16)	Business Segment, Geographic Area, Product and Significant Customer Information

The Company develops, manufactures, sells and services products that measure, control, power and monitor critical parameters of advanced manufacturing processes. The Company’s Chief Operating Decision Maker (“CODM”) utilizes consolidated financial information to make decisions about allocating resources and assessing performance for the entire Company. In addition, certain disaggregated financial information is also provided to the CODM, which is used in the decision making process to assess performance. Based upon the information provided to the CODM, the Company has determined it has four reportable segments.

Effective January 1, 2015, the Company changed the structure of its reportable segments based upon a change in the information that is provided to the Company’s CODM. The Company’s four reportable segments prior to the change in structure were: Advanced Manufacturing Capital Equipment, Analytical Solutions Group, Europe Region Sales & Service and Asia Region Sales & Service. The Company’s new structure still reflects four reportable segments; however, the composition of the segments has changed.

The Company’s new reportable segments are Advanced Manufacturing Capital Equipment, Global Service, Asia Region Sales and Other. The primary change to the segment structure was to separate worldwide service from product sales and create a separate reportable segment known as Global Service. Product sales in the Advanced Manufacturing Capital Equipment segment remained with this segment. Asia product sales became a separate reportable segment. The product sales from the operating segments that made up the Analytical Solutions Group and Europe Region sales were combined into the Other segment and are not reported separately as they are individually immaterial and collectively below the separate segment reporting guidelines. The Company has reported corporate expenses and certain intercompany pricing transactions in a Corporate and Eliminations reconciling column. Due to these changes, the results presented under segment reporting for the three and six months ended June 30, 2014 and as of December 31, 2014 reflect the new segments to conform to the current period segment reporting presentation with no impact to the consolidated results of operations.

The Advanced Manufacturing Capital Equipment segment includes the development, manufacturing and sales of instruments and control products, power and reactive gas products, materials delivery products and vacuum products, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes. Sales in this segment include both external sales and intercompany product sales, which are recorded at transfer prices in accordance with applicable tax requirements.

The Global Service segment includes the worldwide servicing of instruments and control products, power and reactive gas products, materials delivery products and vacuum products, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes. It also includes sales of custom fabrication services.

The Asia Region Sales segment mainly resells products from the Advanced Manufacturing Capital Equipment and Other segments into Asia regions.

The Other segment includes operating segments that are not required to be reported separately as a reportable segment and includes sales for products that are re-sold from the Advanced Manufacturing Capital Equipment into Europe regions as well as sales from other operating segments.

MKS derives the segment results directly from the manner in which results are reported in its management reporting system. The accounting policies MKS uses to derive reportable segment results are substantially the same as those used for external reporting purposes except that a substantial portion of the sales of the Advanced Manufacturing Capital Equipment and Other segments are intercompany sales to the regions at tax-based transfer prices and certain significant costs, including stock-based compensation and management incentive compensation, are not allocated to the segments and are included in Corporate and Eliminations. The CODM reviews several metrics of each operating segment, including net revenues and gross profit (loss).

The Company does not maintain balance sheets for the majority of its operating segments and, as such, amounts have not been allocated to the reportable segments. The Company does not disclose external or intersegment revenues separately by reportable segment as this information is not presented to the CODM for decision making purposes.

The following is net revenues by reportable segment:


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Advanced Manufacturing Capital Equipment	$	178,966		$	146,479		$	358,199		$	311,977
Global Service		29,685			27,231			57,428			52,398
Asia Region Sales⁽¹⁾		56,777			40,790			112,154			92,889
Other		18,796			19,183			40,012			40,076
Corporate and Eliminations		(66,258	)		(48,986	)		(135,988	)		(106,290	)

	$	217,966		$	184,697		$	431,805		$	391,050

The following is a reconciliation of segment gross profit to consolidated net income:


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Gross profit by reportable segment:
Advanced Manufacturing Capital Equipment	$	82,552		$	59,918		$	161,240		$	127,025
Global Service		10,366			9,683			19,968			18,080
Asia Region Sales⁽¹⁾		7,815			6,319			14,736			15,396
Other		5,697			6,678			12,539			13,425
Corporate and Eliminations		(7,632	)		(2,963	)		(12,639	)		(4,919	)

Total gross profit by reportable segment		98,798			79,635			195,844			169,007
Operating expenses:
Research and development		17,567			15,421			34,247			31,039
Selling, general and administrative		33,269			32,239			64,136			66,830
Acquisition costs		—			271			30			499
Restructuring		219			—			1,007			747
Amortization of intangible assets		1,709			1,044			3,380			1,454

Income from operations		46,034			30,660			93,044			68,438
Net interest income		790			231			1,294			466

Income before income taxes		46,824			30,891			94,338			68,904
Provision for income taxes		13,604			9,667			27,332			16,435

Net income	$	33,220		$	21,224		$	67,006		$	52,469

(1)

The Asia Region Sales segment does not represent total geographical Asia financial information. This sales operation only represents the sales from the resale of Advanced Manufacturing Capital Equipment and Other segment products in their respective regions. The Advanced Manufacturing Capital Equipment and Other segments both have sales in this region. Accordingly, total geographical sales include sales from multiple reportable segments.

