|
|
NOTE 1.
|
OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
|
We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power from the utility and convert it into various types of highly-controllable usable power that is predictable, repeatable and customizable. Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip, chemical and physical deposition, high and low voltage applications such as process control, analytical instrumentation and medical equipment, and in temperature-critical thermal applications such as material and chemical processing. We also supply related instrumentation products for advanced temperature measurement and control, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for multiple industrial markets. Our network of global service support centers provides local repair and field service capability in key regions as well as provide upgrades and refurbishment services, and sales of used equipment to businesses that use our products. As of December 31, 2015, we discontinued our Inverter production, engineering, and sales product line. As such, all Inverter revenues, costs, assets and liabilities are reported in Discontinued Operations for all periods presented herein and we currently report as a single unit. See
Note 4. Discontinued Operations
for more information.
Principles of Consolidation
— Our Consolidated Financial Statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Our Consolidated Financial Statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Use of Estimates in the Preparation of the Consolidated Financial Statements
— The preparation of our Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We believe that the significant estimates, assumptions, and judgments when accounting for items and matters such as allowances for doubtful accounts, excess and obsolete inventory, warranty reserves, acquisitions, asset valuations, asset life, depreciation, amortization, recoverability of assets, impairments, deferred revenue, stock option and restricted stock grants, taxes, and other provisions are reasonable, based upon information available at the time they are made. Actual results may differ from these estimates, making it possible that a change in these estimates could occur in the near term.
Foreign Currency Translation
— The functional currency of our foreign subsidiaries is their local currency, with the exception of our manufacturing facility in Shenzhen, The People's Republic of China (“PRC”) and our regional headquarters in Singapore, where the United States dollar is the functional currency. Assets and liabilities of foreign subsidiaries are translated to United States dollars at period-end exchange rates, and our Consolidated Statements of Operations and Cash Flows are translated at average exchange rates during the period. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income.
Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in foreign currency transaction gains and losses which are reflected as unrealized (based on period end translation) or realized (upon settlement of the transactions) in other income, net in our Consolidated Statements of Operations.
Fair Value of Financial Instruments
— We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of cash and cash equivalents, marketable securities, accounts receivable, other current assets, accounts payable, accrued liabilities, and other current liabilities in our Consolidated Financial Statements approximates fair value because of the short-term nature of the instruments.
Cash and Cash Equivalents
— We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are highly liquid investments that consist primarily of short-term money market instruments and demand deposits with insignificant interest rate risk and original maturities of three months or less at the time of purchase.
Sometimes we invest excess cash in money market funds not insured by the Federal Deposit Insurance Corporation. We believe that the investments in money market funds are on deposit with credit-worthy financial institutions and that the funds are highly liquid. The investments in money market funds are reported at fair value, with interest income recorded in
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
earnings and are included in “Cash and cash equivalents.” The fair values of our investments in money market funds are based on the quoted market prices.
At
December 31, 2018
we had
$0.7 million
and at December 31, 2017 we had
$1.2 million
, of cash included in cash and cash equivalents that is used to collateralize certain tax, custom and purchasing card programs and is restricted from immediate withdrawal.
Marketable Securities
— All of our investments in marketable securities are classified as available-for-sale at the respective balance sheet dates. Marketable securities classified as available-for-sale are recorded at fair value based upon quoted market prices, and any temporary difference between the cost and fair value of the investment is presented as a separate component of accumulated other comprehensive income (loss). We recognize gains and losses on the date our investments mature or are sold and record these gains and losses in other income, net. The specific identification method is used to determine the gains and losses on investments in marketable securities.
Concentrations of Credit Risk —
Financial instruments, which potentially subject us to credit risk, include cash and cash equivalents, marketable securities, and trade accounts receivable. To preserve capital and maintain liquidity, we invest with financial institutions we deem to be of high quality and sound financial condition. Our investments are in low-risk instruments and we limit our credit exposure in any one institution or type of investment instrument based upon criteria including creditworthiness.
At
December 31, 2018
, our accounts receivable from Applied Materials and Lam Research were
$34.3 million
, or
34.2%
and
$12.2 million
, or
12.1%
of our total accounts receivable, respectively. At
December 31, 2017
, our accounts receivable from Applied Materials and Lam Research were
$36.8 million
, or
42.0%
and
$5.4 million
, or
6.2%
of our total accounts receivable, respectively. No other customer balance exceeded
10%
of our total accounts receivable balance at
December 31, 2018
or
December 31, 2017
. We have established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information.
Accounts Receivable and Allowance for Doubtful Accounts —
Accounts receivable are recorded at net realizable value. We maintain a credit approval process and we make significant judgments in connection with assessing our customers’ ability to pay. Despite this assessment, from time to time, our customers are unable to meet their payment obligations. We continuously monitor our customers’ credit worthiness and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, there is no assurance that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results.
Changes in allowance for doubtful accounts are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Balances at beginning of period
|
|
$
|
1,748
|
|
|
$
|
1,943
|
|
|
$
|
8,739
|
|
Additions from acquisition
|
|
416
|
|
|
—
|
|
|
—
|
|
Additions - charged to expense
|
|
109
|
|
|
—
|
|
|
1,332
|
|
Deductions - write-offs, net of recoveries
|
|
(417
|
)
|
|
(195
|
)
|
|
(8,128
|
)
|
Balances at end of period
|
|
$
|
1,856
|
|
|
$
|
1,748
|
|
|
$
|
1,943
|
|
Inventories
— Inventories include costs of materials, direct labor, manufacturing overhead, in-bound freight, and duty. Inventories are valued at the lower of cost (first-in, first-out method) or net realizable value and are presented net of reserves for excess and obsolete inventory.
We regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less than cost, based primarily on historical usage and our estimated forecast of product demand. Demand for our products can fluctuate significantly. A significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand.
In addition, our industry is subject to technological change, new product development, and product technological obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, any significant
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results.
Property and Equipment
— Property and equipment is stated at cost or estimated fair value if acquired in a business combination. Depreciation is computed over the estimated useful lives using the straight-line method. Estimated useful lives for financial reporting purposes are as follows: buildings,
20
to
40
years; machinery, equipment, furniture and fixtures and vehicles,
three
to
15
years; and computer and communication equipment,
three
years.
Amortization of leasehold improvements is calculated using the straight-line method over the lease term or the estimated useful life of the assets, whichever period is shorter. Leasehold additions and improvements are capitalized, while maintenance and repairs are expensed as incurred.
When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included in other income, net, in our Consolidated Statements of Operations.
Intangible Assets, Goodwill and Other Long-Lived Assets
— As a result of our acquisitions, we identified and recorded intangible assets and goodwill. Intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful lives. Goodwill is subject to annual impairment testing, as well as testing upon the occurrence of any event that indicates a potential impairment. Intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and goodwill may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows.
The estimation of useful lives and expected cash flows requires us to make significant judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates can result in significant revisions to our carrying value of these assets and may result in material charges to our results of operations.
The annual impairment test for goodwill can be performed using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired. If this assessment indicates that it is more likely than not that goodwill is impaired, the next step of impairment testing compares the fair value of a reporting unit to its carrying value. Goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill.
Revenue Recognition
— We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services have been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling fees, if any, are recognized as revenue. The related shipping and handling costs is recognized in cost of sales. We expense incremental costs of obtaining contracts when the amortization period of the costs is less than 1 year. These costs are included in selling, general, and administrative expenses. Repairs that are covered under our standard warranty do not generate revenue.
We maintain a worldwide support organization in 10 countries, including the United States, the PRC, Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel and Great Britain. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue.
As part of our ongoing service business, we satisfy our service obligations under extended warranties and preventive maintenance contracts. Extended warranties had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred and recognized ratably over the service periods, as defined in the agreements. We have deferred revenue related to our extended warranties and service contracts totaling
$33.4 million
as of
December 31, 2018
and
$37.5 million
as of
December 31, 2017
.
Research and Development Expenses
— Costs incurred to advance, test or otherwise modify our proprietary technology or develop new technologies are considered research and development costs and are expensed when incurred. These costs are primarily comprised of costs associated with the operation of our laboratories and research facilities, including internal labor, materials, and overhead.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Warranty Costs
— We provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. We offer warranty coverage for a majority of our Precision Power products for periods typically ranging from 12 to 24 months after shipment. We warranted our inverter products for five to ten years and provided the option to purchase additional warranty coverage for up to 20 years. The warranty expense accrued related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded as such on our Consolidated Balance Sheets. See
Note 4. Discontinued Operations
for more information. See
Note 15.
Warranties
for more information on our warranties from continuing operations. We estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs. The assumptions we use to estimate warranty accruals are reevaluated periodically, in light of actual experience, and when appropriate, the accruals are adjusted. Should product failure rates differ from our estimates, actual costs could vary significantly from our expectations.
Stock-Based Compensation
— Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. We have estimated the fair value of all stock options and awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk-free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. Our expected volatility assumption is based on the historical daily closing price of our stock over a period equivalent to the expected life of the options.
Income Taxes
— We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for future tax consequences. A deferred tax asset or liability is computed for both the expected future impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry-forwards. Tax rate changes are reflected in the period such changes are enacted.
