets. The Company estimates the fair value of rTSR RSUs using the Monte Carlo simulation model, which requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock. Such values are recognized as expense on a straight-line basis for time-based awards and rTSR RSUs and using the accelerated graded vesting method for Adjusted EBITDA RSUs, all over the requisite service periods. The Company also provides certain employees with the opportunity to purchase shares through its 2014 Employee Stock Purchase Plan (“2014 ESPP”). The Company estimates the fair value of employee stock purchase plan rights 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. Management determined that blended volatility, a combination of historical and implied volatility, is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future. Accumulated Other Comprehensive Income (Loss) For foreign subsidiaries where the functional currency is the local currency, assets and liabilities are translated into U.S. dollars at the current exchange rate on the consolidated balance sheets date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are recorded to Other Comprehensive Income (Loss) (“OCI”). There were translation adjustment losses included in accumulated OCI, net of taxes, of $ 292 and $ 79 , as of December 31, 2024 and 2023, respectively. Unrealized gains and losses on securities classified as available-for-sale and unrecognized pension gains and losses are included in accumulated OCI in consolidated stockholders’ equity. For derivative instruments designated as cash-flow hedges and interest rate swap hedges, the effective portion of the derivative’s gain (loss) is initially reported as a component of OCI and is subsequently recognized in earnings, upon reclassification from accumulated OCI. There were derivative gains included in accumulated OCI, net of taxes, of $ 30 and $ 31 , as of December 31, 2024 and 2023, respectively. The related tax effects of these OCI items are recorded in income tax expense within the statement of income, upon reclassification from accumulated OCI. Net Income (Loss) Per Share Basic net income (loss) per share is based on the weighted average number of common shares outstanding and diluted net income (loss) per share is based on the weighted average number of common shares outstanding and all potential dilutive common equivalent shares outstanding. The dilutive effect of equity awards is determined under the treasury stock method using the average market price for the period. Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive. In periods in which a net loss is recognized, common equivalent shares are not included as they are antidilutive. Cash and Cash Equivalents and Investments All highly liquid investments with a maturity date of three months or less at the date of purchase are considered to be cash equivalents. The appropriate classification of investments in securities is determined at the time of purchase. Debt securities that the Company does not have the intent and ability to hold to maturity are classified as “available-for-sale” and are carried at fair value. 70 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The Company classifies investments with maturity dates greater than twelve months in short-term investments rather than long-term investments. This method classifies these securities as current based on the nature of the securities and the availability for use in current operations. The Company believes this method is preferable because it is more reflective of the Company’s assessment of its overall liquidity position. The Company reviews its investment portfolio on a quarterly basis to identify and evaluate individual investments that have indications of possible impairment. The factors considered in determining whether a loss is other-than-temporary include: the length of time and extent to which fair market value has been below the cost basis, the financial condition and near-term prospects of the issuer, credit quality, and the Company’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Concentrations of Credit Risk The Company’s significant concentrations of credit risk consist principally of cash and cash equivalents, foreign exchange forward contracts, interest rate swaps and trade accounts receivable. The Company maintains cash and cash equivalents with financial institutions, including some banks with which it has borrowings. The Company enters into foreign exchange forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. The Company’s largest customers are primarily concentrated in the semiconductor industry, and a limited number of these customers account for a significant portion of the Company’s revenues. The Company regularly monitors the creditworthiness of its customers and believes it has adequately provided for potential credit loss exposures. Credit is extended for all customers based primarily on financial condition, and collateral is not required. During 2024, 2023 and 2022, approximately 42 % , 41 % , and 58 % of the Company’s net revenues, respectively, were from sales to customers in the semiconductor market. No single customer represented greater than 10 % of the Company’s accounts receivable balance as of December 31, 2024 or 2023 . Inventories Inventories are stated at the lower of cost or net realizable value, cost being determined using a standard costing system that approximates actual cost, based on a first-in, first-out method. The Company regularly reviews inventory quantities on hand and records a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less than cost, based primarily on its estimated forecast of product demand. Once the Company’s inventory value is written-down and a new cost basis has been established, the inventory value is not increased due to demand increases. Property, Plant and Equipment Property, plant and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of property, plant and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized in earnings. Depreciation is provided on the straight-line method over the estimated useful lives of ten to fifty years for buildings and building improvements, and three to fifteen years for machinery and equipment, furniture and fixtures, office equipment and software. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leased asset. Acquisition Accounting The fair value of the consideration exchanged in a business combination is allocated to tangible assets and identifiable intangible assets acquired and liabilities assumed at acquisition date fair value. Goodwill is measured as the excess of the consideration transferred over the net fair value of identifiable assets acquired and liabilities assumed. The accounting for an acquisition involves a considerable amount of judgment and estimation. Cost, income, market or a combination of approaches may be used to establish the fair value of consideration exchanged, assets acquired, and liabilities assumed, depending on the nature of those items. The valuation approach is determined in accordance with generally accepted valuation methods. Key areas of estimation and judgment may include the selection of valuation approaches, cost of capital, market characteristics, cost structure, impacts of synergies, and estimates of terminal value, among other factors. 71 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) While the Company uses estimates and assumptions as part of the purchase price allocation process to estimate the value of assets acquired and liabilities assumed, estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill, to the extent that adjustments are identified to the preliminary purchase price allocation. Upon conclusion of the measurement period, or final determination of the value of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to results of operations. Intangible Assets Intangible assets resulting from the acquisitions of businesses are estimated by management based on the fair value of assets acquired. These include acquired customer lists, completed technology, patents, trademarks, trade names, backlog and IPR&D. Definite-lived intangible assets, other than IPR&D, are amortized from one to eighteen years on a straight-line basis, which represents the estimated periods of benefit and the expected pattern of consumption. IPR&D is not subject to amortization until reclassification into completed technology. Upon completion of a project, the Company expects the corresponding IPR&D intangible assets to be amortized over an estimated useful life of eight to nine years . Indefinite-lived intangible assets, such as trade names, are not amortized; they are subject to annual impairment testing as well as testing upon the occurrence of any event that indicates a potential impairment. Goodwill Goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of acquisition. The Company allocates goodwill to reporting units at the time of acquisition or when there is a change in the reporting structure and bases that allocation on which reporting units will benefit from the acquired assets and liabilities. Reporting units are defined as operating segments or one level below an operating segment, referred to as a component. The Company assesses goodwill for impairment on an annual basis as of October 31 or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The estimated fair value of the Company’s reporting units is based on discounted cash flow models derived from internal earnings and internal and external market forecasts. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount and terminal growth rates, as well as forecasted revenue, gross profit and operating expenses. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity. The WACC used to test goodwill is derived from a group of comparable companies. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. The Company makes every effort to forecast these future cash flows as accurately as possible with the information available at the time the forecast is developed. In performing the Company’s annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company’s reporting unit exceeds its carrying amount, including goodwill. In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative assessment. If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment assessment. In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value exceeds the carrying value, no impairment loss exists. If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events and changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. This periodic review may result in an adjustment of estimated depreciable lives or asset impairment. When indicators of impairment are present, the carrying values of the asset are evaluated in relation to their operating performance and future undiscounted cash flows of the underlying business. If the future undiscounted cash flows are less than their carrying value, impairment exists. The impairment is 72 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) measured as the difference between the carrying value and the fair value of the underlying asset. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. Foreign Exchange The functional currency of the majority of the Company’s foreign subsidiaries is the applicable local currency. For those subsidiaries, assets and liabilities are translated to U.S. dollars at year-end exchange rates. Income and expense accounts are translated at the average exchange rates prevailing during the year. The resulting translation adjustments are included in OCI in consolidated stockholders’ equity. Foreign exchange transaction gains and losses are classified in other (income) expense, net in the statement of operations and comprehensive income (loss). Net foreign exchange losses resulting from re-measurement were $ 0 , $ 30 , and $ 5 for the years ended December 31, 2024, 2023, and 2022 , respectively, and are included in other (income) expense, net. These amounts do not reflect the corresponding gain (loss) from foreign exchange forward contracts, which are included in cost of sales. See Note 8 regarding foreign exchange forward contracts. Employee Benefit Plans The majority of the Company’s employees participate in defined contribution plans, whereby the Company, at its discretion, makes certain matching contributions based on participating employees’ annual contribution to the plan and their total compensation. The Company also has defined benefit retirement plans at certain of its foreign subsidiaries. The majority of these defined benefit plans are frozen and do not allow new employees to join the plan. The Company accounts for these plans based on the provisions of ASC Topic 715, “Compensation-Retirement Benefits.” Some of the key assumptions used to calculate the pension expense and projected benefit obligation include the discount rate, rate of forecasted salary increases, the expected long-term rate of return on plan assets and expected mortality. The obligation for these claims and the related periodic costs are measured using actuarial techniques and assumptions. Actuarial gains and losses are deferred and amortized over future periods. Income Taxes The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and also for operating loss and tax credit carryforwards. On a quarterly basis, the Company evaluates both the positive and negative evidence that affects the realizability of net deferred tax assets and assesses the need for a valuation allowance. The future benefit to be derived from its deferred tax assets is dependent upon its ability to generate sufficient future taxable income in each jurisdiction of the right type to realize the assets. The Company records a valuation allowance to reduce its net deferred tax assets to the amount that is expected to be realized. To the extent the Company establishes a valuation allowance an expense will be recorded as a component of the provision for income taxes on the statement of operations. Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon ultimate settlement. The Company re-evaluates these uncertain tax positions on a quarterly basis. 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. Income tax effects resulting from changes in tax law are accounted for by the Company in the period in which the law is enacted and the effects are recorded as a component of provision for income taxes from continuing operations. 73 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Derivatives As a result of the Company's global operating activities and variable interest rate borrowings, the Company is exposed to market risks from changes in foreign currency exchange rates and interest rates, which may adversely affect its operating results and financial position. The Company enters into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments and those utilized as economic hedges. The Company does not enter into derivative instruments for trading or speculative purposes. The Company uses 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. Changes in fair value of derivative instruments are recognized in the consolidated statement of operations or, if hedge accounting is applied, in OCI for the effective portion of the changes in fair value. The cash flows resulting from foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. All derivatives are stated at fair value in the consolidated balance sheets. 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. The Company assesses the hedging relationships, both at the inception of the hedge and on an ongoing basis, using either the critical terms matching approach or a regression analysis approach to determine whether the designated hedging instrument is highly effective in offsetting changes in the value of the hedged item. By nature, all financial instruments involve market and credit risks. The Company enters into derivative instruments with major investment grade financial institutions, for which no collateral is required. The Company has policies to monitor the credit risk of these counterparties. While there can be no assurance, the Company does not anticipate any material non-performance by any of these counterparties. (4) Recent Accounting Pronouncements Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide certain interim periods disclosures that are currently only required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). ASU 2023-07 does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements. The Company adopted this standard during fiscal year 2024. The adoption of this standard only impacts disclosures and did not have a material impact on the Company’s 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 (“ASU 2023-09”), which focuses on the rate reconciliation and income taxes paid. ASU 2023-09 requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local and foreign and by jurisdiction if the amount is at least 5 % of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments 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. The Company is currently evaluating the impact on its consolidated financial statement disclosures; however, adoption will not impact its consolidated balance sheets, cash flows or income statements. 74 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements. The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statement disclosures; however, adoption will not impact its consolidated balance sheets, cash flows or income statements. (5) Revenue from Contracts with Customers Contract assets as of December 31, 2024 and 2023 were $ 30 and $ 26 , respectively. A roll forward of the Company’s deferred revenue and customer advances is as follows: 2024 2023 Beginning balance, January 1 (1) $ 79 $ 96 Additions to deferred revenue and customer advances 134 167 Amount of deferred revenue and customer advances recognized in income ( 140 ) ( 184 ) Ending balance, December 31 (2) $ 73 $ 79 (1) Beginning deferred revenue and customer advances as of January 1, 2024 included $ 77 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue. Beginning deferred revenue and customer advances as of January 1, 2023 included $ 94 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue. The majority of the beginning balance in 2024 and 2023 was recognized in each year. (2) Ending deferred revenue and customer advances as of December 31, 2024 included $ 71 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue. Ending deferred revenue and customer advances as of December 31, 2023 included $ 77 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue. Revenue from certain custom products, including MSD plating equipment, and revenue from certain service contracts are recorded over time. Remaining product and services revenues are recorded at a point in time. Disaggregation of Revenue The following table summarizes revenue from contracts with customers in the Company’s three end markets: Semiconductor, Electronics and Packaging, and Specialty Industrial. Years Ended December 31, 2024 2023 2022 Semiconductor $ 1,498 $ 1,479 $ 2,041 Electronics and Packaging 922 916 541 Specialty Industrial 1,166 1,227 964 Total net revenues $ 3,586 $ 3,622 $ 3,547 Refer to Note 21 for revenue by reportable segment, geography and groupings of similar products. 75 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) (6) Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted net income (loss) per share: Years Ended December 31, Numerator: 2024 2023 2022 Net income (loss) $ 190 $ ( 1,841 ) $ 333 Denominator: Shares used in net income (loss) per common share – basic 67.3 66.8 59.7 Effect of dilutive securities 0.3 — 0.2 Shares used in net income (loss) per common share – diluted 67.6 66.8 59.9 Net income (loss) per common share: Basic $ 2.82 $ ( 27.54 ) $ 5.57 Diluted $ 2.81 $ ( 27.54 ) $ 5.56 Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the diluted net income (loss) available to common shareholders by the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. The dilutive effect of equity awards is calculated based on the average stock price for the relevant period, using the treasury stock method. In periods in which a net loss is recognized, the impact of RSUs is not included as they are antidilutive. The dilutive effect of the Convertible Notes is calculated under the if-converted method. Shares that would be issued if the Convertible Notes were converted are not included in the calculation of diluted net income (loss) per common share as the Company’s share price is below the initial conversion price and inclusion would be antidilutive. In 2024 and 2022 , the Company had an immaterial quantity of RSUs that were antidilutive and were excluded from the computation of diluted weighted-average shares. (7) Fair Value Measurements In accordance with the provisions of fair value accounting, a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model. The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments or securities or derivative contracts that are valued using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such assets and liabilities based on the lowest level input that is significant to the fair 76 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Assets and liabilities of the Company are measured at fair value on a recurring basis as of December 31, 2024, and are summarized as follows: Fair Value Measurements at Reporting Date Using Description December 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash equivalents: Money market funds $ 289 $ 289 $ — $ — Time deposits 5 — 5 — Equity securities 1 1 — — Available-for-sale securities: Group insurance contracts 6 — 6 — Derivatives Foreign exchange forward contracts 9 — 9 — Interest rate swaps - current 3 — 3 — Interest rate swaps - non-current 35 — 35 — Pension and deferred compensation plan assets 22 — 22 — Total assets $ 370 $ 290 $ 80 $ — Liabilities: Derivatives Foreign exchange forward contracts-current $ 3 $ — $ 3 $ — Interest rate swaps - current 4 — 4 — Total liabilities $ 7 $ — $ 7 $ — Reported as follows: Assets: Cash and cash equivalents (1) $ 294 $ 289 $ 5 $ — Other current assets 12 — 12 — Total current assets $ 306 $ 289 $ 17 $ — Other assets $ 64 $ 1 $ 63 $ — Liabilities: Other current liabilities $ 7 $ — $ 7 $ — (1) The cash and cash equivalents amount presented in the table above does not include cash of $ 420 as of December 31, 2024. 77 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Assets and liabilities of the Company are measured at fair value on a recurring basis as of December 31, 2023, and are summarized as follows: Fair Value Measurements at Reporting Date Using Description December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Cash equivalents: Money market funds $ 356 $ 356 $ — $ — Time deposits 12 — 12 — Available-for-sale securities: Group insurance contracts 6 — 6 — Derivatives Foreign exchange forward contracts 2 — 2 — Interest rate caps - current 3 — 3 — Interest rate swaps - non-current 41 — 41 — Pension and deferred compensation plan assets 19 — 19 — Total assets $ 439 $ 356 $ 83 $ — Liabilities: Derivatives Foreign exchange forward contracts $ 5 $ — $ 5 $ — Total liabilities $ 5 $ — $ 5 $ — Reported as follows: Assets: Cash and cash equivalents (1) $ 368 $ 356 $ 12 $ — Other current assets 5 — 5 — Total current assets $ 373 $ 356 $ 17 $ — Other assets $ 66 $ — $ 66 $ — Liabilities: Other current liabilities $ 5 $ — $ 5 $ — (1) The cash and cash equivalents amount presented in the table above does not include cash of $ 507 as of December 31, 2023 . Other Fair Value Disclosures The estimated carrying value and fair value of the Company’s debt as of December 31, 2024 and 2023 is as follows: Years Ended December 31, 2024 2023 Carrying Value Fair Value Carrying Value Fair Value Term Loan Facility $ 3,249 $ 3,262 $ 4,953 $ 4,965 Convertible Notes 1,400 1,357 — — Total $ 4,649 $ 4,619 $ 4,953 $ 4,965 The estimated carrying value of the Company’s Term Loan Facility, as defined and further described in Note 15, was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. The estimated fair value of the Company’s Convertible Notes, as defined and further described in Note 15, was determined based on the last traded price of the Convertible Notes for the period ended December 31, 2024, and falls under Level 2 of the fair value hierarchy. Money Market Funds Money market funds are cash and cash equivalents and are classified within Level 1 of the fair value hierarchy. 78 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Pension and Deferred Compensation Plan Assets The pension and deferred compensation plan assets represent investments in mutual funds, exchange traded funds, government securities and other time deposits. These investments are set aside for retirement benefits of certain of the Company's subsidiaries. Derivatives As a result of the Company’s global operating activities and variable interest rate borrowings, the Company is exposed to market risks from changes in foreign currency exchange rates and interest rates, which may adversely affect its operating results and financial position. When deemed appropriate, the Company minimizes its risks from foreign currency exchange rate and interest rate fluctuations through the use of derivative financial instruments. The principal market in which the Company executes its foreign currency and interest rate contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants are typically large commercial banks. The contracts are valued using broker quotations or market transactions. (8) Derivatives and Net Investment Hedge Foreign Exchange Forward Contracts The Company hedges a portion of its 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. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives' fair value are not included in current earnings but are included in OCI in stockholders' equity. These changes in fair value will subsequently be reclassified into earnings as applicable, when the forecasted transaction occurs. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. The Company also enters into foreign exchange forward contracts to hedge against certain monetary asset and liability accounts on the consolidated balance sheet to mitigate the risk associated with certain foreign currency transactions in the ordinary course of business. These derivatives are not designated as cash flow hedging instruments and gains or losses from these derivatives are recorded immediately in other (income) expense, net. The following table summarizes the net notional values of foreign exchange forward contracts outstanding as of December 31, 2024 and December 31, 2023: Years Ended December 31, 2024 2023 Derivatives designated as hedging instruments: Foreign exchange forward contracts-cash flow hedges $ 74 $ 178 Derivatives not designated as hedging instruments: Foreign exchange forward contracts-balance sheet hedges $ 154 $ 155 For both periods presented in the table, the Japanese yen and the South Korean won were the largest notional contracts for designated cash flow hedges. For 2024, the British pound and Chinese yuan were the largest notional contracts for balance sheet hedges not designated as a hedging instrument. For 2023, the Euro and British pound were the largest notional contracts for balance sheet hedges not designated as a hedging instrument. Net Investment Hedge On January 1, 2023, the Company designated certain Euro-denominated debt as a net investment hedge to hedge a portion of its net investments in certain of its entities with functional currencies denominated in the Euro. On January 22, 2024, the Company prepaid its USD Tranche A in full using, in part, a € 250 incremental borrowing under its Euro Tranche B, each as defined and further described in Note 15. On January 22, 2024, the Company designated the additional € 250 of its Euro Tranche B as a net investment hedge. As of December 31, 2024, the total principal amount outstanding under its Euro Tranche B was € 596 and the entire balance was designated as a net investment hedge. As of December 31, 2023, the 79 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) total principal amount outstanding under its Euro Tranche B was € 593 and the entire balance was designated as a net investment hedge. For these net investment hedges, the Company records foreign currency remeasurement gains and losses within a component of OCI. Recognition in earnings of amounts previously recorded in accumulated OCI is limited to circumstances such as complete or substantially complete liquidation or sale of the net investment in the hedged foreign operations. Interest Rate Agreements The Company has various interest rate swap agreements maturing through January 31, 2029, that exchange a one-month forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) paid on the outstanding balance of its USD Term Loan Facility, as defined and further described in Note 15, to a fixed rate. The notional value of the agreements was $ 2,600 and $ 2,300 as of December 31, 2024 and December 31, 2023, respectively. The Company acquired USD London Interbank Offered Rate (“LIBOR”) interest rate cap agreements as a result of its acquisition of Atotech Limited (“Atotech”) on August 17, 2022 (the “Atotech Acquisition”) and had utilized these agreements to offset Term SOFR on its Term Loan Facility. The notional value of the agreements was $ 700 as of December 31, 2023 and expired on January 31, 2024 . Effective June 30, 2023, the Company’s USD LIBOR based interest rate caps were converted to Term SOFR. The Company 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 the Company’s results of operations. The interest rate swaps are recorded at fair value on the balance sheet and changes in the fair value are recognized in OCI. To the extent these arrangements are no longer effective hedges, the hedging relationship will be discontinued and changes in the fair value of the hedging instruments from the last assessment period that were effective up to the current period will be recorded immediately in earnings. Amounts previously recorded in OCI will remain in OCI and will be reclassified to earnings when the interest payments impact consolidated earnings. If the Company determines that the interest payments are unlikely to occur, amounts previously recorded in OCI will be reclassified to earnings immediately. Changes in the fair value of interest rate caps were recorded immediately in earnings, as the Company did not designate these instruments as hedges and therefore these instruments did not qualify for hedge accounting. The cash flows resulting from interest rate agreements are classified in cash flows from operating activities. The following table summarizes the net gains (losses) on derivatives designated as cash flow hedging instruments: Years Ended December 31, 2024 2023 2022 Foreign exchange forward contracts-cash flow hedges: Net (losses) gains recognized in OCI, net of tax $ 6 $ 1 $ ( 4 ) Net gains (losses) reclassified from accumulated OCI into cost of revenues $ 6 $ 7 $ 18 Interest rate hedges: Net (losses) gains recognized in OCI, net of tax $ ( 7 ) $ ( 25 ) $ 54 Net gains (losses) reclassified from accumulated OCI into interest expense $ 61 $ 45 $ 3 The Compan y expects a gain of approximately $ 7 to be reclassified from OCI into cost of revenues during the next twelve months related to foreign exchange forward contracts. The Company expects a gain of approximately $ 17 to be reclassified from OCI into interest expense during the next twelve months related to interest rate swaps. The following table summarizes the net gains (losses) on derivatives not designated as hedging instruments: Years Ended December 31, 2024 2023 2022 Net (losses) gains recognized in other (income) expense, net $ ( 2 ) $ ( 32 ) $ ( 8 ) The interest rate caps resulted in a reduction of $ 3 , $ 30 and $ 5 to interest expense in 2024, 2023 and 2022, respectively. Currency Option Agreements In connection with financing the Atotech Acquisition, the Company issued euro denominated term loan debt. In anticipation of issuing this debt, the Company purchased foreign currency option contracts in 2021 to fix the conversion 80 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) of EUR 300 into U.S. dollars. The options settled on January 31, 2022, and the Company recorded a gain of $ 5 , net of premiums, in 2022 which is included in other (income) expense, net in the table above. Derivative instruments are subject to master netting arrangements. However, the Company has elected to record these contracts on a gross basis in the consolidated balance sheet. The location and fair value amounts of derivative instruments reported in the consolidated balance sheet is disclosed in Note 7. (9) Inventories Inventories consist of the following: Years Ended December 31, 2024 2023 Raw material $ 618 $ 740 Work-in-process 97 94 Finished goods 178 157 Total $ 893 $ 991 Inventory-related excess and obsolete charges of $ 56 , $ 64 and $ 21 were recorded in cost of products and services in the years ended December 31, 2024, 2023 and 2022 , respectively. (10) Property, Plant and Equipment Property, plant and equipment consist of the following: Years Ended December 31, 2024 2023 Land $ 80 $ 76 Buildings and building improvements 322 335 Machinery and equipment 646 670 Furniture and fixtures, office equipment and software 194 207 Leasehold improvements 183 174 Construction in progress 82 60 1,507 1,522 Less: accumulated depreciation 736 738 Total $ 771 $ 784 Depreciation of property, plant and equipment totaled $ 103 , $ 102 and $ 70 for the years ended 2024, 2023 and 2022 , respectively. (11) Leases The Company has various operating leases for real estate and non-real estate items. The non-real estate leases are mainly comprised of automobiles but also include office equipment and other lower-valued items. 81 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Leases consist of the following: Years Ended December 31, 2024 2023 2022 Operating lease cost (1) $ 37 $ 31 $ 27 Finance lease cost 9 9 3 Short-term lease 8 12 10 Total lease cost $ 54 $ 52 $ 40 (1) Operating lease cost includes an immaterial amount of variable expenses, offset by certain sublease rental income. Supplemental cash flow information related to leases was as follows: Years Ended December 31, 2024 2023 2022 Cash paid for amounts included in measurement of liabilities: Operating cash flows used for operating leases (1) $ 33 $ 34 $ 28 Operating cash flows used for finance leases 2 1 — Financing cash flows used for finance leases 15 4 2 ROU assets obtained in exchange for new lease liabilities: Operating leases 26 25 7 Finance leases 12 1 3 (1) Operating cash flows used for operating leases for the year ended December 31, 2023 and 2022 include an immaterial amount of tenant improvement allowance receipts. The weighted average remaining terms for all leases were as follows: Years Ended December 31, 2024 2023 Weighted-average remaining lease term years-operating leases 11.5 12.3 Weighted-average remaining lease term years-finance leases 13.1 11.3 Weighted-average discount rate-operating leases 3.7 % 3.3 % Weighted-average discount rate-finance leases 5.2 % 5.2 % Future lease payments under non-cancelable leases as of December 31, 2024 are detailed as follows: Year Ending December 31, Operating Leases Finance 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 Amounts presented above do not include payments relating to immaterial leases excluded from the consolidated balance sheets as well as leases with terms of less than twelve months. 82 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) (12) Acquisitions Atotech On August 17, 2022 (the “Effective Date”), the Company completed the Atotech Acquisition, through the acquisition of the entire issued share capital of Atotech by Atotech Manufacturing, Inc. (“Bidco”), a Delaware corporation and indirect wholly owned subsidiary of the Company. The Atotech Acquisition was implemented by means of a scheme of arrangement under the laws of Jersey (the “Scheme”) pursuant to the definitive agreement entered into by the Company and Atotech on July 1, 2021 (as amended, the “Implementation Agreement”). Atotech, which the Company operates as 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, Atotech's portfolio includes chemistry, equipment and services for innovative and high-technology applications in a wide variety of end markets. Atotech further broadens the Company’s capabilities by bringing leadership in critical chemistry solutions for electronics and packaging and specialty industrial applications. On the Effective Date, pursuant to the Scheme and in accordance with the terms and conditions of the Implementation Agreement, Bidco acquired each issued and outstanding ordinary share of Atotech in exchange for per share consideration of $ 16.20 in cash and 0.0552 of a share of Company common stock. The Company funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the Term Loan Facility, as defined in Note 15. As a result of the Atotech Acquisition, the Company issued an aggregate of 10.7 shares of Company common stock to the former Atotech shareholders. The purchase price of Atotech consisted of the following: Cash consideration to Atotech stockholders, net $ 2,886 Value of MKS shares issued 1,186 Repayment of Atotech senior secured term loans 1,545 Settlement of accelerated Atotech share-based awards 47 Total purchase price, net of cash and cash equivalents acquired $ 5,664 Under the acquisition method of accounting, the total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of Atotech based on their fair values as of the Effective Date, except for contract assets and liabilities, which remain at book value in accordance with ASC Topic 606, Revenue from Contracts with Customers. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed was allocated to goodwill and none of this goodwill or intangible assets will be deductible for tax purposes. The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors, including (1) broadening its position in key electronics and industrial markets to offer complementary solutions, and (2) leveraging component and systems expertise to provide robust solutions to meet its customers’ evolving technology needs. 83 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The following table summarizes the allocation of the purchase price to the fair values assigned to assets acquired and liabilities assumed at the Effective Date inclusive of immaterial measurement period adjustments: Cash and cash equivalents $ 238 Accounts receivable 283 Inventories 244 Other current assets 104 Property, plant and equipment 381 Intangible assets 2,726 Goodwill 3,054 Other assets 131 Total assets acquired 7,161 Accounts payable 194 Other current liabilities 166 Non-current deferred taxes 719 Non-current accrued compensation 99 Other non-current liabilities 81 Total liabilities assumed 1,259 Fair value of assets acquired and liabilities assumed 5,902 Less: Cash and cash equivalents acquired ( 238 ) Total purchase price, net of cash and cash equivalents acquired $ 5,664 The fair value of the acquired intangible assets was determined using the income approach. In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue growth rates, gross profit and operating expenses. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations. The valuations were based on the information that was available during the one-year measurement period that existed as of the Effective Date and the expectations and assumptions that have been deemed reasonable by the Company's management. The size and breadth of the Atotech Acquisition necessitated the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the fair value of certain tangible and intangible assets acquired and liabilities assumed as of the Effective Date and the related tax impacts of any changes made. The measurement period is now complete. The following table reflects the allocation of the acquired intangible assets and related estimate of useful lives at the Effective Date: Customer relationships $ 1,756 11 - 14 years Completed technology 595 8 - 9 years Trade names 145 16 years Backlog 40 1.5 years In-process research and development 190 $ 2,726 The acquired intangible assets are being amortized on a straight-line basis, which approximates the economic use of the assets over their estimated useful liv es. Upon completion of the related projects, the Company expects the IPR&D intangible asset to be amortized over its estimated useful life of eight to nine years . During the fourth quarter of 2022, the Company recorded adjustments to balances reported as of, and for the period ended, September 30, 2022, resulting from foreign currency translation of the preliminary allocation of intangible assets and goodwill from the Atotech Acquisition in August 2022 and the related effect on cumulative translation adjustment and deferred tax liabilities. The adjustments recorded were to correct an overstatement of goodwill of $ 43 , intangible assets, net of $ 56 , and non-current deferred tax liabilities of $ 38 , and an understatement of both accumulated OCI and OCI of $ 61 . These adjustments that the Company recorded did not affect net income, earnings per share or the consolidated statements of cash flows. The Company assessed these adjustments in accordance with SEC Staff 84 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and determined they were not material to the interim financial statements taken as a whole. Pro Forma Results The following unaudited pro forma financial information presents the combined results of operations of the Company as if the Atotech Acquisition had occurred on January 1, 2022. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisition occurred on the assumed date. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined Company. Year Ended December 31, 2022 Total net revenues $ 4,450 Net income $ 197 The unaudited pro forma information for the year ended December 31, 2022 give effect primarily to the following: • Applying the Company’s accounting policies; • Incremental interest expense related to the Term Loan Facility; • Incremental amortization of acquired intangible assets related to the estimated fair value from the purchase price allocation; • The exclusion of inventory step-up amortization in 2022; • Incremental depreciation of acquired property, plant and equipment related to the estimated fair value from the purchase price allocation; • Incremental compensation expense for share-based compensation arrangements; and • The estimated tax impact of the above adjustments. (13) Goodwill and Intangible Assets The Company’s methodology for allocating the purchase price of an acquisition is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the cost of the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. The Company assigns assets acquired (including goodwill) and liabilities assumed to one or more reporting units as of the date of acquisition. If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process. Goodwill and intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. To measure impairment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, no impairment exists. If the fair value of the reporting unit is less than the carrying value of the reporting unit, a goodwill impairment is recorded. Amortizable intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment. When the Company determines that the carrying value of intangible assets or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, the Company uses the projected undiscounted cash flow method to determine whether an impairment exists, and then measures the impairment using discounted cash flows. The process of evaluating the potential impairment of goodwill, intangible assets and other long-lived assets requires significant judgment. The Company regularly monitors current business conditions and other factors, including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results. The Company’s stock price and any estimated control premium are factors affecting the 85 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) assessment of the fair value of the Company’s underlying reporting units for purposes of performing any goodwill impairment assessment. Goodwill The changes in the carrying amount of goodwill and accumulated impairment losses were as follows: 2024 2023 Gross Carrying Amount Accumulated Impairment Loss Net Gross Carrying Amount Accumulated Impairment Loss Net Beginning balance at January 1 $ 4,387 $ ( 1,833 ) $ 2,554 $ 4,454 $ ( 146 ) $ 4,308 Impairment of goodwill — — — ( 1,687 ) ( 1,687 ) Acquired goodwill — — — — — Foreign currency translation and measurement period adjustments ( 75 ) ( 75 ) ( 67 ) — ( 67 ) Ending balance at December 31 $ 4,312 $ ( 1,833 ) $ 2,479 $ 4,387 $ ( 1,833 ) $ 2,554 As of October 31, 2024, the Company performed its annual impairment assessment of goodwill using a qualitative assessment for all of its reporting units. The Company determined that it was more likely than not that the fair values were more than the carrying values for each of the reporting units. During the quarter ended June 30, 2023, the Company identified softer industry demand, particularly in the personal computer and smartphone markets, and concluded there was a triggering event at each of its electronics (“EL”) and general metal finishing reporting (“GMF”) units, which together constitute MSD, and the equipment solutions business (“ESB”) reporting unit of PSD. For each of the three reporting units, the Company performed a quantitative assessment of goodwill using a weighting of an income approach and market approach. The income approach was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate. The key underlying assumptions included forecasted revenues, which incorporated external market data, terminal growth rate, gross profit and operating expenses, as well as an applicable discount rate for each reporting unit. The market approach for each of the three reporting units incorporated observed multiples of guideline public companies. The market approach for the EL and GMF reporting units also incorporated multiples from guideline transactions. 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 the Company’s management. There are inherent uncertainties and management judgment required in these determinations. This quantitative assessment during the quarter ended June 30, 2023 resulted in the following: Reporting Unit Goodwill Impairment Remaining Goodwill Electronics $ 826 $ 1,420 General Metal Finishing 428 307 Equipment Solutions Business 372 100 In addition, the Company used an income approach to determine the fair value of the long-lived and indefinite-lived intangible assets within these reporting units (Level 3 within the fair value hierarchy). These valuations resulted in a $ 20 fair value and $ 152 impairment of completed technology within the ESB reporting unit and a $ 72 fair value and $ 49 impairment of IPR&D within the EL reporting unit. After evaluating forecast updates and carrying values, the Company did not identify impairments at any other of its reporting units. For the completed technology valuation within the ESB reporting unit, the forecasted future undiscounted cash flows were consistent with the Company’s goodwill analysis, using an approximate 7 year useful life, an 8 % weighted-average forecasted revenue growth rate, and a discount rate of 13.5 %. For the IPR&D intangible asset within the EL reporting unit, the forecasted undiscounted future cash flows utilized were consistent with the Company’s goodwill analysis, with estimated time to complete in-process projects of up to 2 years, and a discount rate of 12.5 %. 86 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) As of October 31, 2023, the Company performed its annual goodwill and intangible asset impairment assessment using a quantitative assessment for all its reporting units. For the EL, GMF and ESB reporting units, the Company performed a quantitative assessment of goodwill using an equal weighting of the income approach and market approach and for the VSD and PSD reporting units only used an income approach. The income approach was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate. The key underlying assumptions included forecasted revenues, which incorporated external market data, the terminal growth rate, gross profit and operating expenses, as well as an applicable discount rate for each reporting unit. The market approach incorporated observed multiples of guideline public companies. The market approach for the electronics and general metal finishing reporting units also incorporated multiples from guideline transactions. This quantitative assessment during the quarter ended December 31, 2023 resulted in the following: Reporting Unit Goodwill Impairment Remaining Goodwill Electronics $ 48 $ 1,401 Equipment Solutions 13 87 There was no goodwill impairment at any of the Company’s other reporting units. The Company will continue to monitor for future triggering events which could result in an impairment charge. In addition, the Company used an income approach to determine the fair value of the long-lived and indefinite lived intangible assets within these reporting units (Level 3 within the fair value hierarchy). These valuations resulted in a $ 14 impairment of IPR&D within the EL reporting unit as it was determined that there was no remaining fair value in its remaining projects. After evaluating forecast updates and carrying values, the Company did not identify impairments at any other of its reporting units. Intangible Assets The Company’s intangible assets are comprised of the following: As of December 31, 2024 Gross Accumulated Impairment Charges Accumulated Amortization Foreign Currency Translation Net Completed technology $ 1,268 $ ( 152 ) $ ( 496 ) $ ( 31 ) $ 589 Customer relationships 2,072 ( 1 ) ( 477 ) ( 86 ) 1,508 Patents, trademarks, trade names and other 381 ( 63 ) ( 130 ) ( 13 ) 175 $ 3,721 $ ( 216 ) $ ( 1,103 ) $ ( 130 ) $ 2,272 As of December 31, 2023 Gross Accumulated Impairment Charges Accumulated Amortization Foreign Currency Translation and Measurement Period Adjustments Net Completed technology $ 1,268 $ ( 152 ) $ ( 405 ) $ ( 4 ) $ 707 Customer relationships 2,072 ( 1 ) ( 335 ) ( 17 ) 1,719 Patents, trademarks, trade names and other 381 ( 63 ) ( 118 ) ( 7 ) 193 $ 3,721 $ ( 216 ) $ ( 858 ) $ ( 28 ) $ 2,619 87 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) During the twelve months ended December 31, 2023, $ 117 of IPR&D included with patents, trademarks, trade names and other was reclassified into completed technology. Aggregate amortization expense related to acquired intangible assets for 2024, 2023 and 2022 was $ 245 , $ 295 and $ 146 , respectively. Aggregate amortization expense related to acquired intangible assets for future years is: Year Amount 2025 243 2026 239 2027 238 2028 238 2029 235 Thereafter 1,023 The Company excluded from the above table intangible assets of $ 56 of indefinite-lived trademarks and trade names, which were not subject to amortization. (14) Product Warranties The Company provides for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. The Company’s warranty obligations are affected by shipment volume, product failure rates, utilization levels, material usage and supplier warranties on parts delivered to the Company. Should actual product failure rates, utilization levels, material usage, or supplier warranties on parts differ from the Company's estimates, revisions to the estimated warranty liability would be required. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers. Product warranty activities were as follows: Years Ended December 31, 2024 2023 Beginning of period $ 22 $ 27 Provision for product warranties 24 11 Charges to warranty liability ( 24 ) ( 16 ) End of period $ 22 $ 22 Short-term product warranties of $ 14 and long-term product warranties of $ 8 , each as of December 31, 2024, are included within other current liabilities and other non-current liabilities, respectively, within the accompanying consolidated balance sheets. Short-term product warranties of $ 15 and long-term product warranties of $ 7 , each as of December 31, 2023 , are included within other current liabilities and other non-current liabilities, respectively, within the accompanying consolidated balance sheets. (15) Debt The Company’s outstanding debt is as follows: December 31, 2024 December 31, 2023 Short-term debt: Term Loan Facility $ 50 $ 93 Long-term debt: Term Loan Facility $ 3,199 $ 4,860 Debt issuance costs - Term Loan Facility ( 85 ) ( 164 ) Term Loan Facility, net 3,114 4,696 Convertible Notes 1,400 — Debt issuance costs - Convertible Notes ( 26 ) — Convertible Notes, net 1,374 — Total long-term debt, net $ 4,488 $ 4,696 88 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Credit Facilities In connection with the completion of the Atotech Acquisition, on August 17, 2022 (the “Effective Date”) the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto (the “Credit Agreement”). The Credit Agreement provided for (i) a senior secured term loan facility comprised of three tranches: a $ 1,000 loan (the “USD Tranche A”), a $ 3,600 loan (as further increased, refinanced and otherwise modified as described herein, the “USD Tranche B”) and a € 600 loan (as further increased and otherwise modified as described herein, the “Euro Tranche B” and together with the USD Tranche A and the USD Tranche B, the “Term Loan Facility”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of $ 500 (as further increased and otherwise modified as described herein, the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions. The proceeds of the Term Loan Facility were used on the Effective Date, among other things, to fund a portion of the consideration payable in connection with the Atotech Acquisition and to refinance the existing term loan and revolving credit facilities of the Company and certain indebtedness of Atotech. Initially, borrowings under the Credit Facilities bore interest at a rate per annum equal to, at the Company’s option, any of the following, plus, in each case, an applicable margin: (a) with respect to the USD Tranche A, the Revolving Facility and the USD Tranche B, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50 %, (2) the prime rate quoted in The Wall Street Journal, or (3) a forward-looking term rate based on Term SOFR (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00 %; and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50 % and (II) with respect to the USD Tranche A and the Revolving Facility, 0.0 %; and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0 %. Initially, the applicable margins for borrowings under the Credit Facilities were (i) under the USD Tranche A, 1.50 % with respect to base rate borrowings and 2.50 % with respect to Term SOFR borrowings, (ii) under the USD Tranche B, 1.75 % with respect to base rate borrowings and 2.75 % with respect to Term SOFR borrowings, (iii) under the Euro Tranche B, 3.00 % and (iv) under the Revolving Facility, 1.50 % with respect to base rate borrowings and 2.50 % with respect to Term SOFR borrowings. In addition to paying interest on outstanding principal under the Credit Facilities, the Company is required to pay a commitment fee in respect of the unutilized commitments under the Revolving Facility. The commitment fee is subject to adjustment based on the Company’s first lien net leverage ratio as of the end of the preceding fiscal quarter. The Company must also pay customary letter of credit fees and agency fees. As of December 31, 2024, the commitment fee was 0.25 % per annum, representing a downward adjustment from 0.375 % as of June 30, 2024. On October 3, 2023 (the “First Amendment Effective Date”), the Company entered into the First Amendment to Credit Agreement (the “First Amendment”), which refinanced all of the $ 3,564 outstanding USD Tranche B to (i) decrease the applicable margin for the USD Tranche B from 1.75 % to 1.50 % with respect to base rate borrowings and from 2.75 % to 2.50 % with respect to Term SOFR borrowings and (ii) remove the credit spread adjustment applicable to Term SOFR borrowings of the USD Tranche B. On January 22, 2024 (the “Second Amendment Effective Date”), the Company entered into the Second Amendment to Credit Agreement (the “Second Amendment”), pursuant to which the Company (i) borrowed additional USD Tranche B loans in an aggregate principal amount of $ 490 and additional Euro Tranche B loans in an aggregate principal amount of € 250 (collectively, the “Incremental Tranche B Loans”) and (ii) used a portion of the proceeds of the Incremental Tranche B Loans to prepay the USD Tranche A in full in an aggregate principal amount of $ 744 . On February 13, 2024, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”), pursuant to which the Company increased the available borrowing capacity under the Revolving Facility by $ 175 (the “Incremental Revolving Commitments”). As of December 31, 2024, the available borrowing capacity under the Revolving Facility was $ 675 . 89 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) On July 23, 2024 (the “Fourth Amendment Effective Date”), the Company entered into the Fourth Amendment to Credit Agreement (the “Fourth Amendment”), pursuant to which the Company (i) refinanced its existing USD Tranche B loan and Euro Tranche B loan with a new $ 2,650 USD Tranche B loan and a new € 800 Euro Tranche B loan, (ii) decreased the applicable margin for the USD Tranche B from 2.50 % to 2.25 % with respect to Term SOFR borrowings and from 1.50 % to 1.25 % with respect to base rate borrowings and (iii) decreased the applicable margin for the Euro Tranche B from 3.00 % to 2.75 %. On July 23, 2024, immediately prior to the effectiveness of the Fourth Amendment, the Company made a voluntary prepayment of $ 110 aggregate principal amount under the Term Loan Facility, consisting of $ 69 principal amount of its USD Tranche B loan and € 38 principal amount of its Euro Tranche B loan. The USD Tranche B and the Euro Tranche B were issued on the Effective Date with original issue discount of 2.00 % of the principal amounts thereof. The USD Tranche B was issued on the First Amendment Effective Date with original issue discount of 0.25 % of the principal amount thereof. The Incremental Tranche B Loans were issued with original issue discount of 0.25 % of the principal amount thereof. The Company incurred $ 242 of deferred financing fees and original issue discount related to the term loans under the Term Loan Facility funded on the Effective Date, which are included in long-term debt, net in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method. The Company incurred $ 11 of deferred financing fees and original issue discount related to the USD Tranche B funded on the First Amendment Effective Date, of which $ 9 is included in long-term debt, net in the accompanying consolidated balance sheets and is being amortized to interest expense over the estimated life of the term loans using the effective interest method. The Company recorded an $ 8 loss on extinguishment of debt in connection with the First Amendment. The Company incurred $ 5 of deferred financing fees and original issue discount related to the Incremental Tranche B Loans funded on the Second Amendment Effective Date, of which $ 2 is included in long-term debt, net in the accompanying consolidated balance sheets and is being amortized to interest expense over the estimated life of the term loans using the effective interest method. The Company recorded a $ 9 loss on extinguishment of debt in connection with the Second Amendment. The Company recorded a $ 5 loss on extinguishment of debt in connection with the Fourth Amendment as a result of the acceleration of deferred financing and original issue discounts. Under the Credit Agreement, the Company is required to prepay outstanding term loans, subject to certain exceptions, with portions of its annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrence or issuances of certain debt. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the aggregate commitments under the Revolving Facility, the Company is required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount. The Company may voluntarily prepay outstanding loans under the Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans; provided, however, that subject to certain exceptions, if on or prior to the date that is six months after the Fourth Amendment Effective Date, the Company prepays any loans under the USD Tranche B or the Euro Tranche B in connection with a repricing transaction, the Company must pay a prepayment premium of 1.00 % of the aggregate principal amount of the loans so prepaid. Additionally, the Company may voluntarily reduce the unutilized portion of the commitment amount under the Revolving Facility. Prior to the repayment in full of the USD Tranche A, the Company was required to make scheduled quarterly payments each equal to 1.25 % of the original principal amount of the USD Tranche A. The Company is required to make scheduled quarterly payments each equal to approximately $ 10 with respect to the USD Tranche B and approximately € 2 with respect to the Euro Tranche B, in each case with the balance due thereunder on the seventh anniversary of the Effective Date. There is no scheduled amortization under the Revolving Facility. Any principal amount outstanding under the Revolving Facility is due and payable in full on the fifth anniversary of the Effective Date. 90 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) All obligations under the Credit Facilities are guaranteed by certain of the Company’s wholly-owned domestic subsidiaries and are required to be guaranteed by certain of the Company’s future wholly-owned domestic subsidiaries, and are secured by substantially all of the Company’s assets and the assets of such subsidiaries, subject to certain exceptions and exclusions. Under the Credit Agreement, the Company has the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $ 1,011 and (2) 75 % of consolidated last twelve months earnings before interest, taxes, depreciation, and amortization (“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 USD Tranche A and the Revolving Facility, so long as any USD Tranche A loans (or commitments in respect thereof) are outstanding as of the end of any fiscal quarter, the Company may not allow its total net leverage ratio as of the end of such fiscal quarter to be greater than 5.25 to 1.00 for the fiscal quarters ending December 31, 2023 through September 30, 2024, with an annual step-down of 0.25 :1.00 and subject to a step-up of 0.50 :1.00 for the four full fiscal quarter period following any material acquisition, not to exceed 5.50 to 1.00 . In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter of the Company when the aggregate amount of loans outstanding under the Revolving Facility (net of (a) all letters of credit (whether cash collateralized or not) and (b) unrestricted cash of the Company and its restricted subsidiaries) exceeds 35 % of the aggregate amount of all commitments under the Revolving Facility in effect as of such date, the Company may not allow its first lien net leverage ratio as of the end of each such fiscal quarter to be greater than 6.00 to 1.00 . The USD Tranche B and the Euro Tranche B are not subject to financial maintenance covenants. The Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict the ability of the Company and each of its subsidiaries to: incur additional indebtedness; pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its subordinated indebtedness; make investments, loans and acquisitions; create restrictions on the payment of dividends or other amounts to the Company from the Company’s restricted subsidiaries or restrictions on the ability of the Company’s restricted subsidiaries to incur liens; engage in transactions with its affiliates; sell assets, including capital stock of its subsidiaries; materially alter the business it conducts; consolidate or merge; incur liens; and engage in sale-leaseback transactions. The Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default. If an event of default occurs, the lenders under the Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Credit Facilities and all actions permitted to be taken by a secured creditor. As of December 31, 2024, the Company was in compliance with all covenants under the Credit Agreement. The Company paid certain customary fees to and expenses of (i) JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities, Inc., Citibank, N.A., HSBC Securities (USA) Inc. and Mizuho Bank, Ltd. in their respective capacities as lead arrangers and bookrunners in connection with the Credit Facilities on the Effective Date, (ii) JPMorgan Chase Bank, N.A. in its capacity as lead arranger in connection with each of the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment and (iii) the lenders providing the Incremental Revolving Commitments pursuant to the Third Amendment. As described further below under “Convertible Notes,” on May 16, 2024, the Company completed a private offering of convertible senior notes. A significant portion of the net proceeds from the offering was used to repay approximately $ 1,206 of the USD Tranche B. As a result of the repayment, the Company recorded a $ 38 loss on extinguishment of debt. As of December 31, 2024, the weighted average interest rate of the Term Loan Facility was 6.4 %. 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. 