MKS (MKSI) Risk Analysis

The hazards associated with chemical manufacturing and the related storage and transportation of chemical raw materials, products and waste are inherent to our specialty chemicals operations. These hazards could lead to an interruption or suspension of operations and have a material adverse effect on the productivity and profitability of a particular manufacturing facility or on our business as a whole. Potential risks include storage tank leaks and ruptures, explosions and fires, and chemical spills and other discharges or releases of toxic or hazardous substances or gases. These risks could be caused or exacerbated by mechanical failures, unscheduled downtime, labor difficulties, transportation interruptions, inclement weather, natural disasters, cybersecurity breaches or terrorist attacks. These hazards may result in personal injury and loss of life, damage to property, and contamination of the environment, which may result in an interruption or suspension of operations, the imposition of civil or criminal fines, penalties and other sanctions, cleanup costs, and claims by our employees, governmental entities or third parties. We are dependent on the continued operation of our production facilities, and the loss or shutdown of operations at any of our major operating facilities could have a material adverse effect on our business, financial condition and operating results.

We outsource a number of services, including certain IT systems and systems management, logistics, contract manufacturing, payroll and tax functions, to third-party service providers. While outsourcing arrangements may lower our cost of operations, they also reduce our direct control over the services rendered. This diminished control may have an adverse effect on the quality or quantity of services rendered, our ability to quickly respond to changing market conditions, or our ability to ensure compliance with all applicable laws and regulations. If we do not effectively develop and manage our outsourcing strategies, if required export and other governmental approvals are not timely or accurately obtained, if our third-party service providers do not comply with laws, perform as anticipated or adequately protect our data, including from cybersecurity breaches, or if there are delays or difficulties in enhancing business processes, we may experience operational difficulties, increased costs, manufacturing or service interruptions or delays, loss of IP rights or other sensitive data, quality and compliance issues, and challenges in managing our product inventory or recording and reporting financial and management information, any of which could materially and adversely affect our business, financial condition and operating results.

As a manufacturer of specialty chemicals, we are subject to chemical approvals, registrations and regulations around the world, including European Union Regulations on Registration, Evaluation, Authorisation and Restriction of Chemicals ("EU REACH") in the EU, the Toxic Substances Control Act ("TSCA") in the United States, and similar laws and regulations in certain other jurisdictions in which we and our customers operate. In recent years, changes to existing laws and regulations and the adoption of new laws and regulations have imposed new obligations, including restrictions and prohibitions on highly hazardous substances, that could force us to reformulate or discontinue certain of our products. Governmental and societal demands for greater product safety and environmental protection have increased pressure for more stringent regulatory control with respect to the chemical industry, including with respect to manufacturing, importing and using chemicals. For example, EU REACH imposes comprehensive compliance obligations and establishes mechanisms to identify and restrict high-concern chemicals, and comparable regulatory requirements have been adopted in several other countries. As another example, in the United States, TSCA mandates risk evaluation of existing "high priority" chemicals. In addition, the U.S. Environmental Protection Agency (the "EPA") must make a no "unreasonable risk" finding before a new chemical can be fully commercialized. In China, with the publication of the first, second and third batch of the List of Chemicals under Priority Control, the Ministry of Ecology and Environment has begun to implement restrictions and bans on the use of certain substances in a variety of industrial sectors. Additionally, the Technical Standards on Environmental Risk Assessment and Control of Chemical Substances (2024) impose comprehensive obligations with respect to the screening, determination and mitigation of risks of certain chemicals. These laws and regulations generally create uncertainty about whether existing chemicals important to our business may be designated for restriction and whether the approval process for new chemicals may become more difficult and costly. These changes could adversely impact our ability to supply certain products to our customers and could also result in compliance obligations, fines, ongoing monitoring and other future business activity restrictions, which could have a material adverse effect on our business, financial condition and operating results. Perfluorooctanesulfonic acid and other per- and polyfluoroaklyl substances ("PFAS") are chemical agents that have been targeted for risk assessment, restriction, regulation and high-priority remediation and are the subject of litigation and governmental investigations in the United States and other countries. For example, we have been named as a defendant in several lawsuits related to PFAS as a result of alleged environmental contamination by certain of our end customers involving their use and disposal of products containing PFAS, and we could become subject to additional lawsuits in the future. We have also received and responded to requests for information from U.S. regulatory agencies. While we have developed a suite of products that do not require any PFAS chemicals and, when adopted by the industry, will obviate the need for PFAS-containing mist suppressants and wetting agents, we sell a limited number of products that contain permissible levels of PFAS. International environmental protection requirements, including chemical regulation requirements, and enforcement of these requirements, may become more stringent in the future and could result in material costs relating to regulatory compliance, liabilities, litigation proceedings, or other impacts, such as restrictions or prohibitions on our products. Future regulatory or other developments could also restrict or eliminate the use of, or require us to make modifications to, our products, packaging, manufacturing processes, transportation