We assess the recoverability of our net deferred tax assets and the need for a valuation allowance on a quarterly basis. Our assessment includes a number of factors including historical results and taxable income projections for each jurisdiction. The ultimate realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, we determine if we will realize the benefits of these deductible differences.
Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions. In general, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. 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. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. 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.
On December 22, 2017, the Tax Act was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21%, among others. In conjunction with the Tax Act enactment, the SEC issued Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
("SAB 118"), which allowed for the recording of provisional amounts related to the Tax Act and subsequent adjustments related to the Tax Act during an up to one-year measurement period. The Company recorded what it believed to be reasonable estimates during the SAB 118 measurement period which lasted from December 2017 to December 2018. During the quarter ended December 31, 2018, the Company finalized the accounting treatment of the income tax effects of the Tax Act. Although the SAB 118 measurement period has ended, there may be some aspects of the Tax Act that remain subject to future regulations and/or notices which may further clarify certain provisions of the Tax Act. Accordingly, the Company may need to adjust its previously recorded amounts to reflect the recognition and measurement of its tax accounting positions in accordance with Accounting Standards Codification Topic-740, "Income Taxes" which could be material.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Commitments and Contingencies
— From time to time we are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations in a particular period. An unfavorable decision, particularly in patent litigation, could require material changes in production processes and products or result in our inability to ship products or components found to have violated third-party patent rights. We accrue loss contingencies when it is probable that a loss has occurred or will occur and the amount of the loss can be reasonably estimated. Our estimates of probability of losses are subjective, involve significant judgment and uncertainties, and are based on the best information we have at any given point in time. Resolution of these uncertainties in a manner inconsistent with our expectations could have a significant impact on our results of operations and financial condition
NEW ACCOUNTING STANDARDS
From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Consolidated Financial Statements upon adoption.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within the year of adoption. Early adoption is permitted.
Advanced Energy has established a cross-functional implementation team to analyze its current portfolio of lease contracts. We are currently in the process of aggregating lease agreements and completing the individual lease analysis in accordance with ASU 2016-02. The implementation team is also responsible for identifying and implementing changes to existing business processes, controls, and systems in order to support lease accounting and disclosure under the new standard. The standard permits the use of either the retrospective or cumulative effect transition method. We will adopt the new lease guidance effective January 1, 2019 with a cumulative adjustment to the opening balance of Retained earnings as opposed to retrospectively adjusting our prior periods. While Advanced Energy has not yet completed its evaluation we anticipate that the adoption of ASU 2016-02 will have a significant impact on our Consolidated Balance Sheets values for right of use assets and the related lease liabilities, mainly driven by building and facility leases. The current estimate of right of use assets and related capital lease liabilities to be recorded upon adoption of ASC 842 is $40.0 million to $60.0 million.
In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income" to give companies the option to reclassify the income tax effects on items within accumulated other comprehensive income resulting from the Tax Act to retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. Advanced Energy is currently assessing the impact of adopting ASU 2018-02 and does not expect its adoption to have a significant impact on its Consolidated Financial Statements.
In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718)", Improvements to Non-employee Share-based Payments (“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. Advanced Energy is currently assessing and does not believe ASU 2018-07 will have a significant impact on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)" ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 is effective for fiscal years ending after December 15, 2019 and shall be applied to all periods presented on a retrospective basis. Early adoption is permitted. Advanced Energy is currently assessing and does not believe ASU 2018-13 will have a significant impact on its fair value measurements disclosure requirement.
In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)" ("ASU 2018-14"). ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and shall be applied to all periods presented on a retrospective basis. Early adoption is
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
permitted. Advanced Energy is currently assessing the impact ASU 2018-14 may have on its Consolidated Financial Statements disclosures.
Recently adopted accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" and has subsequently issued several supplemental and/or clarifying ASUs (collectively known as "ASC 606"). ASC 606 implements a five-step model for how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 is effective for fiscal periods beginning after December 15, 2017 and for the interim periods within that year. We adopted ASC 606 during the first quarter of fiscal year 2018 using the modified retrospective approach and recorded an adjustment to reflect the cumulative-effect of its adoption on all contracts with customers. See
Note 3. Revenue
for further details.
In October 2016, the FASB issued ASU 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory." ASU 2016-16 changes the timing of income tax recognition for an intercompany sale of assets. ASU 2016-16 requires the seller’s tax effects and the buyer’s deferred taxes to be recognized immediately upon the sale instead of deferring accounting for the income tax implications until the assets are sold to a third party or recovered through use. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017 including interim periods within the year of adoption. We adopted ASU 2016-16 using the modified retrospective approach. To reflect the cumulative-effect of adopting ASU 2016-16, in 2018 we recorded adjustments that increased deferred income tax assets and retained earnings. During the first quarter of 2018 we recorded an adjustment of
$17.1 million
and during the fourth quarter of 2018 we recorded an out of period adjustment for an additional
$12.8 million
to reflect a revised assessment of the adoption of this standard. We determined that the adjustment did not have a material impact to our current or previously issued consolidated financial statements.
Cumulative-effect of recently adopted accounting pronouncements
The following table reflects the cumulative-effect of the adoption of ASC 606 and ASU 2016-16 using the modified retrospective approach for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Impact of
|
|
Impact of
|
|
January 1, 2018
|
|
as reported
|
|
ASC 606
|
|
ASU 2016-16
|
|
as adjusted
|
Accounts and other receivable, net
|
$
|
87,429
|
|
|
$
|
8,251
|
|
|
$
|
—
|
|
|
$
|
95,680
|
|
Inventories
|
78,450
|
|
|
(3,561
|
)
|
|
—
|
|
|
74,889
|
|
Total current assets
|
595,225
|
|
|
4,690
|
|
|
—
|
|
|
599,915
|
|
Deferred income tax assets
|
18,841
|
|
|
—
|
|
|
29,907
|
|
|
48,748
|
|
Total assets
|
733,308
|
|
|
4,690
|
|
|
29,907
|
|
|
767,905
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
5,365
|
|
|
—
|
|
|
921
|
|
|
6,286
|
|
Deferred income tax liabilities
|
4,556
|
|
|
1,143
|
|
|
—
|
|
|
5,699
|
|
Total liabilities
|
212,667
|
|
|
1,143
|
|
|
921
|
|
|
214,731
|
|
Retained earnings
|
333,225
|
|
|
3,547
|
|
|
28,986
|
|
|
365,758
|
|
Total stockholders’ equity
|
520,641
|
|
|
3,547
|
|
|
28,986
|
|
|
553,174
|
|
Total liabilities and stockholders' equity
|
733,308
|
|
|
4,690
|
|
|
29,907
|
|
|
767,905
|
|
|
|
NOTE 2.
|
BUSINESS ACQUISITIONS
|
LumaSense Technologies Holdings, Inc.
In September 2018, Advanced Energy acquired LumaSense Technologies Holdings, Inc. ("LumaSense"), a privately held company with primary operations in Santa Clara, California, Frankfurt, Germany, and Ballerup, Denmark for a purchase price of
$94.9 million
in cash.
Electrostatic Technology and Product Line
In May 2018, Advanced Energy acquired the electrostatic technology and product line from Monroe Electronics, Inc. ("Monroe") a privately held electronics manufacturer in Lyndonville, New York for
$3.0 million
in cash.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Trek Holding Co., LTD
I
n February 2018, Advanced Energy acquired Trek Holding Co., LTD ("Trek"), a privately held company with operations in Tokyo, Japan and Lockport, New York for
$11.7 million
in cash. Trek has a
95%
ownership interest in its U.S. subsidiary which is also its primary operation.
Excelsys Holdings Limited
In July 2017, Advanced Energy acquired all of the issued and outstanding shares of capital stock of Excelsys Holdings Limited (“Excelsys”), an electronics manufacturer in Cork, Ireland for
$18.5 million
in cash.