91 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Convertible Notes On May 16, 2024, the Company completed a private offering of $ 1,400 aggregate principal amount of its convertible senior notes due 2030 (the “Convertible Notes”). The Convertible Notes were sold in a private placement under a purchase agreement, dated as of May 13, 2024 (the “Purchase Agreement”), entered into by and between the Company and each of Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, BofA Securities, Inc. and Mizuho Securities USA LLC, as representatives of the several initial purchasers named therein, for resale to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended . The aggregate principal amount of the Convertible Notes sold in the offering was $ 1,400 , which included $ 200 aggregate principal amount of the Convertible Notes issued pursuant to an option to purchase, within a 13-day period beginning on, and including, the date on which the Convertible Notes were first issued, which the initial purchasers exercised in full on May 14, 2024 and which additional purchase was also completed on May 16, 2024 . The net proceeds from the offering were approximately $ 1,374 after deducting the initial purchasers’ discounts and commissions and estimated offering expenses paid by the Company. The Company used approximately $ 167 of the net proceeds from the offering to pay the cost of the capped call transactions described below. The Company used the remaining net proceeds from the offering to repay approximately $ 1,206 in borrowings outstanding under the USD Tranche B, together with accrued interest, as well as for general corporate purposes . Indenture and the Convertible Notes On May 16, 2024, the Company entered into an indenture (the “Indenture”) with respect to the Convertible Notes with U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Under the Indenture, the Convertible Notes are senior unsecured obligations of the Company and bear interest at a coupon rate of 1.25 % per annum, with interest payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024. The Convertible Notes will mature on June 1, 2030 , unless earlier converted, redeemed or repurchased in accordance with their terms . Subject to certain conditions, on or after June 5, 2027, the Company may redeem for cash all or any portion of the Convertible Notes at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the trading day immediately preceding the date the notice of redemption is sent . The conversion rate for the Convertible Notes is initially 6.4799 shares of the Company’s common stock per one thousand dollars principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $ 154.32 per share. The conversion rate is subject to adjustment upon the occurrence of certain events . Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. Prior to March 1, 2030, noteholders may convert all or any portion of their Convertible Notes only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date. If the Company undergoes a fundamental change (as defined in the Indenture) prior to the maturity date of the Convertible Notes, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date . The Indenture contains customary terms and covenants, including that upon certain events of default that are occurring and continuing, either the Trustee or the holders of at least 25 % in aggregate principal amount of the outstanding Convertible Notes may declare 100 % of the principal of, and accrued and unpaid interest, if any, on, all the Convertible Notes to be due and payable . As of December 31, 2024, the Convertible Notes are classified as a long-term liability, net of issuances costs, on the consolidated balance sheet. The Convertible Notes were issued at par and costs associated with the issuance of the Convertible Notes are amortized to interest expense over the contractual term of the Convertible Notes. As of December 31, 2024, the effective interest rate of the Convertible Notes was 1.56 %. 92 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Capped Call Transactions On May 13, 2024, in connection with the pricing of the Convertible Notes, and on May 14, 2024, in connection with the exercise in full by the initial purchasers of their option to purchase additional Convertible Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers of the Convertible Notes or their respective affiliates and other financial institutions. The capped call transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of any Convertible Notes and/or offset any cash payments that the Company is required to make in excess of the principal amount of any converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap initially equal to $ 237.42 per share, which represents a premium of 100 % over the last reported sale price of $ 118.71 per share of the Company’s common stock on The Nasdaq Global Select Market on May 13, 2024, and is subject to customary adjustments under the terms of the capped call transactions. The Company evaluated the capped call transactions and determined that they should be accounted for separately from the Convertible Notes. The cost of $ 167 to purchase the capped call transactions was recorded as a reduction to additional paid-in capital in the consolidated balance sheet as the capped call transactions are indexed to the Company’s own stock and met the criteria to be classified in stockholders' equity. The Company’s interest expense is as follows: Years Ended December 31, 2024 2023 2022 Term Loan Facility: Contractual interest expense $ 302 $ 391 $ 128 Amortization of debt issuance costs as interest expense 26 31 55 Total interest expense on Term Loan Facility $ 328 $ 422 $ 183 Convertible Notes: Contractual interest expense $ 11 $ — $ — Amortization of debt issuance costs as interest expense 3 — — Total interest expense on Convertible Notes $ 14 $ — $ — Other interest expense, net (1) $ ( 58 ) $ ( 66 ) $ ( 6 ) Total interest expense $ 284 $ 356 $ 177 (1) Other interest expense, net primarily consists of interest (income) expense related to the Company’s interest rate swap and interest rate cap agreements. Lines of Credit and Borrowing Arrangements Certain of the Company’s Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date. 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 and $ 14 , respectively. There were no borrowings outstanding under these arrangements at December 31, 2024 or December 31, 2023. Contractual maturities of the Company’s debt obligations as of December 31, 2024 are as follows: Year Amount 2025 50 2026 50 2027 50 2028 50 2029 3,049 Thereafter 1,400 93 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) (16) Other Current Liabilities Other current liabilities consisted of the following: December 31, 2024 December 31, 2023 Accrued compensation and other employee-related obligations $ 124 $ 159 Deferred revenue and customer advances 71 77 Income taxes payable 64 57 Lease liabilities 31 30 Other 94 105 Total other current liabilities $ 384 $ 428 (17) Income Taxes A reconciliation of the Company’s effective tax rate to the U.S. federal income tax statutory rate is as follows: Years Ended December 31, 2024 2023 2022 U.S. federal income tax statutory rate 21.0 % 21.0 % 21.0 % Foreign derived intangible income deduction ( 24.9 ) 0.6 ( 4.8 ) Change in valuation allowance ( 22.7 ) 0.1 ( 0.3 ) Withholding taxes, net of foreign tax credits 15.4 ( 0.4 ) 10.9 Federal tax credits ( 11.7 ) 1.5 ( 1.5 ) Effect of foreign operations taxed at various rates ( 8.9 ) 0.9 ( 6.8 ) Change in income tax reserves (including interest) 6.7 ( 0.5 ) 0.8 Base erosion waiver of deductions 5.6 — — State income taxes, net of federal benefit ( 3.0 ) 0.5 ( 0.3 ) Executive compensation 1.8 ( 0.1 ) 0.7 Foreign subpart F income taxed in the U.S., net of foreign tax credits 1.6 — ( 0.2 ) Global intangible low taxed income, net of foreign tax credits 1.0 0.2 3.6 Goodwill impairment — ( 18.4 ) — Other 12.4 ( 0.9 ) — ( 5.7 )% 4.5 % 23.1 % 94 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The components of income (loss) before income taxes and the related (benefit) provision for income taxes consist of the following: Years Ended December 31, 2024 2023 2022 Income (loss) before income taxes: United States $ ( 57 ) $ ( 760 ) $ ( 90 ) Foreign 237 ( 1,168 ) 523 $ 180 $ ( 1,928 ) $ 433 Current taxes: Federal $ 91 $ 21 $ 40 State 13 6 7 Foreign 112 120 99 216 147 146 Deferred taxes: Federal ( 106 ) ( 130 ) ( 68 ) State ( 20 ) ( 18 ) ( 8 ) Foreign ( 100 ) ( 86 ) 30 ( 226 ) ( 234 ) ( 46 ) (Benefit) provision for income taxes $ ( 10 ) $ ( 87 ) $ 100 The significant components of the deferred tax assets and deferred tax liabilities are as follows: December 31, 2024 2023 Deferred tax assets: Interest expense carryforwards $ 178 $ 171 Net operating loss carryforwards 71 85 Tax credit carryforwards 34 22 Capitalized research and development 146 98 Lease liability 49 51 Inventory and warranty reserves 48 54 Accrued expenses and other reserves 30 23 Other 9 15 Total deferred tax assets 565 519 Valuation allowance ( 151 ) ( 190 ) Net deferred tax assets $ 414 $ 329 Deferred tax liabilities: Acquired intangible assets and goodwill $ ( 558 ) $ ( 637 ) Right-of-use asset ( 48 ) ( 49 ) Foreign withholding taxes ( 40 ) ( 50 ) Loan costs ( 9 ) ( 24 ) Depreciation and amortization ( 4 ) ( 56 ) Total deferred tax liabilities ( 659 ) ( 816 ) Net deferred tax liabilities $ ( 245 ) $ ( 487 ) On a quarterly basis, the Company evaluates both positive and negative evidence that affects the realizability of its net deferred tax assets and assesses the need for a valuation allowance. The future benefit to be derived from its deferred tax assets is dependent upon its ability to generate sufficient future taxable income to realize the assets. During 2024, the Company decreased its valuation allowance by $ 39 , primarily related to the valuation allowance recorded in connection with certain foreign interest and net operating loss carryforwards. During 2023, the Company increased its valuation allowance by $ 9 , primarily related to the valuation allowance recorded in connection with certain foreign interest and net operating loss carryforwards. 95 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Deferred taxes have been recorded related to historical outside basis differences, primarily unremitted earnings, of certain of the Company’s foreign subsidiaries. During 2024, the Company recorded a tax benefit of $ 8 related to such taxes for prior periods. As of December 31, 2024, the Company had U.S. federal and state as well as foreign gross research and other tax credit carryforwards of $ 16 , $ 39 and $ 0 , respectively. Included in the total carryforwards are $ 1 of federal and $ 20 of state credits that can be carried forward indefinitely while the remaining credits expire at various dates through 2038 . The Company also had U.S. federal and state as well as foreign gross net operating loss and capital loss carryforwards of $ 3 , $ 41 and $ 273 , respectively. Included in the total carryforwards are $ 2 , $ 1 and $ 50 of losses from federal, state and foreign that can be carried forward indefinitely while the remaining losses expire at various dates through 2043 . The Company had $ 371 and $ 362 of U.S. federal and foreign interest carryforwards, respectively, that can be carried forward indefinitely. Although the Company believes that its tax positions are consistent with applicable U.S. federal, state and international laws, it maintains certain income tax reserves as of December 31, 2024 in the event its tax positions were to be challenged by the applicable tax authority and additional tax assessed upon audit. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows: Years Ended December 31, 2024 2023 2022 Balance at beginning of year $ 86 $ 83 $ 43 (Decreases) increases for tax positions taken during prior years ( 4 ) ( 5 ) 35 Increases for tax positions taken during the current year 36 12 9 Reductions related to expiration of statutes of limitations and audit settlements ( 24 ) ( 4 ) ( 4 ) Balance at end of year $ 94 $ 86 $ 83 The net increase in gross unrecognized tax benefits in 2024 was primarily due to the addition of income tax reserves related to intercompany transactions. The Company also recorded an offsetting asset of $ 18 against these reserves. The Company accrues interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are classified as a component of income tax (benefit) expense. As of December 31, 2024, 2023 and 2022, the Company accrued interest on unrecognized tax benefits of approximately $ 8 , $ 7 and $ 6 , respectively. Over the next 12 months, it is reasonably possible that the Company may recognize approximately $ 3 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal and state as well as foreign tax positions, primarily due to the expiration of statutes of limitations. The Company is subject to examination by U.S. federal and state as well as foreign tax authorities. The U.S. federal statute of limitations remains open for tax years 2020 through the present. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2019 through present. The Company also has certain prior year federal credit carryforwards and state tax loss and credit carryforwards that are subject to examination to the extent used in an open year. (18) Stock-Based Compensation Employee Stock Purchase Plans The 2014 ESPP was adopted by the Board of Directors on February 10, 2014 and approved by the Company’s stockholders on May 5, 2014. The 2014 ESPP authorizes the issuance of up to an aggregate of 2.5 shares of common stock to participating employees. Offerings under the 2014 ESPP commence on June 1 and December 1 and terminate on November 30 and May 31, respectively. Under the 2014 ESPP, eligible employees can purchase shares of common stock through payroll deductions up to 10 % of their compensation, up to a defined maximum annual amount. The price at which an employee’s purchase option is exercised for each offering period is the lower of (1) 90 % of the closing price of the common stock on the Nasdaq Global Select Market on the day that the offering commences, or (2) 90 % of the closing price of the common stock on the day that the offering terminates. The Company issued 0.1 shares of common stock 96 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) during each of 2024, 2023 and 2022 to employees who participated in the 2014 ESPP at exercise prices of $ 102.28 and $ 75.77 per share in 2024, $ 74.95 and $ 74.30 per share in 2023, and $ 111.15 and $ 75.47 per share in 2022. The Company recorded an immaterial amount of compensation expense related to the 2014 ESPP in 2024, 2023 and 2022. As of December 31, 2024 there were 1.2 shares reserved for future issuance under the 2014 ESPP. Equity Incentive Plans Prior to May 10, 2022, the Company granted RSUs to employees and directors under the 2014 Stock Incentive Plan (the “2014 Plan”). Following shareholder approval of the 2022 Stock Incentive Plan (the “2022 Plan,” and together with the 2014 Plan, the “Plans”) on May 10, 2022, the Company discontinued granting RSUs to employees and directors under the 2014 Plan and began granting them under the 2022 Plan. The Plans are administered by the Compensation Committee of the Company's Board of Directors. The Plans are intended to attract and retain employees and directors, and to provide an incentive for these individuals to assist the Company to achieve long-range performance goals and enable these individuals to participate in the long-term growth of the Company. Up to 6.6 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2022 Plan. The Company may grant options, RSUs, restricted stock, stock appreciation rights (“SARs”) and other stock-based awards to employees, officers, directors, consultants and advisors under the 2022 Plan. Any full-value awards granted under the 2022 Plan will be counted against the shares reserved for issuance under the 2022 Plan as 1.91 shares for each share of common stock subject to such award. Any award granted under the 2022 Plan that is not a full-value award (including, without limitation, any option or SAR) will be counted against the shares reserved for issuance under the plan on a one-for-one basis of common stock subject to such award. “Full-value award” means any restricted stock, RSUs, or other stock-based award with a per share price or per unit purchase price lower than 100 % of fair market value on the date of grant. To the extent an award that is not a full-value award is returned to the 2022 Plan, the share reserve under the 2022 Plan will be credited with one share. To the extent that a full-value award is returned to the 2022 Plan, the share reserve under the 2022 Plan will be credited with 1.91 shares. As of December 31, 2024, there were 3.9 shares reserved for future issuance under the 2022 Plan. Time-based RSUs granted to employees generally vest 33 % per year beginning on the first anniversary of the date of grant. Adjusted EBITDA RSUs granted to the Company’s executive officers in 2024, 2023 and 2022 were based on the Company’s achievement of adjusted EBITDA for each respective year, defined as GAAP operating income excluding any charges or income not related to the operating performance of the Company plus depreciation and stock compensation expense, set at varying revenue levels. The final number of Adjusted EBITDA RSUs that vest varies based on the level of performance achieved from 0 % to 200 % of the underlying target shares granted in 2024, 2023 and 2022. The Adjusted EBITDA RSUs earned generally vest 33 % per year beginning on the first anniversary of the date of grant. For rTSR RSUs, the vesting is dependent on the Company's total shareholder return relative to a group of peers over the performance period. RSUs granted to certain employees who meet certain retirement eligibility requirements will vest in full upon each such employee’s retirement and are expensed immediately. RSUs granted to directors generally vest at the earliest of (1) one day prior to the next annual meeting, (2) 13 months from date of grant, or (3) the effective date of a change in control of the Company. 97 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The Company determines the fair value of time-based RSUs based on the closing market price of the Company’s common stock on the date of the award. The Company determines the original fair value of Adjusted EBITDA RSUs based upon the closing market price of the Company’s stock on the date of the award and adjusts the fair value quarterly during the first year based upon actual and forecasted results against Adjusted EBITDA targets. The Company estimates the fair value of rTSR RSUs using the Monte Carlo simulation model, which requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock. The Company recorded an immaterial amount of compensation expense related to the rTSR RSUs in 2024. Such values are recognized as expense on a straight-line basis for time-based awards and rTSR RSUs and using the accelerated graded vesting method for Adjusted EBITDA RSUs, all over the requisite service periods. The following tables present the activity for the RSUs under the Plans: Year Ended December 31, 2024 Quantity Weighted Average Grant Date Fair Value Per Share RSUs — beginning of period 1.0 $ 98.36 Granted 0.5 $ 121.24 Vested or forfeited ( 0.6 ) $ 106.42 RSUs — end of period 0.9 $ 104.83 Year Ended December 31, 2023 Quantity Weighted Average Grant Date Fair Value Per Share RSUs — beginning of period 0.8 $ 118.96 Granted 0.7 $ 87.03 Vested or forfeited ( 0.5 ) $ 117.10 RSUs — end of period 1.0 $ 98.36 Year Ended December 31, 2022 Quantity Weighted Average Grant Date Fair Value Per Share RSUs — beginning of period 0.5 $ 127.93 RSUs issued in Atotech Acquisition 0.1 $ 110.30 Granted 0.5 $ 111.60 Vested ( 0.3 ) $ 118.06 RSUs — end of period 0.8 $ 118.96 98 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The total fair value of RSUs vested during 2024, 2023 and 2022 was approximately $ 66 , $ 40 and $ 40 , respectively. As of December 31, 2024, the unrecognized compensation cost related to RSUs was approximately $ 45 and will be recognized over an estimated weighted average amortization period of 1 year. Stock-Based Compensation Expense The Company recognized the full impact of its share-based payment plans in the consolidated statements of operations and comprehensive income (loss). The following table reflects the effect of recording stock-based compensation: Years Ended December 31, 2024 2023 2022 Stock-based compensation expense by type of award: RSUs $ 46 $ 51 $ 42 Employee stock purchase plan 2 3 3 Total stock-based compensation 48 54 45 (Excess tax benefit)/shortfall from stock-based compensation ( 5 ) 2 ( 1 ) Net effect on net income (loss) $ 43 $ 56 $ 44 Effect on net earnings (loss) per share: Basic $ 0.64 $ 0.84 $ 0.74 Diluted $ 0.64 $ 0.84 $ 0.73 The pre-tax effect within the consolidated statements of operations and comprehensive income (loss) of recording stock-based compensation was as follows: Years Ended December 31, 2024 2023 2022 Cost of revenues $ 6 $ 6 $ 5 Research and development expense 7 7 6 Selling, general and administrative expense 35 41 34 Total pre-tax stock-based compensation expense $ 48 $ 54 $ 45 (19) Stockholders’ Equity Share Repurchase Program On July 25, 2011, the Company’s Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $ 200 of its outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means. The timing and quantity of any shares repurchased will depend upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities. These repurchases may be commenced, suspended or discontinued at any time without prior notice. The Company has repurchased approximately 2.6 shares of common stock for approximately $ 127 pursuant to the program since its adoption. During 2024, 2023 and 2022 , there were no repurchases of common stock. Cash Dividends Holders of the Company’s common stock are entitled to receive dividends when they are declared by the Company’s Board of Directors. The Company’s Board of Directors declared a cash dividend of $ 0.22 per share during each quarter of 2024, which totaled $ 59 or $ 0.88 per share. The Company’s Board of Directors declared a cash dividend of $ 0.22 per share during each quarter of 2023, which totaled $ 59 or $ 0.88 per share. On February 10, 2025 , the Company’s Board of Directors declared a quarterly cash dividend of $ 0.22 per share to be paid on March 7, 2025 to Stockholders of record as of February 24, 2025 . 99 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s Board of Directors. (20) Employee Benefit Plans The Company has a 401(k) profit-sharing plan for U.S. employees meeting certain requirements, in which eligible employees may contribute between 1 % and 50 % of their annual compensation to this plan, and, with respect to employees who are age 50 and older, certain specified additional amounts, limited by an annual maximum amount determined by the Internal Revenue Service. The Company, at its discretion, makes certain matching contributions to this plan based on participating employees’ annual contribution to this plan and their total compensation. The Company’s contributions were $ 9 , $ 9 and $ 10 for 2024, 2023 and 2022, respectively. The Company also has a number of defined contribution plans at some of its foreign locations. The Company’s contributions were immaterial for 2024, 2023 and 2022. The Company maintains a management incentive bonus plan (“MIP”) which provides cash awards to certain employees, at the discretion of the Compensation Committee of the Company’s Board of Directors, based upon certain metrics tied to the Company’s consolidated financial results. In addition, certain of the Company’s foreign locations also have various bonus plans, which in 2024 were generally based upon the same consolidated financial results as the MIP. In 2023 and 2022, these foreign bonus plans were based upon local operating results and employee performance. The Company may also grant certain sign-on and spot bonuses when applicable. The total bonus expense was $ 38 , $ 63 and $ 48 for 2024, 2023 and 2022, respectively. Defined Benefit Pension Plans. The Company has a number of defined benefit pension plans at many of its foreign locations covering some employees at these respective locations. The majority of these defined benefit plans are frozen and do not allow new employees to join the plans. One of the Company’s German pension plans is unfunded, as permitted under the plan and applicable laws. For financial reporting purposes, the Company obtained actuarial reports supporting the calculations of net periodic pension costs that used a number of actuarial assumptions, including a discount rate for plan obligations, an assumed rate of return on pension plan assets and an assumed rate of compensation increase for employees covered by the various plans. The Company reviewed these actuarial assumptions and concluded they were reasonable based upon management’s judgment, considering known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of the Company’s pension plans. The net periodic benefit costs for the defined benefit plans included the following components: Year Ended December 31, 2024 2023 Service cost $ 2 $ 2 Interest cost on projected benefit obligations 5 5 Expected return on plan assets ( 1 ) ( 1 ) $ 6 $ 6 100 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The changes in projected benefit obligations and plan assets, as well as the ending balance sheet amounts for the Company’s defined benefit plans, were as follows: Year Ended December 31, 2024 2023 Change in projected benefit obligations: Projected benefit obligations, beginning of year $ 154 $ 144 Service cost 2 2 Interest cost 5 5 Actuarial (gain) loss ( 5 ) 9 Benefits paid ( 7 ) ( 7 ) Currency translation adjustments ( 9 ) 1 Projected benefit obligations, end of year $ 140 $ 154 Change in plan assets: Fair value of plan assets, beginning of year 34 31 Company contributions 1 3 Gain (loss) on plan assets 2 2 Benefits paid ( 3 ) ( 3 ) Currency translation adjustments ( 2 ) 1 Fair value of plan assets, end of year 32 34 Net underfunded status $ ( 108 ) $ ( 120 ) As of December 31, 2024, the estimated benefit payments for the Company’s defined benefit plans for the next 10 years were as follows: Estimated benefit payments 2025 $ 7 2026 8 2027 8 2028 8 2029 8 2030-2034 41 $ 80 The Company expects to contribute less than $ 1 to the plans during 2025. The weighted-average rates used to determine the net periodic benefit costs were as follows: December 31, 2024 December 31, 2023 Discount rate 3.3 % 3.3 % Rate of increase in salary levels 3.7 % 3.1 % Expected long-term rate of return on assets 3.0 % 2.7 % In determining the expected long-term rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes, and economic and other indicators of future performance. 