methods, and technology, which could have a material adverse effect on our business, financial condition, and operating results. Our production facilities require permits, such as environmental, operating, and product-related permits and import/export permits, which are subject to renewal and, in some circumstances, revocation. We may not obtain these permits or they may be discontinued or may contain significant and costly new requirements. If a permit for a production facility is not renewed or is revoked, the facility may need to be closed temporarily or permanently, which may have a material adverse effect on our business, financial condition and operating results. Failure to obtain or maintain permits for our facilities or other failures to comply with applicable environmental regulations could result in the shutdown of, or suspension of operations at, our plants. Many of our customers are subject to the same or similar environmental regulations. The impact of these regulations on our customers and our customers' ability to comply with these regulations is outside of our control. However, non-compliance by our customers could have an indirect negative effect on our business and result in claims against us. We must monitor relevant chemical regulatory developments in order to limit the associated risks of new developments by triggering timely countermeasures, such as alternative products and phase-outs.

Our business depends upon capital expenditures of semiconductor device manufacturers (which in turn depends upon demand for semiconductors), electronics manufacturers and Tier 1 and Tier 2 suppliers for the automotive industry. These industries have historically experienced cyclical variations in product supply and demand. For example, our year-over-year sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers increased 13% in 2025, increased 1% in 2024 and decreased 28% in 2023. These sometimes sudden and severe cycles can result from many factors, including overall consumer and industrial spending, demand for electronic products that drive manufacturer production, manufacturers' capacity utilization, new product introductions, demand for customers' products, inventory levels relative to demand, access to affordable capital, labor conditions, commodity prices, energy costs, and, most recently, accelerated investment in AI. The timing, severity and duration of these cycles are difficult to predict, and we may not be able to respond effectively to these cycles. During downturns in the semiconductor and electronics manufacturing industries, periods of overcapacity have significantly reduced demand for our products, which may result in lower gross margins due to reduced absorption of manufacturing overhead, as our ability to rapidly and effectively reduce our cost structure in response to such downturns is limited by the fixed nature of many of our expenses in the near term. During downturns in the automotive industry, we have experienced a similar effect on the gross margins of the general metal finishing reporting unit of our Materials Solutions Division ("MSD"). Further, our ability to reduce our long-term expenses is constrained by our need to invest in next-generation product technology and to support and service our products. In addition, due to the relatively long manufacturing lead times for some of our products, we may incur expenditures or purchase raw materials or components for products we are unable to sell. As a result, downturns in these industries may materially harm our business, financial condition and operating results. Conversely, during upturns in these industries, we may have difficulty rapidly and effectively increasing our manufacturing capacity to meet sudden increases in customer demand. If we fail to do so, we may lose business to our competitors and our relationships with our customers may be harmed.

As a result of our extensive presence in China, we are subject to the following significant risks: - Adverse changes in Chinese political, economic or social conditions or Chinese laws, regulations or policies, including the imposition of unexpected or confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, or the reversal of economic reform policies that encourage private economic activity, foreign investments and greater economic decentralization;- Differing economic practices compared to most developed countries, including with respect to the amount of government involvement, control of foreign exchange and allocation of resources;- Uncertainties presented by the Chinese legal system, which is not fully integrated and continues to rapidly evolve, impeding our ability to interpret certain Chinese laws and regulations, predict and evaluate the outcome of administrative and court proceedings and the level of legal protection in China and enforce contracts we have entered into in China;- Chinese controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China, restricting our ability to remit sufficient foreign currency to repay outstanding indebtedness, pay dividends or make other payments to us, or otherwise satisfy foreign currency-denominated obligations; and - The escalation of trade tensions between China and other countries, including the United States, and the imposition of tariffs, sanctions and export controls by various government agencies, has impacted international trade. Notably, as discussed in greater detail below, the U.S. government imposed tariffs on certain imports from China in 2018 and 2019, and China responded by imposing its own retaliatory tariffs. In early 2025, the U.S. government increased trade tensions with China by imposing additional tariffs on certain imports from China. In addition, as discussed in greater detail below, the U.S. government has implemented export restrictions and national security reviews on semiconductor technologies related to China, which has disrupted, and could further disrupt, existing partnerships and limit market opportunities within the Chinese market. These reviews and restrictions may lead to challenges in accessing markets or curtail investment prospects. In response, China has announced reciprocal and retaliatory actions, including tariff and non-tariff actions such as export restrictions on certain materials. Even as tensions ease from time to time, the complex and volatile, evolving nature of these regulations and policies further elevates the risk of non-compliance, and there can be no assurance we will be able to fully offset all related increased costs or mitigate the financial and competitive impacts of such tariffs and trade restrictions. If we experience any of the risks associated with doing business in China, our business, financial condition and operating results could be significantly harmed.