The components of the fair value of the total consideration transferred for our acquisitions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Trek
|
|
Electrostatic Product Line
|
|
LumaSense
|
|
Total
|
|
Excelsys
|
Cash paid for acquisition
|
$
|
11,723
|
|
|
$
|
3,000
|
|
|
$
|
94,946
|
|
|
$
|
109,669
|
|
|
$
|
18,512
|
|
Cash acquired
|
(5,651
|
)
|
|
—
|
|
|
(10,262
|
)
|
|
(15,913
|
)
|
|
(1,165
|
)
|
Total fair value of consideration transferred
|
$
|
6,072
|
|
|
$
|
3,000
|
|
|
$
|
84,684
|
|
|
$
|
93,756
|
|
|
$
|
17,347
|
|
The following table summarizes estimated fair values of the assets acquired and liabilities assumed from our acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Trek
|
|
Electrostatic Product Line
|
|
LumaSense
|
|
Total
|
|
Excelsys
|
Accounts and other receivable, net
|
$
|
2,818
|
|
|
$
|
77
|
|
|
$
|
7,167
|
|
|
$
|
10,062
|
|
|
$
|
1,930
|
|
Inventories
|
3,941
|
|
|
292
|
|
|
9,372
|
|
|
13,605
|
|
|
1,048
|
|
Property and equipment
|
594
|
|
|
50
|
|
|
1,353
|
|
|
1,997
|
|
|
256
|
|
Goodwill
|
—
|
|
|
1,220
|
|
|
48,032
|
|
|
49,252
|
|
|
8,929
|
|
Intangible assets
|
788
|
|
|
1,400
|
|
|
26,000
|
|
|
28,188
|
|
|
7,585
|
|
Deferred income tax assets
|
606
|
|
|
—
|
|
|
8,116
|
|
|
8,722
|
|
|
35
|
|
Other assets
|
854
|
|
|
—
|
|
|
5,126
|
|
|
5,980
|
|
|
605
|
|
Total assets acquired
|
9,601
|
|
|
3,039
|
|
|
105,166
|
|
|
117,806
|
|
|
20,388
|
|
Accounts payable
|
747
|
|
|
39
|
|
|
5,734
|
|
|
6,520
|
|
|
1,342
|
|
Deferred income tax liabilities
|
—
|
|
|
—
|
|
|
7,984
|
|
|
7,984
|
|
|
946
|
|
Other liabilities
|
2,782
|
|
|
—
|
|
|
6,764
|
|
|
9,546
|
|
|
753
|
|
Total liabilities assumed
|
3,529
|
|
|
39
|
|
|
20,482
|
|
|
24,050
|
|
|
3,041
|
|
Total fair value of net assets acquired
|
$
|
6,072
|
|
|
$
|
3,000
|
|
|
$
|
84,684
|
|
|
$
|
93,756
|
|
|
$
|
17,347
|
|
A summary of the intangible assets acquired, amortization method and estimated useful lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Method and Useful life
|
|
Trek
|
|
Electrostatic Product Line
|
|
LumaSense
|
|
Excelsys
|
|
Amortization Method
|
|
Useful Life
|
Technology
|
$
|
671
|
|
|
$
|
1,200
|
|
|
$
|
20,000
|
|
|
$
|
5,808
|
|
|
Straight-line
|
|
10
|
Customer relationships
|
117
|
|
|
200
|
|
|
6,000
|
|
|
1,595
|
|
|
Straight-line
|
|
10
|
Tradename
|
—
|
|
|
—
|
|
|
—
|
|
|
182
|
|
|
Straight-line
|
|
5
|
Total
|
$
|
788
|
|
|
$
|
1,400
|
|
|
$
|
26,000
|
|
|
$
|
7,585
|
|
|
|
|
|
Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation at each balance sheet date.
The goodwill represents expected operating synergies from combining operations with the acquired companies and the estimated value associated with the enhancements to our comprehensive product lines.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Advanced Energy is in the process of finalizing the assessment of fair value for the assets acquired and liabilities assumed related to the LumaSense acquisition.
Pro forma results for Advanced Energy Inc. giving effect to the
LumaSense Technologies Holdings, Inc. and
Trek Holding Co., LTD
acquisitions
The following unaudited pro forma financial information presents the combined results of operations of Advanced Energy Inc., Trek and LumaSense as if the acquisitions had been completed as of the beginning of the prior fiscal year, or January 1, 2017. The unaudited pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place on January 1, 2017, nor are they indicative of future results.
The unaudited pro forma financial information for the year ended December 31, 2018 includes Advanced Energy's results, including the post-acquisition results of Trek, since February 1, 2018, and the pre-acquisition results of Trek for that period, and including the post-acquisition results of LumaSense, since September 1, 2018, and the pre-acquisition results of LumaSense for that period. The unaudited pro forma financial information for the year ended December 31, 2017 combines Advanced Energy's results with the pre-acquisition results of Trek and the pre-acquisition results of LumaSense for that period. The unaudited pro forma results for the
years ended
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
As reported
|
|
Pro forma
|
|
As reported
|
|
Pro forma
|
Total sales
|
718,892
|
|
|
758,934
|
|
|
671,012
|
|
|
752,091
|
|
Net income attributable to Advanced Energy Industries, Inc.
|
147,025
|
|
|
148,456
|
|
|
137,861
|
|
|
141,907
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
3.76
|
|
|
$
|
3.80
|
|
|
$
|
3.47
|
|
|
$
|
3.57
|
|
Diluted earnings per share
|
$
|
3.74
|
|
|
$
|
3.77
|
|
|
$
|
3.43
|
|
|
$
|
3.53
|
|
The unaudited pro forma results for all periods presented include adjustments made to account for certain costs and transactions that would have been incurred had the acquisitions been completed as of January 1, 2017. These adjustments including amortization charges for acquired intangible assets, adjustments for acquisition transaction costs and amortization of purchased gross profit. These adjustments are net of any applicable tax impact and were included to arrive at the pro forma results above.
Trek's operating results have been included in the Advanced Energy's operating results for the periods subsequent to the completion of the acquisition on February 1, 2018. Trek contributed total sales of
$21.3 million
for the year ended December 31, 2018 and a net income of
$2.2 million
for the year ended December 31, 2018.
LumaSense’s operating results have been included in the Advanced Energy's operating results for the periods subsequent to the completion of the acquisition on September 1, 2018. LumaSense contributed total sales of
$17.4 million
for the year ended December 31, 2018 and a net (loss) of
$(1.1) million
for the year ended December 31, 2018.
Advanced Energy incurred transaction-related costs of
$2.3 million
for the year ended December 31, 2018. These cost include
$1.7 million
included in "Selling, general and administrative"
and
$0.6 million
included in "Cost of sales" in the Consolidated Statements of Operations. These transaction-related costs consisted of the LumaSense acquisition transaction and integration costs, warranty and indemnity insurance costs and the amortization of purchased gross profit.
Adoption of ASC 606, "Revenue from Contract with Customers"
Advanced Energy adopted ASC 606 using the modified retrospective method by recognizing the cumulative effect of the adoption of ASC 606, for all contracts with customers, to the opening balance of equity at January 1, 2018. Therefore, our comparative financial information for the years ended
December 31, 2017
and 2016 has not been adjusted and continues to be reported under ASC Topic 605. The cumulative effect adjustment was based on the timing difference of revenue recognition between ASC Topic 605 and ASC 606 related to our inventory stocking agreements. Under ASC 606, revenue related to our inventory stocking agreements are recognized when inventory is shipped to our customers. Under ASC Topic 605, revenue was
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
recognized when the inventory was consumed by our customers. The tables below show the quantitative impact of ASC 606 on our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Balances without
|
|
|
|
|
|
|
adoption of
|
|
|
As Reported
|
|
Adjustments
|
|
ASC 606
|
Accounts and other receivable, net
|
|
$
|
100,442
|
|
|
$
|
(19,733
|
)
|
|
$
|
80,709
|
|
Inventories
|
|
97,987
|
|
|
8,218
|
|
|
106,205
|
|
Total current assets
|
|
568,448
|
|
|
(11,515
|
)
|
|
556,933
|
|
TOTAL ASSETS
|
|
816,484
|
|
|
(11,515
|
)
|
|
804,969
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
13,258
|
|
|
(1,606
|
)
|
|
11,652
|
|
Total current liabilities
|
|
110,309
|
|
|
(1,606
|
)
|
|
108,703
|
|
Deferred income tax liabilities
|
|
6,988
|
|
|
(1,143
|
)
|
|
5,845
|
|
Total liabilities
|
|
209,182
|
|
|
(2,749
|
)
|
|
206,433
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
512,783
|
|
|
(8,766
|
)
|
|
504,017
|
|
Advanced Energy stockholders’ equity
|
|
606,790
|
|
|
(8,766
|
)
|
|
598,024
|
|
Total stockholders’ equity
|
|
607,302
|
|
|
(8,766
|
)
|
|
598,536
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
816,484
|
|
|
(11,515
|
)
|
|
804,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
Balances without
|
|
|
|
|
|
|
adoption of
|
|
|
As Reported
|
|
Adjustments
|
|
ASC 606
|
Product sales
|
|
$
|
610,326
|
|
|
$
|
(11,482
|
)
|
|
$
|
598,844
|
|
Total sales, net
|
|
718,892
|
|
|
(11,482
|
)
|
|
707,410
|
|
Product cost of sales
|
|
298,597
|
|
|
(4,657
|
)
|
|
293,940
|
|
Total cost of sales
|
|
353,285
|
|
|
(4,657
|
)
|
|
348,628
|
|
Gross profit
|
|
365,607
|
|
|
(6,825
|
)
|
|
358,782
|
|
Operating income
|
|
171,553
|
|
|
(6,825
|
)
|
|
164,728
|
|
Income from continuing operations, before income taxes
|
|
172,376
|
|
|
(6,825
|
)
|
|
165,551
|
|
Provision (benefit) for income taxes
|
|
25,227
|
|
|
(1,606
|
)
|
|
23,621
|
|
Income from continuing operations
|
|
147,149
|
|
|
(5,219
|
)
|
|
141,930
|
|
Net income
|
|
147,111
|
|
|
(5,219
|
)
|
|
141,892
|
|
Net income attributable to Advanced Energy Industries, Inc.
|
|
147,025
|
|
|
(5,219
|
)
|
|
141,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
Balances without
|
|
|
|
|
|
|
adoption of
|
|
|
As Reported
|
|
Adjustments
|
|
ASC 606
|
Net income
|
|
147,111
|
|
|
(5,219
|
)
|
|
141,892
|
|
Income from continuing operations, net of income taxes
|
|
147,149
|
|
|
(5,219
|
)
|
|
141,930
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Provision for deferred income taxes
|
|
5,618
|
|
|
(1,606
|
)
|
|
4,012
|
|
Changes in operating assets and liabilities, net of assets acquired:
|
|
|
|
|
|
|
Accounts and other receivable, net
|
|
3,445
|
|
|
11,482
|
|
|
14,927
|
|
Inventories
|
|
(11,276
|
)
|
|
(4,657
|
)
|
|
(15,933
|
)
|
Net cash provided by operating activities from continuing operations
|
|
151,427
|
|
|
—
|
|
|
151,427
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Revenue Recognition
We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services have been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue.