101 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Plan assets were held in the following categories as a percentage of total plan assets: December 31, 2024 December 31, 2023 Amount Percentage Amount Percentage Debt securities $ 17 54 % $ 18 54 % Equity securities 8 25 9 24 Cash 3 10 3 10 Other 4 11 4 12 $ 32 100 % $ 34 100 % In general, the Company’s asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk, while providing adequate liquidity to meet immediate and future benefit payment requirements. The Company’s Israeli plans account for the deferred vested benefits using the shut-down method of accounting, which resulted in assets of $ 22 and vested benefit obligations of $ 24 as of December 31, 2024 and assets of $ 19 and vested benefit obligations of $ 22 as of December 31, 2023. Under the shut-down method, the liability is calculated as if it were payable as of the balance sheet date, on an undiscounted basis. Other Pension-Related Assets As of December 31, 2024 and 2023, the Company had assets with an aggregate market value of $ 6 for each period, for one of its German pension plans. These assets are invested in group insurance contracts through the insurance companies administering these plans, in accordance with applicable pension laws. These group insurance contracts have a guaranteed minimum rate of return ranging from 2.25 % to 4.00 % in 2024 and 2.00 % to 4.25 % in 2023, depending on the contract. Because these assets were not separate legal assets of the pension plan, they were not included in the Company’s plan assets shown above. However, the Company has designated such assets to pay pension benefits. Such assets are included in other assets in the accompanying consolidated balance sheet. (21) Business Segment, Geographic Area, Product Information and Significant Customer Information Reportable Segments and Products The Company’s CODM, which is the Company’s Chief Executive Officer , utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess performance. The Company has a diverse base of customers across its three end markets, semiconductor, electronics and packaging, and specialty industrial. Segment gross margin is the primary measure used by the CODM to assess segment performance and to decide how to allocate resources. The Company’s CODM assesses segment performance and decides how to allocate resources using segment gross margin among other measures. Gross margin is utilized to drive decisions in the annual forecasting process when making decisions about allocating capital and personnel to the segments. The Company has three reporting segments, VSD, PSD and MSD as described below. VSD delivers foundational technology solutions to semiconductor manufacturing, electronics and packaging and specialty industrial applications. VSD products are derived from the Company’s 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. PSD provides a broad range of solutions including lasers, beam measurement and profiling, precision motion control, vibration isolation systems, photonics instruments, opto-mechanical components, optical elements, laser-based systems for flexible PCB laser processing, laser-based systems for high-density interconnect PCB and package substrate manufacturing. 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 the electronics and packaging and specialty industrial markets. 102 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The Company derives its segment results directly from the manner in which results are reported in its management reporting system. The accounting policies that the Company uses to derive reportable segment results are substantially the same as those used for external reporting purposes. The Company groups its product offerings by its reportable segments, VSD, PSD, and MSD. For each reportable segment, the Company also provides services relating to the maintenance and repair of its products, installation services and training. Unallocated corporate expenses represent those costs not specifically related to the operations of each segment and are managed separately at the corporate level and primarily relate to labor costs of global functions such as supply chain, quality control and operations. The following tables sets forth the details of gross profit by reportable segment and then reconciles to income (loss) before income taxes for each year presented: Year Ended December 31, 2024 VSD PSD MSD Total Product $ 1,144 $ 856 $ 1,124 $ 3,124 Services 240 165 57 462 Revenues by segment 1,384 1,021 1,181 3,586 Total cost of revenues (exclusive of amortization shown separately below) (1) 790 563 519 1,872 Segment gross profit 594 458 662 1,714 Segment gross profit percentage 42.9 % 44.9 % 56.1 % 47.8 % Reconciliation to income before income taxes Operating expenses: Research and development 271 Selling, general and administrative 674 Acquisition and integrated costs 9 Restructuring and other 6 Fees and expenses related to repricing of Term Loan Facility 5 Amortization of intangible assets 245 Unallocated corporate expenses 6 Income from operations 498 Interest income ( 21 ) Interest expense 284 Loss on extinguishment of debt 57 Other (income) expense, net ( 2 ) Income before income taxes $ 180 103 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Year Ended December 31, 2023 VSD PSD MSD Total Product $ 1,222 $ 824 $ 1,154 $ 3,200 Services 218 152 52 422 Revenues by segment 1,440 976 1,206 3,622 Total cost of revenues (exclusive of amortization shown separately below) (1) 827 552 586 1,965 Segment gross profit 613 424 620 1,657 Segment gross profit percentage 42.6 % 43.4 % 51.4 % 45.7 % Reconciliation to loss before income taxes Operating expenses: Research and development 288 Selling, general and administrative 675 Acquisition and integrated costs 16 Restructuring 20 Fees and expenses related to repricing of Term Loan Facility 2 Amortization of intangible assets 295 Goodwill and intangible asset impairment 1,902 Gain on sale of long-lived assets ( 2 ) Unallocated corporate expenses 15 Loss from operations ( 1,554 ) Interest income ( 17 ) Interest expense 356 Loss on extinguishment of debt 8 Other (income) expense, net 27 Loss before income taxes $ ( 1,928 ) Year Ended December 31, 2022 VSD PSD MSD Total Product $ 1,791 $ 842 $ 486 $ 3,119 Services 246 151 31 428 Revenues by segment 2,037 993 517 3,547 Total cost of revenues (exclusive of amortization shown separately below) (1) 1,121 537 325 1,983 Segment gross profit 916 456 192 1,564 Segment gross profit percentage 45.0 % 45.9 % 37.1 % 44.1 % Reconciliation to income before income taxes Operating expenses: Research and development 241 Selling, general and administrative 488 Acquisition and integrated costs 52 Restructuring 10 Amortization of intangible assets 146 Gain on sale of long-lived assets ( 7 ) Unallocated corporate expenses 17 Income from operations 617 Interest income ( 4 ) Interest expense 177 Other (income) expense, net 11 Income before income taxes $ 433 104 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) (1) The significant expense category and amount aligns with the segment-level information that is regularly provided to the CODM. The following table set forth capital expenditures by reportable segment: Years Ended December 31, 2024 2023 2022 VSD $ 36 $ 26 $ 97 PSD 36 29 39 MSD 53 32 28 Total capital expenditures $ 125 $ 87 $ 164 The following table sets forth depreciation and amortization by reportable segment: Years Ended December 31, 2024 2023 2022 VSD $ 44 $ 43 $ 40 PSD 50 60 72 MSD 254 294 104 Total depreciation and amortization $ 348 $ 397 $ 216 The following table sets forth segment assets by reportable segment: Accounts receivable, net Inventories Total December 31, 2024 VSD $ 200 $ 488 $ 688 PSD 168 260 428 MSD 247 145 392 Total segment assets $ 615 $ 893 $ 1,508 Accounts receivable, net Inventories Total December 31, 2023 VSD $ 181 $ 553 $ 734 PSD 171 283 454 MSD 251 155 406 Total segment assets $ 603 $ 991 $ 1,594 Accounts receivable, net Inventories Total December 31, 2022 VSD $ 274 $ 504 $ 778 PSD 190 283 473 MSD 256 190 446 Total segment assets $ 720 $ 977 $ 1,697 105 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) The following tables reconciles total segment assets to total assets: December 31, 2024 2023 Total segment assets $ 1,508 $ 1,594 Cash and cash equivalents 714 875 Other current assets 252 227 Property, plant and equipment, net 771 784 Right-of-use assets, net 238 225 Goodwill and intangible assets, net 4,751 5,173 Other assets 356 240 Total assets $ 8,590 $ 9,118 Goodwill associated with each of the Company’s reportable segments is as follows: VSD PSD MSD Total Reportable segment: Gross goodwill at December 31, 2023 335 1,031 3,021 4,387 Movement of OSP product line 24 ( 24 ) — — Foreign currency translation and measurement period adjustments ( 1 ) ( 4 ) ( 70 ) ( 75 ) Gross goodwill at December 31, 2024 358 1,003 2,951 4,312 Accumulated goodwill impairment at December 31, 2023 ( 141 ) ( 390 ) ( 1,302 ) ( 1,833 ) Impairment charge — — — — Accumulated goodwill impairment at December 31, 2024 ( 141 ) ( 390 ) ( 1,302 ) ( 1,833 ) Goodwill, net of accumulated impairment and foreign currency translation at December 31, 2024 $ 217 $ 613 $ 1,649 $ 2,479 VSD PSD MSD Total Reportable segment: Gross goodwill at December 31, 2022 $ 336 $ 1,031 $ 3,087 $ 4,454 Foreign currency translation and measurement period adjustments ( 1 ) — ( 66 ) ( 67 ) Gross goodwill at December 31, 2023 335 1,031 3,021 4,387 Accumulated goodwill impairment at December 31, 2022 ( 141 ) ( 5 ) — ( 146 ) Impairment charge — ( 385 ) ( 1,302 ) ( 1,687 ) Accumulated goodwill impairment at December 31, 2023 ( 141 ) ( 390 ) ( 1,302 ) ( 1,833 ) Goodwill, net of accumulated impairment and foreign currency translation at December 31, 2023 $ 194 $ 641 $ 1,719 $ 2,554 Geographic Area Information about the Company’s operations by geographic area is presented in the tables below. Starting in the second quarter of 2024, the Company changed its basis of reporting geographical net revenues from the location in which the sale originated to the shipped-to location of the end customer. Prior periods have been recast to reflect this change, which was 106 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) made to better align with how management reviews geographic net revenues. Intercompany sales between geographic areas are at tax transfer prices and have been eliminated from consolidated revenues. Years Ended December 31, 2024 2023 2022 Net revenues: United States $ 804 $ 893 $ 1,083 China 775 745 602 South Korea 358 359 445 Japan 250 280 263 Taiwan 234 248 231 Singapore 229 239 297 Other 936 858 626 $ 3,586 $ 3,622 $ 3,547 Long-lived assets include property, plant and equipment, net, right-of-use assets, net and certain other assets. December 31, 2024 2023 Long-lived assets: United States $ 458 $ 459 China 172 163 Germany 125 149 Other 349 326 $ 1,104 $ 1,097 The Company sells products and services to thousands of customers worldwide, in a wide range of end markets. Revenues from its top ten customers accounted for 32 % , 30 % and 42 % of net revenues for 2024, 2023, and 2022, respectively. For the years ended December 31, 2024 and 2023, no customer represented 10% or more of the Company’s net revenues. For the year ended December 31, 2022 , the Company had one customer that represented 14% and one customer that represented 10% of net revenues. (22) Restructuring and Other Restructuring The Company recorded restructuring charges of $ 4 in 2024, primarily related to severance costs incurred as a result of a global cost-saving initiative implemented in the fourth quarter of 2023. The Company recorded restructuring charges of $ 20 in 2023, primarily related to severance costs incurred as a result of various global cost-saving initiatives implemented in 2023. The activity related to the Company’s restructuring accrual is shown below: Years Ended December 31, 2024 2023 Restructuring accrual, beginning of period $ 9 $ 3 Charged to expense 4 20 Payments and adjustments ( 10 ) ( 14 ) Restructuring accrual, end of period $ 3 $ 9 107 MKS INSTRUMENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share data) Other The Company recorded other charges of $ 2 in 2024 related to legal matters. (23) Commitments and Contingencies As of December 31, 2024 , the Company has entered into purchase commitments for certain inventory components and other equipment and services used in its normal operations. The majority of the purchase commitments covered by these arrangements are for periods of less than one year and aggregate to approximately $ 544 . Legal Proceedings The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows. (24) Subsequent Events On January 24, 2025, the Company entered into the Fifth Amendment to Credit Agreement, by and among us as parent borrower, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and each lender party thereto (the “Fifth Amendment”). Pursuant to the Fifth Amendment, the Company (i) refinanced its existing USD Tranche B loan and Euro Tranche B loan with a new $ 2,529 USD Tranche B loan and a new € 596 Euro Tranche B loan, (ii) decreased the applicable margin for the USD Tranche B from 2.25 % to 2.00 % with respect to Term SOFR borrowings and from 1.25 % to 1.00 % with respect to base rate borrowings, (iii) decreased the applicable margin for the Euro Tranche B from 2.75 % to 2.50 % and (iv) extended the period during which a 1.00 % prepayment premium may be required if the Company prepays any loans under the USD Tranche B or the Euro Tranche B in connection with a repricing transaction until the date that is six months following the Fifth Amendment Effective Date. The repriced USD Tranche B loan and Euro Tranche B loan were issued without original issue discount. In connection with the execution of the Fifth Amendment, the Company paid customary fees and expenses to JPMorgan Chase Bank, N.A. On January 24, 2025, concurrently with the effectiveness of the Fifth Amendment, the Company made a voluntary prepayment of $ 100 principal amount of USD Tranche B loans, reducing the principal amount of USD Tranche B loan from $ 2,629 to $ 2,529 . 108 Item 9. Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure None.