21)

Business Segment, Geographic Area, Product and Significant Customer Information

The Company develops, manufactures, sells and services products that measure, control, power, monitor and analyze 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 current structure still reflects four reportable segments, however, the composition of the segments has changed.

The Company’s current 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 that 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 were included in 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 twelve months ended December 31, 2014 and 2013 reflect the current 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, control and vacuum products, power and reactive gas 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, control and vacuum products, power and reactive gas products, and certain other product groups, all of which are utilized in semiconductor processing and other similar advanced manufacturing processes.

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 of 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:


	Years Ended December 31,
	2015			2014			2013
Advanced Manufacturing Capital Equipment	$	662,911		$	620,303		$	509,008
Global Service		116,420			107,050			101,103
Asia Region Sales(1)		203,231			183,056			159,781
Other		79,523			82,709			73,235
Corporate, Eliminations		(248,561	)		(212,249	)		(173,707	)

	$	813,524		$	780,869		$	669,420

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


	Years Ended December 31,
	2015			2014			2013
Gross profit by reportable segment:
Advanced Manufacturing Capital Equipment	$	286,149		$	254,292		$	185,105
Global Service		39,532			38,147			35,721
Asia Region Sales(1)		27,494			27,184			26,874
Other		23,869			27,896			25,894
Corporate and Eliminations		(14,172	)		(9,753	)		(7,020	)

Total gross profit by reportable segment		362,872			337,766			266,574
Operating expenses:
Research and development		68,305			62,888			63,570
Selling, general and administrative		129,087			131,828			142,014
Insurance reimbursement		—			—			(1,071	)
Acquisition costs		30			499			171
Restructuring		2,074			2,464			1,364
Amortization of intangible assets		6,764			4,945			2,139

Income from operations		156,612			135,142			58,387
Net interest income		2,856			1,251			914

Income before income taxes		159,468			136,393			59,301
Provision for income taxes		37,171			20,615			23,525

Net income	$	122,297		$	115,778		$	35,776

(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 its respective region. The Advanced Manufacturing Capital Equipment and Other segments both have sales in this region as well. Accordingly, total geographical sales include sales from multiple reportable segments.

The following is capital expenditures by reportable segment for the years ended December 31, 2015, 2014 and 2013:


	Advanced Manufacturing Capital Equipment		Global Service		Asia Region Sales		Other		Corporate and Eliminations		Total
December 31, 2015:
Capital expenditures	$	7,958	$	839	$	451	$	526	$	2,640	$	12,414
December 31, 2014:
Capital expenditures	$	8,081	$	1,032	$	525	$	1,632	$	1,913	$	13,183
December 31, 2013:
Capital expenditures	$	8,139	$	955	$	628	$	627	$	2,061	$	12,410

The following is depreciation and amortization expense by reportable segment for the years ended December 31, 2015, 2014 and 2013:


	Advanced Manufacturing Capital Equipment		Global Service		Asia Region Sales		Other		Corporate and Eliminations		Total
December 31, 2015:
Depreciation and amortization	$	17,009	$	1,005	$	353	$	1,114	$	2,622	$	22,103
December 31, 2014:
Depreciation and amortization	$	15,171	$	1,097	$	477	$	1,204	$	2,565	$	20,514
December 31, 2013:
Depreciation and amortization	$	11,848	$	1,103	$	398	$	1,265	$	2,488	$	17,102

Total income tax expense is impracticable to present by reportable segment because the necessary information is not available or used by the CODM.

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.


	Years Ended December 31,
Net revenues:	2015		2014		2013
United States	$	458,313	$	448,452	$	363,948
Korea		106,909		97,323		75,401
Japan		62,879		61,092		56,978
Europe		79,927		80,659		77,910
Asia (excluding Korea and Japan)		105,496		93,343		95,183

	$	813,524	$	780,869	$	669,420


	Years Ended December 31,
Long-lived assets:(1)	2015		2014
United States	$	56,594	$	57,701
Europe		5,783		6,099
Asia		8,952		10,887

	$	71,329	$	74,687

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

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


	December 31, 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		(695	)		(521	)

Total goodwill	$	199,703		$	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:


	Years Ended December 31,
	2015		2014		2013
Instruments, Control and Vacuum Products	$	402,345	$	383,863	$	341,375
Power and Reactive Gas Products		350,469		335,271		273,357
Analytical Solutions Products		60,710		61,735		54,688

	$	813,524	$	780,869	$	669,420

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.

Major Customers

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


	Years Ended December 31,
	2015			2014			2013
Applied Materials, Inc.		17.8	%		19.1	%		17.0	%
Lam Research Corporation		13.4	%		12.9	%		12.3	%

Net revenues for each of our reportable segments include revenues from each of the two customers, which represent net revenues greater than 10% of total net revenues.