Practical Expedients
We expense incremental costs of obtaining contracts when the amortization period of the costs is less than 1 year. These costs are included in selling, general, and administrative expenses.
Nature of goods and services
Products
Advanced Energy provides highly-engineered, mission-critical, precision power conversion, measurement and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform electrical power into various usable forms. Our power conversion products refine, modify and control the raw electrical power from a utility and convert it into power that is predictable, repeatable and customizable. Our products enable thin film manufacturing processes such as plasma enhanced chemical and physical deposition and etch for various semiconductor and industrial products, industrial thermal applications for material and chemical processes, and specialty power for critical industrial technology applications. We also supply thermal instrumentation products for advanced temperature measurement and control in these markets.
Our products are designed to enable new process technologies, improve productivity, and lower the cost of ownership for our customers. We also provide repair and maintenance services for all of our products. We principally serve original equipment manufacturers ("OEM") and end customers in the semiconductor, flat panel display, high voltage, solar panel, and other industrial capital equipment markets. Our products are used in diverse markets, applications, and processes including the manufacture of capital equipment for semiconductor device manufacturing, thin film applications for thin film renewables and architectural glass, and for other thin film applications including flat panel displays, and industrial coatings.
Services
Our global support services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime. They expect that suppliers offer comprehensive local repair service and customer support. To meet these market requirements, we maintain a worldwide support organization comprising of both direct and indirect activities, through partnership with local distributors, primarily in the United States ("U.S."), the People’s Republic of China ("PRC"), Japan, South Korea, Taiwan, Germany, Singapore and United Kingdom.
As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information which would allow us to project the estimated service usage pattern at this time. We have deferred revenue related to our extended warranties and service contracts totaling
$33.4 million
as of
December 31, 2018
and
$37.5 million
as of
December 31, 2017
. We are expected to recognize between
$0.1 million
and
$3.7 million
per year through 2034.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Disaggregation of Revenue
The following table presents our sales by product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Semiconductor capital market
|
$
|
443,141
|
|
|
$
|
461,701
|
|
|
$
|
326,316
|
|
Industrial technology capital market
|
167,185
|
|
|
116,949
|
|
|
84,263
|
|
Global support
|
108,566
|
|
|
92,362
|
|
|
73,125
|
|
Total
|
$
|
718,892
|
|
|
$
|
671,012
|
|
|
$
|
483,704
|
|
The following table presents our sales by geographic region, which includes a reclassification in prior periods to conform to the current presentation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Sales to external customers:
|
|
United States
|
$
|
370,839
|
|
|
51.5
|
%
|
|
$
|
375,907
|
|
|
56.0
|
%
|
|
$
|
327,397
|
|
|
67.7
|
%
|
Other North American countries
|
1,995
|
|
|
0.3
|
|
|
1,440
|
|
|
0.2
|
|
|
161
|
|
|
—
|
|
North America
|
372,834
|
|
|
51.8
|
|
|
377,347
|
|
|
56.2
|
|
|
327,558
|
|
|
67.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic of Korea
|
74,542
|
|
|
10.4
|
|
|
83,899
|
|
|
12.5
|
|
|
43,359
|
|
|
9.0
|
|
People's Republic of China
|
61,927
|
|
|
8.6
|
|
|
46,099
|
|
|
6.9
|
|
|
16,207
|
|
|
3.4
|
|
Other Asian countries
|
114,105
|
|
|
15.9
|
|
|
91,692
|
|
|
13.7
|
|
|
34,279
|
|
|
7.1
|
|
Asia
|
250,574
|
|
|
34.9
|
|
|
221,690
|
|
|
33.1
|
|
|
93,845
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
39,710
|
|
|
5.5
|
|
|
30,517
|
|
|
4.6
|
|
|
48,589
|
|
|
10.0
|
|
Other European countries
|
55,083
|
|
|
7.7
|
|
|
41,279
|
|
|
6.1
|
|
|
13,712
|
|
|
2.8
|
|
Europe
|
94,793
|
|
|
13.2
|
|
|
71,796
|
|
|
10.7
|
|
|
62,301
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other countries
|
691
|
|
|
0.1
|
|
|
179
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
718,892
|
|
|
100.0
|
%
|
|
$
|
671,012
|
|
|
100.0
|
%
|
|
$
|
483,704
|
|
|
100.0
|
%
|
The following table presents our net sales by extended warranty and service contracts recognized over time and our product and service revenue recognized at a point in time:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Product and service revenue recognized at point in time
|
$
|
715,055
|
|
|
$
|
667,440
|
|
|
$
|
480,696
|
|
Extended warranty and service contracts recognized over time
|
3,837
|
|
|
3,572
|
|
|
3,008
|
|
Total
|
$
|
718,892
|
|
|
$
|
671,012
|
|
|
$
|
483,704
|
|
|
|
NOTE 4.
|
DISCONTINUED OPERATIONS
|
In December 2015, we completed the wind down of engineering, manufacturing and sales of our solar inverter product line (the "inverter business"). Accordingly, the results of our inverter business have been reflected as “Income (loss) from discontinued operations, net of income taxes” on our Consolidated Statements of Operations for all periods presented herein.
The effect of our sales of extended inverter warranties to our customers continues to be reflected in deferred revenue in our Consolidated Balance Sheets. Deferred revenue for extended inverter warranties and the associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing operations in future periods in our Consolidated Statement of Operations, as the deferred revenue, is earned and the associated services are rendered. Extended warranties related to the inverter product line are no longer offered.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
The significant items included in "Income (loss) from discontinued operations, net of income taxes" are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Sales, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of sales
|
(88
|
)
|
|
234
|
|
|
154
|
|
Total operating expense (benefit)
|
96
|
|
|
(1,576
|
)
|
|
(3,894
|
)
|
Operating income (loss) from discontinued operations
|
(8
|
)
|
|
1,342
|
|
|
3,740
|
|
Other income (expense)
|
(24
|
)
|
|
337
|
|
|
2,636
|
|
Income (loss) from discontinued operations before income taxes
|
(32
|
)
|
|
1,679
|
|
|
6,376
|
|
Provision (benefit) for income taxes
|
6
|
|
|
(81
|
)
|
|
(4,130
|
)
|
Income (loss) from discontinued operations, net of income taxes
|
$
|
(38
|
)
|
|
$
|
1,760
|
|
|
$
|
10,506
|
|
Assets and Liabilities of discontinued operations within the Consolidated Balance Sheets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2018
|
|
2017
|
Cash and cash equivalents
|
|
$
|
5,251
|
|
|
$
|
7,754
|
|
Accounts and other receivables, net
|
|
406
|
|
|
1,363
|
|
Inventories
|
|
198
|
|
|
418
|
|
Current assets of discontinued operations
|
|
$
|
5,855
|
|
|
$
|
9,535
|
|
|
|
|
|
|
Other assets
|
|
$
|
67
|
|
|
$
|
72
|
|
Deferred income tax assets
|
|
5,917
|
|
|
11,013
|
|
Non-current assets of discontinued operations
|
|
$
|
5,984
|
|
|
$
|
11,085
|
|
|
|
|
|
|
Accounts payable and other accrued expenses
|
|
$
|
350
|
|
|
$
|
545
|
|
Accrued warranty
|
|
4,936
|
|
|
7,305
|
|
Current liabilities of discontinued operations
|
|
$
|
5,286
|
|
|
$
|
7,850
|
|
|
|
|
|
|
Accrued warranty
|
|
$
|
10,429
|
|
|
$
|
15,112
|
|
Other liabilities
|
|
286
|
|
|
165
|
|
Non-current liabilities of discontinued operations
|
|
$
|
10,715
|
|
|
$
|
15,277
|
|
The geographic distribution of pretax income from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Domestic
|
|
$
|
22,325
|
|
|
$
|
29,088
|
|
|
$
|
13,776
|
|
Foreign
|
|
150,051
|
|
|
169,103
|
|
|
114,300
|
|
|
|
$
|
172,376
|
|
|
$
|
198,191
|
|
|
$
|
128,076
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
The provision for income taxes from continuing operations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
1,423
|
|
|
$
|
26,550
|
|
|
$
|
3,187
|
|
State
|
|
12
|
|
|
601
|
|
|
351
|
|
Foreign
|
|
13,772
|
|
|
9,621
|
|
|
3,081
|
|
Total current provision
|
|
$
|
15,207
|
|
|
$
|
36,772
|
|
|
$
|
6,619
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
$
|
4,021
|
|
|
$
|
28,297
|
|
|
$
|
3,110
|
|
State
|
|
2,363
|
|
|
(1,000
|
)
|
|
1,564
|
|
Foreign
|
|
3,636
|
|
|
(1,979
|
)
|
|
(165
|
)
|
Total deferred provision
|
|
10,020
|
|
|
25,318
|
|
|
4,509
|
|
Total provision for income taxes
|
|
$
|
25,227
|
|
|
$
|
62,090
|
|
|
$
|
11,128
|
|
The Company's effective tax rates differ from the U.S. federal statutory rate of 21% for the year ended December 31, 2018, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates. Our effective tax rate for the year ended December 31, 2018 was also impacted by the effect of the recently enacted Tax Act, with the benefit from the corporate income tax rate reduction to 21% offset by additional GILTI tax. Under U.S. GAAP, an accounting policy election can be made to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred.