The following is capital expenditures by reportable segment for the three and six months ended June 30, 2015 and 2014:


	Advanced Manufacturing Capital Equipment		Global Service		Asia Region Sales		Other		Corporate and Eliminations		Total
Three Months Ended June 30, 2015:
Capital expenditures	$	1,622	$	163	$	51	$	162	$	832	$	2,830

Six Months Ended June 30, 2015:
Capital expenditures	$	3,144	$	285	$	93	$	236	$	1,576	$	5,334


	Advanced Manufacturing Capital Equipment		Global Service		Asia Region Sales		Other		Corporate and Eliminations		Total
Three Months Ended June 30, 2014:
Capital expenditures	$	1,131	$	419	$	151	$	1,462	$	994	$	4,157

Six Months Ended June 30, 2014:
Capital expenditures	$	3,705	$	589	$	192	$	1,537	$	1,232	$	7,255

The following is depreciation and amortization by reportable segment for the three and six months ended June 30, 2015 and 2014:


	Advanced Manufacturing Capital Equipment		Global Service		Asia Region Sales		Other		Corporate and Eliminations		Total
Three Months Ended June 30, 2015:
Depreciation and amortization	$	4,305	$	254	$	88	$	268	$	635	$	5,550

Six Months Ended June 30, 2015:
Depreciation and amortization	$	8,552	$	510	$	173	$	578	$	1,269	$	11,082


	Advanced Manufacturing Capital Equipment		Global Service		Asia Region Sales		Other		Corporate and Eliminations		Total
Three Months Ended June 30, 2014:
Depreciation and amortization	$	3,528	$	267	$	101	$	251	$	668	$	4,815

Six Months Ended June 30, 2014:
Depreciation and amortization	$	6,454	$	539	$	200	$	459	$	1,313	$	8,965

In connection with the new segment structure, goodwill was allocated to each reportable segment on a relative fair value basis. The Company performed an interim quantitative impairment test as of January 1, 2015 and concluded that the fair values of each reporting unit exceeded their respective carrying values.

Goodwill associated with each of our reportable segments is as follows:


	June 30, 2015			December 31, 2014
Reportable segment:
Advanced Manufacturing Capital Equipment	$	174,344		$	166,946
Global Service		19,826			19,728
Asia Region Sales		—			—
Other		6,228			6,228
Foreign currency translation		(186	)		(521	)

Total goodwill	$	200,212		$	192,381

Worldwide Product Information

Because the reportable segment information above does not reflect worldwide sales of the Company’s products, the Company groups its products into three groups of similar products based upon the similarity of product function. Worldwide net revenue for each group of products is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Instruments, Control and Vacuum Products	$	110,441	$	90,250	$	220,877	$	191,907
Power and Reactive Gas Products		92,977		79,360		181,476		169,962
Analytical Solutions Products		14,548		15,087		29,452		29,181

	$	217,966	$	184,697	$	431,805	$	391,050

Sales of Instruments, Control and Vacuum Products and Power and Reactive Gas Products are included in the Company’s Advanced Manufacturing Capital Equipment, Asia Region Sales, Global Service and Other segments because the products are sold through these segments. Sales of the Analytical Solutions Products are included in the Asia Region Sales, Global Service and Other segments because the products are sold through these segments.

Geographic

Information about the Company’s operations in different geographic regions is presented in the tables below. Net revenues to unaffiliated customers are based on the location in which the sale originated. Transfers between geographic areas are at negotiated transfer prices and have been eliminated from consolidated net revenues.


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net revenues:
United States	$	123,413	$	107,931	$	243,594	$	225,309
Korea		27,349		19,536		59,421		50,266
Japan		17,046		14,416		34,302		31,343
Asia (excluding Korea and Japan)		30,743		24,002		54,426		45,765
Europe		19,415		18,812		40,062		38,367

	$	217,966	$	184,697	$	431,805	$	391,050


	June 30, 2015		December 31, 2014
Long-lived assets:⁽¹⁾
United States	$	56,699	$	57,701
Europe		5,717		6,099
Asia		9,520		10,887

	$	71,936	$	74,687

(1)	Long-lived assets include property, plant and equipment, net and certain other long-term assets, excluding long-term income tax receivable.

Major Customers

The Company had two customers with net revenues greater than 10% of total net revenues in the periods shown as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Customer A		18.1	%		18.9	%		17.8	%		19.6	%
Customer B		13.2	%		13.8	%		12.7	%		13.4	%