Following a period of extreme escalation in early 2025, where U.S. duties on Chinese imports reached a peak of 145% (inclusive of a 125% reciprocal tariff and a 20% fentanyl-related surcharge), the trade environment has transitioned into a complex, multi-layered duty regime. As of January 2026, we remain subject to a combined 20% International Emergency Economic Powers Act ("IEEPA")-based baseline duty on Chinese imports (10% reciprocal and 10% fentanyl-related), which stacks upon existing Section 301 duties, standard most-favored-nation rates as well as applicable Section 232 duties. Beyond China, the U.S. government has transitioned the 10% IEEPA baseline into a permanent Reciprocal Tariff Schedule, affecting nearly all global imports. This regime imposes variable, country-specific duties that fluctuate based on the perceived "reciprocity" of a trading partner's own tariff walls. In February 2026, the U.S. Supreme Court held that the IEEPA does not authorize the U.S. President to impose tariffs, invalidating both the "reciprocal" tariffs and the country-specific tariffs. However, the U.S. President took steps to impose new tariffs under other authorities. Separately, in April 2025, the U.S. Department of Commerce initiated an investigation under Section 232 of the Trade Expansion Act of 1962 into the national security implications of imports of semiconductors, semiconductor manufacturing equipment, and their derivative products and concluded that additional tariffs on specific covered products are appropriate, subject to several end-use exemptions. The U.S. government has also imposed global tariffs on certain critical raw materials, including steel, aluminum, and copper, and certain products, such as passenger vehicles and light trucks. Further, the Chinese government has imposed trade restrictions on certain rare earth elements critical to many advanced manufacturing, computing and defense applications and has implemented extra-territorial controls on items produced outside of China that are made with such elements. The continuation or expansion of the scope or amount of such global raw material or product-based tariffs or restrictions could significantly increase our costs or have an adverse effect on the end markets we support. Attempts to mitigate the impact of tariffs could cause us to sub-optimize operations, increasing our cost to operate. Tariffs have increased, and will continue to increase, the cost of our materials and lead us to apply surcharges or raise prices, which could reduce demand for our products. Customers and end-users may delay, reduce, or cancel spending on projects involving our products, negatively impacting demand and our financial results. Our mitigation efforts and price increases may not fully offset the impact of tariffs and may result in lowering our margin on products sold. If the U.S. government expands or adopts additional tariffs, or if other countries retaliate, the resulting trade barriers could have a significant adverse impact on our suppliers, our customers and on our business. The volatility and unpredictability of international trade policies and conditions add further complexity to our operations, making it challenging to forecast and plan effectively. We cannot predict the future trade policy of the United States or of any foreign countries in which we operate or purchase goods, or the terms of any trade agreements or their impact on our business. The continued adoption and expansion of tariffs, quotas and embargoes, the occurrence or threat of a trade war or other governmental action related to tariffs or trade agreements or policies, has the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the world and U.S. economies, which in turn could have a material adverse effect on our business, operating results and financial condition. In addition, "Entity List" designations and "military end-user" controls have been significantly expanded, as have some rules relating to items produced outside the United States that incorporate more than de minimis levels of U.S. controlled content or that are derived from (i.e., the "direct product" of) U.S. origin technologies, equipment or software. In October 2022, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") implemented new and novel restrictions related to end-uses in semiconductor, semiconductor manufacturing, supercomputer, and advanced computing, along with certain equipment used to develop and produce them, as well as controls around the activities of U.S. persons in certain markets, including China. These regulations, which BIS has amended several times since initial publication (as amended, the "BIS Rules"), have resulted in, and may in the future result in, loss of business, both directly to China end-customers, and indirectly through our OEM customers, as well as additional export license requirements on shipments of our products, parts and supplies, and associated increased administrative burdens. For example, as a result of the initial BIS Rules promulgated in late 2022, we experienced an annual loss in net revenues of approximately $200 million to $250 million, most of which was realized in 2023. The extraordinary complexity of these rules, combined with their continued modification and the likelihood of further amendments from BIS, significantly increases our risk of non-compliance, which could result in fines and other penalties, and could change how these rules impact us. The U.S. government and other government agencies may promulgate new or additional export licensing or other regulations that have the effect of further limiting our ability to