The Company's effective tax rates differ from the U.S. federal statutory rate of 35% for the years ended December 31, 2017 and 2016, primarily because of benefits from lower-taxed global operations. In 2017, our effective tax rate was also impacted by the effect of the recently enacted Tax Act, offset partially by a benefit related to the continued wind down of our solar inverter business.
The following reconciles our effective tax rate on income from continuing operations to the federal statutory rate of 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Income taxes per federal statutory rate
|
|
$
|
36,199
|
|
|
$
|
69,348
|
|
|
$
|
44,826
|
|
State income taxes, net of federal deduction
|
|
2,372
|
|
|
1,794
|
|
|
963
|
|
Transition tax - U.S. Tax Reform
|
|
1,174
|
|
|
61,690
|
|
|
—
|
|
Corporate tax rate change - U.S. Tax Reform
|
|
(652
|
)
|
|
11,177
|
|
|
—
|
|
Tax benefit associated with inverter business wind down
|
|
—
|
|
|
(33,837
|
)
|
|
—
|
|
Stock based compensation
|
|
(974
|
)
|
|
(5,263
|
)
|
|
1,117
|
|
GILTI Tax
|
|
13,064
|
|
|
—
|
|
|
—
|
|
Tax effect of foreign operations
|
|
(19,162
|
)
|
|
(47,482
|
)
|
|
(31,651
|
)
|
Uncertain tax position
|
|
(3,088
|
)
|
|
4,948
|
|
|
1,636
|
|
Unremitted earnings
|
|
2,564
|
|
|
—
|
|
|
—
|
|
Tax credits
|
|
(9,844
|
)
|
|
(658
|
)
|
|
(4,495
|
)
|
Other permanent items, net
|
|
3,574
|
|
|
373
|
|
|
(1,268
|
)
|
|
|
$
|
25,227
|
|
|
$
|
62,090
|
|
|
$
|
11,128
|
|
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant deferred tax assets and liabilities consist of the following:
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
Deferred tax assets
|
|
|
|
|
Stock based compensation
|
|
$
|
1,337
|
|
|
$
|
1,295
|
|
Net operating loss and tax credit carryforwards
|
|
38,622
|
|
|
40,572
|
|
Pension obligation
|
|
3,302
|
|
|
3,363
|
|
Excess and obsolete inventory
|
|
2,161
|
|
|
841
|
|
Deferred revenue
|
|
6,903
|
|
|
4,519
|
|
Employee bonuses and commissions
|
|
1,874
|
|
|
1,112
|
|
Depreciation and Amortization
|
|
29,525
|
|
|
—
|
|
Other
|
|
9,961
|
|
|
2,118
|
|
Deferred tax assets
|
|
93,685
|
|
|
53,820
|
|
Less: Valuation allowance
|
|
(30,924
|
)
|
|
(32,267
|
)
|
Net deferred tax assets
|
|
62,761
|
|
|
21,553
|
|
Deferred tax liabilities
|
|
|
|
|
Depreciation and amortization
|
|
17,723
|
|
|
2,605
|
|
Foreign other
|
|
—
|
|
|
3,448
|
|
Unremitted earnings
|
|
3,529
|
|
|
—
|
|
Other
|
|
1,267
|
|
|
62
|
|
Deferred tax liabilities
|
|
22,519
|
|
|
6,115
|
|
Net deferred tax assets
|
|
$
|
40,242
|
|
|
$
|
15,438
|
|
As of December 31, 2018, the Company has recorded a valuation allowance on a portion of its U.S. domestic deferred tax assets of approximately
$1.6 million
related to state net operating losses and
$2.7 million
related to acquired NOL and Foreign Tax Credit attributes from LumaSense that are subject to Internal Revenue Code Section 382 limitations and will expire if unused due to the limitation. The remaining valuation allowance on deferred tax assets approximates
$26.6 million
and is associated primarily with operations in Germany, Japan, and India including losses that are both operating and capital in nature. As of December 31, 2018, there is not sufficient positive evidence to conclude that such deferred tax assets will be recognized. The December 31, 2018 valuation allowance balance reflects a decrease of
$1.3 million
during the year. The change in the valuation allowance is primarily due to increases from acquired LumaSense positions, and final analysis of the Tax Act corporate tax rate reduction, offset by decreases due to the dissolution of fully valued UK entities and foreign exchange movements.
As of December 31, 2018, the Company had U.S., foreign and state tax loss carryforwards of
$23.5 million
,
$91.4 million
, and
$89.6 million
, respectively. Additionally, the Company had U.S. and state tax credit carryforwards of
$2.8 million
and
$0.2 million
, respectively. The U.S. and state net operating losses and tax credits are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state laws, and have various expiration periods through 2025. The majority of the foreign jurisdiction net operating loss carry forwards have no expiration period.
We operate under a tax holiday in one of our foreign jurisdictions. This tax holiday is in effect through June 30, 2027. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of the tax holiday increased/(decreased) foreign taxes by
$(17.8) million
and
$6.0 million
for 2018 and 2017, respectively. The (expense)/benefit of the tax holidays on earnings per diluted share was
$0.47
and
$(0.15)
for 2018 and 2017, respectively.
Prior to the third quarter of 2018, we asserted that the undistributed earnings of all our foreign subsidiaries were permanently reinvested. In the third quarter of 2018, following a review of our operations, liquidity and funding, tax implications of cash repatriation, and investment opportunities, we determined that the ability to access certain amounts of foreign earnings would provide greater investment returns, treasury controls, and other working capital needs. Accordingly, in the third quarter of 2018, we withdrew the permanent reinvestment assertion on
$487.4 million
of earnings generated by certain of our operations through December 2017. Resulting from this change in permanent reinvestment assertion, the Company recorded a deferred tax liability of
$2.6 million
related to withholding and state income taxes.
There is no certainty as to the timing of when such foreign earnings will be distributed to the United States in whole or in part.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Certain foreign subsidiary earnings are subject to U.S. taxation under the U.S. Tax Act, which also repeals U.S. taxation on the subsequent repatriation of those earnings. We have not provided for U.S. state or foreign income taxes on
$138.1 million
of our subsidiaries’ undistributed earnings as of December 31, 2018. The
$138.1 million
of undistributed foreign earnings continue to be reinvested in our foreign operations, as we have determined that these earnings are necessary to support our planned growth and strategic acquisitions in our foreign operations, and as a result, these earnings remain indefinitely reinvested in those operations. In making this decision, we considered cash needs for investing in our existing businesses, currency controls, and the tax cost of cash repatriation. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.
We account for uncertain tax positions by applying a minimum recognition threshold to tax positions before recognizing these positions in the financial statements. The reconciliation of our total gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
|
$
|
15,990
|
|
|
$
|
11,401
|
|
|
$
|
10,049
|
|
Additions based on tax positions taken during a prior period
|
|
94
|
|
|
1,258
|
|
|
104
|
|
Additions based on tax positions taken during a prior period - LumaSense
|
|
757
|
|
|
—
|
|
|
—
|
|
Additions based on tax positions taken during the current period
|
|
—
|
|
|
4,433
|
|
|
2,318
|
|
Reductions based on tax positions taken during a prior period
|
|
(153
|
)
|
|
—
|
|
|
—
|
|
Reductions related to a lapse of applicable statute of limitations
|
|
(3,144
|
)
|
|
(1,102
|
)
|
|
(1,070
|
)
|
Reductions related to a settlement with taxing authorities
|
|
(382
|
)
|
|
—
|
|
|
—
|
|
Balance at end of period
|
|
$
|
13,162
|
|
|
$
|
15,990
|
|
|
$
|
11,401
|
|
The unrecognized tax benefits of
$13.2 million
, if recognized, will impact the Company’s effective tax rate. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We had
$1.2 million
and
$1.0 million
of accrued interest and penalties at December 31, 2018 and 2017, respectively. We expect the total amount of tax contingencies will decrease by approximately
$8.3 million
in 2019 based on statute of limitation expiration and completion of additional procedures to support a change in facts with respect to a specific prior period position.
With few exceptions, the Company is no longer subject to federal state or foreign income tax examinations by tax authorities for years before 2015.
|
|
NOTE 6.
|
EARNINGS PER SHARE
|
Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods), if our outstanding stock options and restricted stock units had been converted to common shares, and if such assumed conversion is dilutive.
The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share for the years ended
December 31, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Income from continuing operations
|
$
|
147,149
|
|
|
$
|
136,101
|
|
|
$
|
116,948
|
|
Income from continuing operations attributable to noncontrolling interest
|
86
|
|
|
—
|
|
|
—
|
|
Income from continuing operations attributable to Advanced Energy Industries, Inc.
|
$
|
147,063
|
|
|
$
|
136,101
|
|
|
$
|
116,948
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
39,081
|
|
|
39,754
|
|
|
39,720
|
|
Assumed exercise of dilutive stock options and restricted stock units
|
271
|
|
|
422
|
|
|
311
|
|
Diluted weighted-average common shares outstanding
|
39,352
|
|
|
40,176
|
|
|
40,031
|
|
Continuing operations:
|
|
|
|
|
|
Basic earnings per share
|
$
|
3.76
|
|
|
$
|
3.42
|
|
|
$
|
2.94
|
|
Diluted earnings per share
|
$
|
3.74
|
|
|
$
|
3.39
|
|
|
$
|
2.92
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
The following stock options and restricted units were excluded in the computation of diluted earnings per share because they were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Restricted stock units
|
|
2
|
|
|
—
|
|
|
1
|
|
Share Repurchase
In September 2015, our Board of Directors authorized a program to repurchase up to
$150.0 million
of our stock over a thirty-month period. In November 2017, our Board of Directors approved an extension of the share repurchase program to December 2019 from its original maturity of March 2018. In May 2018 our Board of Directors approved a
$50 million
increase in its authorization to repurchase shares of Company common stock under this same program. As of
December 31, 2018
, we had
$24.9 million
remaining for the future repurchase of shares of our common stock.
In order to execute the repurchase of shares of our common stock, the Company periodically enters into stock repurchase agreements. During the
years ended
December 31, 2018
,
2017
and
2016
the Company has repurchased the following shares of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
(1)
|
Amount paid to repurchase shares
|
$
|
95,125
|
|
|
$
|
29,993
|
|
|
$
|
—
|
|
Number of shares repurchased
|
1,696
|
|
|
422
|
|
|
343
|
|
Average repurchase price per share
|
$
|
56.07
|
|
|
$
|
71.07
|
|
|
$
|
—
|
|
(1) In November 2015 we entered into a Fixed Dollar Accelerated Share Repurchase Transaction to purchase $50.0 million of shares of our common stock in the open market. A total of 1.7 million shares of our common stock was repurchased under the Fixed Dollar Accelerated Share Repurchase Agreement at an average price of $28.99 per share. The final 0.3 million shares of our common stock was delivered in 2016.
|
|
|
NOTE 7.
|
MARKETABLE SECURITIES AND ASSETS MEASURED AT FAIR VALUE
|
Our investments with original maturities of more than three months at time of purchase and that are intended to be held for no more than 12 months, are considered marketable securities available for sale.
Our marketable securities consist of certificates of deposit as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Certificates of deposit
|
$
|
2,463
|
|
|
$
|
2,470
|
|
|
$
|
3,103
|
|
|
$
|
3,104
|
|
The maturities of our marketable securities available for sale as of
December 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
Earliest
|
|
|
|
Latest
|
Certificates of deposit
|
|
3/18/2019
|
|
to
|
|
10/17/2019
|
The value and liquidity of the marketable securities we hold are affected by market conditions, as well as the ability of the issuers of such securities to make principal and interest payments when due, and the functioning of the markets in which these securities are traded. As of
December 31, 2018
, we do not believe any of the underlying issuers of our marketable securities are at risk of default.
The following tables present information about our marketable securities measured at fair value, on a recurring basis, as of
December 31, 2018
and
December 31, 2017
. The tables indicate the fair value hierarchy of the valuation techniques utilized to determine fair value. We did not have any financial liabilities measured at fair value, on a recurring basis, as of
December 31, 2018
or
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Certificates of deposit
|
$
|
—
|
|
|
$
|
2,470
|
|
|
$
|
—
|
|
|
$
|
2,470
|
|
|
|
December 31, 2017
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Certificates of deposit
|
$
|
—
|
|
|
$
|
3,104
|
|
|
$
|
—
|
|
|
$
|
3,104
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the year ended
December 31, 2018
.
|
|
NOTE 8.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
We are impacted by changes in foreign currency exchange rates. We manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. During the
years ended
December 31, 2018
,
2017
and
2016
, we entered into foreign currency exchange forward contracts to manage the exchange rate risk associated with intercompany debt denominated in nonfunctional currencies. These derivative instruments are not designated as hedges; however, they do offset the fluctuations of our intercompany debt due to foreign exchange rate changes. These forward contracts are typically for one-month periods. We did not have any currency exchange rate contracts outstanding as of
December 31, 2018
. At
December 31, 2017
we had outstanding Euro and Pound Sterling forward contracts. We did not have any currency exchange rate contracts outstanding as of
December 31, 2016
.
The notional amount of foreign currency exchange contracts outstanding at
December 31, 2017
was
$16.3 million
and the fair value of these contracts was not significant at December 31, 2017.
During the years ended
December 31, 2018
,
2017
, and
2016
, the gains and losses recorded related to the foreign currency exchange contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Foreign currency loss from foreign currency exchange contracts
|
|
$
|
(750
|
)
|
|
$
|
(1,438
|
)
|
|
$
|
(569
|
)
|
These gains and losses were offset by corresponding gains and losses on the related intercompany debt and both are included as a component of other income, net, in our Consolidated Statements of Operations.
During the first quarter of 2017 we entered into a foreign currency exchange rate forward contract at a cost of
$3.5 million
, to mitigate the exchange rate risk associated with a planned offshore acquisition which was not consummated. The hedge expired upon maturity in the first quarter of 2017. The cost of the forward contract is recorded as a component of Other income (expense), net in our Condensed Consolidated Statement of Operations.
|
|
NOTE 9.
|
ACCOUNTS AND OTHER RECEIVABLE
|
Accounts and other receivable are recorded at net realizable value. Components of accounts and other receivable, net of reserves, are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2018
|
|
2017
|
Invoiced receivables, net
|
$
|
80,709
|
|
|
$
|
87,429
|
|
Uninvoiced receivables
|
19,733
|
|
|
—
|
|
Total receivables, net
|
$
|
100,442
|
|
|
$
|
87,429
|
|
Invoiced receivables, net consist of amounts that have been invoiced to our customers in accordance with terms and conditions, and are shown net of an allowance for doubtful accounts. These receivables are all short term in nature and do not include any financing components.
Uninvoiced receivables consist of amounts where we have satisfied our contractual obligations related to inventory stocking contracts with customers. Such amounts are typically invoiced to the customer upon their consumption of the inventory managed under the stocking contracts. We anticipate that substantially all uninvoiced receivables will be invoiced and collected over the next twelve months. These contracts do not include any financing components.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Our inventories are valued at the lower of cost or net realizable value and computed on a first-in, first-out (FIFO) basis. Components of inventories, net of reserves, are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Parts and raw materials
|
$
|
76,647
|
|
|
$
|
58,567
|
|
Work in process
|
6,644
|
|
|
7,986
|
|
Finished goods
|
14,696
|
|
|
11,897
|
|
Total
|
$
|
97,987
|
|
|
$
|
78,450
|
|
|
|
NOTE 11.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment, net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Buildings and land
|
$
|
1,737
|
|
|
$
|
1,788
|
|
Machinery and equipment
|
41,330
|
|
|
36,579
|
|
Computer and communication equipment
|
24,051
|
|
|
26,819
|
|
Furniture and fixtures
|
3,203
|
|
|
1,568
|
|
Vehicles
|
282
|
|
|
341
|
|
Leasehold improvements
|
20,593
|
|
|
17,286
|
|
Construction in process
|
867
|
|
|
802
|
|
|
92,063
|
|
|
85,183
|
|
Less: Accumulated depreciation
|
(60,794
|
)
|
|
(67,388
|
)
|
Total property and equipment, net
|
$
|
31,269
|
|
|
$
|
17,795
|
|
Depreciation expense recorded in continuing operations and included in selling, general and administrative expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Depreciation expense
|
|
$
|
7,818
|
|
|
$
|
5,074
|
|
|
$
|
3,646
|
|
The following summarizes the changes in goodwill during the years ended
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
Beginning Balance
|
|
Additions
|
|
Effect of Changes in Exchange Rates
|
|
Ending Balance
|
December 31, 2018
|
$
|
53,812
|
|
|
$
|
49,252
|
|
|
$
|
(1,164
|
)
|
|
$
|
101,900
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
$
|
42,125
|
|
|
$
|
8,929
|
|
|
$
|
2,758
|
|
|
$
|
53,812
|
|
Additions are the result of our acquisitions of LumaSense and Monroe's electrostatic technology and product line during the year ended
December 31, 2018
and our acquisition of Excelsys during the year ended
December 31, 2017
as described in
Note 2. Business Acquisitions.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
|
|
NOTE 13.
|
INTANGIBLE ASSETS
|
Intangible assets consisted of the following as of
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Technology
|
|
$
|
39,879
|
|
|
$
|
(7,927
|
)
|
|
$
|
31,952
|
|
Customer relationships
|
|
35,509
|
|
|
(13,484
|
)
|
|
22,025
|
|
Trademarks and other
|
|
2,501
|
|
|
(1,568
|
)
|
|
933
|
|
Total
|
|
$
|
77,889
|
|
|
$
|
(22,979
|
)
|
|
$
|
54,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Technology
|
|
$
|
18,702
|
|
|
$
|
(5,559
|
)
|
|
$
|
13,143
|
|
Customer relationships
|
|
30,034
|
|
|
(10,787
|
)
|
|
19,247
|
|
Trademarks and other
|
|
2,623
|
|
|
(1,514
|
)
|
|
1,109
|
|
Total
|
|
$
|
51,359
|
|
|
$
|
(17,860
|
)
|
|
$
|
33,499
|
|
Amortization expense related to intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Amortization expense
|
|
$
|
5,774
|
|
|
$
|
4,350
|
|
|
$
|
4,167
|
|
Estimated amortization expense related to intangibles is as follows:
|
|
|
|
|
|
Year Ending December 31,
|
|
|
2019
|
|
$
|
7,589
|
|
2020
|
|
6,863
|
|
2021
|
|
6,763
|
|
2022
|
|
6,503
|
|
2023
|
|
6,484
|
|
Thereafter
|
|
20,708
|
|
Total
|
|
$
|
54,910
|
|
|
|
NOTE 14.
|
RESTRUCTURING COSTS
|
During the year ended December 31, 2018, we recorded a total pre-tax charge of
$4.2 million
for severance and related costs associated with our manufacturing footprint consolidation and optimization, acquisition integration, and reorganization for business efficiency improvement. For the year ended December 31, 2018, we recorded total severance and related costs of
$4.2 million
, which also represents the cumulative costs recognized under this restructuring plan.