provide certain products and services to customers outside the United States, including China. The U.S. government may also revise or expand existing regulations or issue guidance clarifying the scope and application of these requirements, which could change the impact of these rules on our business and manufacturing operations. While we continue to adjust our policies and practices to ensure compliance with these regulations, and seek to mitigate their impact, there can be no assurances that current or future regulations, by the United States or other countries, will not have a material adverse effect on our business. Since the beginning of 2019, regulatory changes have been implemented at an unprecedented pace, which increases the resources needed to monitor and comply with regulations, while heightening the risk of non-compliance. Such regulatory changes include the addition by BIS of China-based Huawei Technologies Co., Ltd. ("Huawei"), Semiconductor Manufacturing International Corporation ("SMIC"), Yangtze Memory Technologies Corp ("YMTC"), NAURA Technology Group, Piotech, Inc. and many of their respective affiliates onto its Entity List. Accordingly, we have implemented additional monitoring processes and suspended orders from these companies as well as other designated Chinese-based customers, where those orders are subject to U.S. jurisdiction. We were previously negatively impacted by the cancellation of orders from customers who are suppliers to these firms, and we could be negatively impacted in the future by further amendments to the Entity List. In addition, BIS has modified the Foreign Direct Product, De Minimis and "military end-use" rules, expanded the scope of products and technologies that would require licenses for military end-uses, primarily in China, and expanded the list of "military end users," mostly in China, further limiting our sales. At the same time, BIS and the U.S. Department of Defense have also added numerous China-based companies, including companies with which we do business, to the "Unverified List," and "Chinese Military Companies" list, respectively. Placement on such lists may be an indication of additional future restrictions by the U.S. government, as was the case with YMTC, which was added to the Unverified List in October 2022 and was then added to the Entity List in December 2022. Increased restrictions on China have led to and may continue to lead to regulatory retaliation by the Chinese government and further escalate geopolitical tensions between China and Taiwan. For example, in 2019, China's Ministry of Commerce announced an "unreliable entity list" under which non-Chinese entities that cut off supply to Chinese companies may be subject to government action. Because many of the mechanisms for being named to the list, removed from the list, and enforcement remain ill-defined, the potential impacts of the regulation remain unknown. In addition, in 2023, China adopted export curbs on crucial raw materials, including gallium, germanium, and graphite, that had both direct and indirect adverse impacts on our business and supply chain. In December 2024, the Chinese Ministry of Commerce imposed stricter export control restrictions on the export to the United States of gallium, germanium and other materials with potential dual-use applications, thereby increasing the adverse impact on our business, costs and supply chain. In April 2025, China implemented new export restrictions on certain rare earth minerals, including yttrium, which is a critical component used in the manufacturing of our lasers. As a result, we expect to encounter challenges in sourcing this and other critical materials, along with higher costs and potential supply chain disruptions, which may materially harm our business, financial condition and operating results. Additionally, as a result of Chinese extra-territorial controls, we expect increased compliance burdens and risk of violations, which also have the potential to harm our business, financial condition and operating results. The ongoing geopolitical tensions and economic uncertainty between the United States and its trading partners caused by recent tariffs, Entity List and "military end user" designations, foreign-made product rules and the BIS Rules, and the unknown impact of current and future trade regulations, may continue to increase costs, as well as restrict our ability to sell, or decrease demand from customers to purchase, our products, directly and indirectly, which could materially harm our business, financial condition and operating results. This trade uncertainty has caused, and may continue to cause, customers to delay or cancel orders, as they mitigate the risk to their own supply chain and cost exposure by sourcing from locally based suppliers or suppliers based in other countries. Such delays and cancellations could have a material impact on our business, financial condition and operating results. It is possible that additional trade restrictions will be imposed, and that existing tariffs will be increased on imports of our products or the components used in our products and/or that our business will be impacted by additional retaliatory tariffs, policies that favor domestic industries, or restrictions imposed and/or increased by China or other countries in response to existing or future tariffs. These developments could cause us to lose additional sales and customers, incur increased costs and lower margins, seek alternative suppliers, raise prices or make changes to our operations, any of which could materially harm our business, financial condition and operating results.