The following table summarizes our restructuring liabilities at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
Cost incurred and charged to expense
|
|
Cost paid or otherwise settled
|
|
Effect of change in exchange rates
|
|
Balance at December 31, 2018
|
Severance and related charges
|
—
|
|
|
4,239
|
|
|
433
|
|
|
—
|
|
|
3,806
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Provisions of our sales agreements include customary product warranties, ranging from
12
months to
24
months following installation. The estimated cost of our warranty obligation is recorded when revenue is recognized and is based upon our historical experience by product, configuration and geographic region.
Our estimated warranty obligation is included in Other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Balances at beginning of period
|
|
$
|
2,312
|
|
|
$
|
2,329
|
|
|
$
|
1,633
|
|
Warranty liabilities acquired
|
|
305
|
|
|
118
|
|
|
—
|
|
Increases to accruals
|
|
1,606
|
|
|
2,029
|
|
|
1,802
|
|
Warranty expenditures
|
|
(2,127
|
)
|
|
(2,184
|
)
|
|
(1,058
|
)
|
Effect of changes in exchange rates
|
|
(12
|
)
|
|
20
|
|
|
(48
|
)
|
Balances at end of period
|
|
$
|
2,084
|
|
|
$
|
2,312
|
|
|
$
|
2,329
|
|
|
|
NOTE 16.
|
PENSION LIABILITY
|
Defined contribution plans
We have a 401(k) profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Participants may defer up to the maximum amount allowed as determined by law. Participants are immediately vested in their contributions. Profit sharing contributions to the plan, which are discretionary, are approved by the Board of Directors. Vesting in the profit sharing contribution account is based on years of service, with most participants fully vested after four years of credited service. For the years ended
December 31, 2018
,
2017
, and
2016
our contribution for participants in our 401(k) plan was based on matching 50% of contributions made by employees up to 6% of the employee’s compensation. During the years ended
December 31, 2018
,
2017
, and
2016
we recognized total defined contribution plan costs of $
1.4 million
, $
1.1 million
, and $
1.2 million
, respectively.
Defined benefit plans
In connection with the acquisition of LumaSense, in September 2018, we acquired the LumaSense Technologies GmbH pension obligation (the "LumaSense Plan"). In order to measure the expense and related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. The net amount of pension liability recorded as of
December 31, 2018
was
$0.1 million
and is included in Other long-term liabilities in our Consolidated Balance Sheets. Anticipated payments to pensioners covered by the LumaSense Plan are expected to be around
$0.1 million
for each of the next ten years. We are not currently committed to future payments to the LumaSense Plan.
In connection with the acquisition of HiTek Power Group, a privately-held provider of high voltage power solutions, in 2014, we acquired the HiTek Power Limited Pension Scheme ("the HiTek Plan"). The HiTek Plan has been closed to new participants since April 1, 2002 and to additional accruals since April 5, 2005. In order to measure the expense and related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. The net amount of pension liability recorded as of
December 31, 2018
and
December 31, 2017
was
$19.2 million
and
$19.8 million
, respectively, and is included in Other long-term liabilities in our Consolidated Balance Sheets. Anticipated payments to pensioners covered by the HiTek Plan are expected to be between
$0.8 million
and
$1.5 million
for each of the next ten years. We are committed to make annual fixed payments of
$0.8 million
into the Hitek Plan through April 30, 2024, and then
$1.7 million
from May 1, 2024 through November 30, 2033.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
The following table sets forth the components of net periodic pension cost for the years ended
December 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Interest cost
|
$
|
793
|
|
|
$
|
809
|
|
|
$
|
993
|
|
Expected return on plan assets
|
(670
|
)
|
|
(597
|
)
|
|
(527
|
)
|
Amortization of actuarial gains and losses
|
478
|
|
|
503
|
|
|
264
|
|
Net periodic pension cost
|
$
|
601
|
|
|
$
|
715
|
|
|
$
|
730
|
|
Assumptions used in the determination of the net periodic pension cost are:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Discount rate
|
2.8
|
%
|
|
2.6
|
%
|
|
2.8
|
%
|
Expected long-term return on plan assets
|
4.8
|
%
|
|
4.8
|
%
|
|
4.7
|
%
|
The status of our plans as reflected in "Other long-term liabilities" on our Consolidated Balance Sheets is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
Projected benefit obligation, beginning of year
|
$
|
33,907
|
|
|
$
|
31,110
|
|
Acquisition
|
1,063
|
|
|
—
|
|
Service cost
|
839
|
|
|
—
|
|
Interest cost
|
793
|
|
|
809
|
|
Actuarial loss
|
(992
|
)
|
|
35
|
|
Benefits paid
|
(1,086
|
)
|
|
(944
|
)
|
Translation adjustment
|
(1,898
|
)
|
|
2,897
|
|
Projected benefit obligation, end of year
|
$
|
32,626
|
|
|
$
|
33,907
|
|
|
|
|
|
Plan assets, beginning of year
|
$
|
14,110
|
|
|
$
|
12,274
|
|
Acquisitions
|
981
|
|
|
—
|
|
Actual return on plan assets
|
670
|
|
|
597
|
|
Contributions
|
828
|
|
|
877
|
|
Benefits paid
|
(1,086
|
)
|
|
(944
|
)
|
Actuarial gain
|
(1,357
|
)
|
|
179
|
|
Translation adjustment
|
(786
|
)
|
|
1,127
|
|
Plan assets, end of year
|
$
|
13,360
|
|
|
$
|
14,110
|
|
|
|
|
|
Funded status of plan
|
$
|
(19,266
|
)
|
|
$
|
(19,797
|
)
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
The fair value of the Company's qualified pension plan assets by category for the years ended
December 31,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Multi-Asset Fund
|
$
|
—
|
|
|
$
|
4,570
|
|
|
$
|
—
|
|
|
$
|
4,570
|
|
Diversified Growth Fund
|
—
|
|
|
4,649
|
|
|
—
|
|
|
4,649
|
|
Index-Linked Gilts
|
—
|
|
|
2,044
|
|
|
—
|
|
|
2,044
|
|
Corporate Bonds
|
—
|
|
|
2,044
|
|
|
—
|
|
|
2,044
|
|
Cash
|
53
|
|
|
—
|
|
|
—
|
|
|
53
|
|
Total
|
$
|
53
|
|
|
$
|
13,307
|
|
|
$
|
—
|
|
|
$
|
13,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Multi-Asset Fund
|
$
|
—
|
|
|
$
|
4,784
|
|
|
$
|
—
|
|
|
$
|
4,784
|
|
Diversified Growth Fund
|
—
|
|
|
5,009
|
|
|
—
|
|
|
5,009
|
|
Index-Linked Gilts
|
—
|
|
|
2,102
|
|
|
—
|
|
|
2,102
|
|
Corporate Bonds
|
—
|
|
|
2,173
|
|
|
—
|
|
|
2,173
|
|
Cash
|
42
|
|
|
—
|
|
|
—
|
|
|
42
|
|
Total
|
$
|
42
|
|
|
$
|
14,068
|
|
|
$
|
—
|
|
|
$
|
14,110
|
|
At
December 31, 2018
our plan's assets of
$13.4 million
were invested in four separate funds including a multi-asset fund (
34.2%
), a diversified growth fund (
34.8%
), an Investment grade long-term bond fund (
15.3%
) and an index-linked gilt fund (
15.3%
). The asset and growth funds aim to generate an ‘equity-like’ return over an economic cycle with significantly reduced volatility relative to equity markets and have scope to use a diverse range of asset classes, including equities, bonds, cash and alternatives, e.g. property, infrastructure, high yield bonds, floating rate debt, private, equity, hedge funds and currency. The bond fund and gilt fund are invested in index-linked gilts and corporate bonds. These investments are intended to provide a degree of protection against changes in the value of our plan's liabilities related to changes in long-term expectations for interest rates and inflation expectations.
|
|
NOTE 17.
|
STOCK-BASED COMPENSATION
|
As of
December 31, 2018
, we had two active stock-based incentive compensation plans; the 2017 Omnibus Incentive Plan and the Employee Stock Purchase Plan (“ESPP”). All new equity compensation grants are issued under these two plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans. Our stock plans are administered by the Board of Directors Compensation Committee. At
December 31, 2018
, there were
3.5 million
shares reserved and
2.9 million
shares available for future grant under our stock-based incentive plans.
On May 4, 2017, the stockholders approved the Company's 2017 Omnibus Incentive Plan ("the 2017 Plan") and reserved
5.2 million
shares under the plan. The 2017 Plan replaced the 2008 Omnibus Incentive Plan ("the 2008 Plan"), and all awards previously granted under the 2008 Plan continue to vest and/or are exercisable under the 2017 Plan in accordance with their original terms and conditions. The 2017 Plan and 2008 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, and dividend equivalent rights. Additionally, awards issued may be issued as performance based awards to align stock compensation awards to the attainment of annual or long-term performance goals. As of
December 31, 2018
, there were
2.6 million
shares available for grant under the 2017 Plan.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Stock-based Compensation Expense
We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. Stock-based compensation for the three
years ended
December 31,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Stock-based compensation expense
|
|
$
|
9,703
|
|
|
$
|
12,549
|
|
|
$
|
6,332
|
|
Our stock-based compensation expense is based on the value of the portion of share-based payment awards that are ultimately expected to vest, assuming estimated forfeitures at the time of grant. Estimated forfeiture rates for our stock-based compensation expense applicable to stock options and restricted stock units ("RSU's") was approximately
10%
for the year ended
December 31, 2018
,
17%
for the year ended
December 31, 2017
and
18%
for the year ended
December 31, 2016
.
Restricted Stock Units
The fair value of our Restricted Stock Units ("RSUs") is determined based upon the closing fair market value of our common stock on the grant date. Changes in the unvested RSU's during the years ended
December 31, 2018
,
2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
RSUs outstanding at beginning of period
|
|
386
|
|
|
$
|
51.06
|
|
|
354
|
|
|
$
|
29.60
|
|
|
234
|
|
|
$
|
26.10
|
|
RSUs granted
|
|
245
|
|
|
64.48
|
|
|
252
|
|
|
63.63
|
|
|
297
|
|
|
30.37
|
|
RSUs vested
|
|
(207
|
)
|
|
54.94
|
|
|
(211
|
)
|
|
30.62
|
|
|
(157
|
)
|
|
25.97
|
|
RSUs forfeited
|
|
(72
|
)
|
|
50.79
|
|
|
(9
|
)
|
|
33.91
|
|
|
(20
|
)
|
|
28.32
|
|
RSUs outstanding at end of period
|
|
352
|
|
|
58.17
|
|
|
386
|
|
|
51.06
|
|
|
354
|
|
|
29.60
|
|
The total intrinsic value of RSUs converted to shares for the years ended
December 31, 2018
,
2017
and
2016
were
$13.6 million
,
$14.8 million
and
$5.0 million
, respectively. As of
December 31, 2018
, there was
$7.0 million
of total unrecognized compensation cost, net of expected forfeitures related to non-vested RSUs granted, which is expected to be recognized through fiscal
September 2021
, with a weighted-average remaining vesting period of
1.1 years
.
Stock Options
Stock option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance based vesting as determined at the time of grant. Stock option awards generally have a term of
10 years
.
The fair value of options granted during the year ended December 31, 2015 was estimated on the date of grant using the Black-Scholes-Merton option pricing model using the following assumptions: the risk-free interest rate was
1.1% - 1.4%
, the expected term was
4.3 years
and expected volatility was
43%
. The risk-free interest rate is based on the five-year U.S. Treasury Bill at the time of the grant. We utilize our historical experience in determining the expected term of our stock options and volatility of our common stock. We have not historically issued dividends.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Changes in our outstanding stock options during the years ended
December 31, 2018
,
2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Exercise Price
|
Options outstanding at beginning of period
|
|
317
|
|
|
$
|
18.97
|
|
|
474
|
|
|
$
|
17.47
|
|
|
642
|
|
|
$
|
17.11
|
|
Options granted
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options exercised
|
|
(83
|
)
|
|
14.41
|
|
|
(152
|
)
|
|
14.32
|
|
|
(156
|
)
|
|
15.28
|
|
Options forfeited
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
26.32
|
|
|
(12
|
)
|
|
26.32
|
|
Options expired
|
|
(4
|
)
|
|
11.97
|
|
|
(3
|
)
|
|
11.09
|
|
|
—
|
|
|
—
|
|
Options outstanding at end of period
|
|
230
|
|
|
20.73
|
|
|
317
|
|
|
18.97
|
|
|
474
|
|
|
17.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested during the year
|
|
2
|
|
|
|
|
9
|
|
|
|
|
11
|
|
|
|
The total intrinsic value of options exercised for the years ended
December 31, 2018
,
2017
and
2016
were
$4.1 million
,
$9.7 million
and
$2.8 million
, respectively. Information about our stock options that are outstanding, options that we expect to vest and options that are exercisable at
December 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expected to Vest:
|
|
Number
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value
|
Options outstanding
|
|
230
|
|
|
$
|
20.73
|
|
|
4.6 years
|
|
$
|
5,108
|
|
Options expected to vest
|
|
230
|
|
|
20.73
|
|
|
4.6 years
|
|
5,108
|
|
Options exercisable
|
|
230
|
|
|
20.73
|
|
|
4.6 years
|
|
5,108
|
|
The following table summarizes information about the stock options outstanding at
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Number Outstanding
|
|
Weighted-Average Remaining Contractual Life
|
|
Weighted-Average Exercise Price
|
|
Number Exercisable
|
|
Weighted-Average Exercise Price
|
7.69 - 9.51
|
|
10
|
|
|
1.1 years
|
|
$
|
8.38
|
|
|
10
|
|
|
$
|
8.38
|
|
11.02 - 14.52
|
|
47
|
|
|
1.8 years
|
|
13.04
|
|
|
47
|
|
|
13.04
|
|
15.65 - 18.77
|
|
58
|
|
|
4.6 years
|
|
18.06
|
|
|
58
|
|
|
18.06
|
|
24.31 - 26.32
|
|
115
|
|
|
6.1 years
|
|
26.24
|
|
|
115
|
|
|
26.24
|
|
7.69 - 26.32
|
|
230
|
|
|
4.6 years
|
|
20.73
|
|
|
230
|
|
|
20.73
|
|
Employee Stock Purchase Plan
The ESPP, a stockholder-approved plan, provides for the issuance of rights to purchase up to
1,000,000
shares of common stock. In May 2010, stockholders approved an increase from
500,000
to
1,000,000
shares authorized for sale under our ESPP. Employees below the Vice President level are eligible to participate in the ESPP if employed by us for at least 20 hours per week during at least five months per calendar year. Participating employees may contribute up to the lesser of
15%
of their eligible earnings or
$5,000
during each plan period. Currently, the plan period is six months. The purchase price of common stock purchased under the ESPP is currently equal to the lower of: 1)
85%
of the fair market value of our common stock on the commencement date of each plan period or 2)
85%
of the fair market value of our common shares on each plan period purchase date. At
December 31, 2018
,
0.3 million
shares remained available for future issuance under the ESPP.
Purchase rights granted under the ESPP are valued using the Black-Scholes-Merton model. As of
December 31, 2018
, there was
$0.2 million
of total unrecognized compensation cost related to the ESPP that is expected to be recognized over a remaining period of five months. Total compensation expense was $
0.4 million
for the year ended
December 31, 2018
and
$0.2 million
for the years ended
December 31, 2017
, and
2016
.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
The fair value of each purchase right granted under the ESPP was estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Risk-free interest rates
|
|
2.10% - 2.56%
|
|
|
1.07% - 1.45%
|
|
|
0.49% - 0.60%
|
|
Expected dividend yield rates
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected term
|
|
0.5 years
|
|
|
0.5 years
|
|
|
0.5 years
|
|
Expected volatility
|
|
38.0
|
%
|
|
33.3
|
%
|
|
28.2
|
%
|
The risk-free interest rate is based on the six month U.S. Treasury Bill at the time of the grant. We utilize our historical experience in determining the expected term of our stock options and volatility of our common stock. We have not historically issued dividends.
|
|
NOTE 18.
|
COMMITMENTS AND CONTINGENCIES
|
Disputes and Legal Actions
We are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations. An unfavorable decision in patent litigation also could require material changes in production processes and products or result in our inability to ship products or components found to have violated third-party patent rights. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. The Company is currently not a party to any legal action that the Company believes would reasonably have a material adverse impact on its business, financial condition, results of operations or cash flows.
Operating Leases
We have various operating leases for automobiles, equipment, and office and production facilities. Rent expense under operating leases was approximately
$7.4 million
in
2018
, $
6.5 million
in
2017
, and $
6.4 million
in
2016
.
The future minimum rental payments required under non-cancelable operating leases as of
December 31, 2018
are as follows:
|
|
|
|
|
2019
|
$
|
9,093
|
|
2020
|
7,561
|
|
2021
|
6,938
|
|
2022
|
3,862
|
|
2023
|
3,448
|
|
Thereafter
|
18,349
|
|
Total
|
$
|
49,251
|
|
|
|
NOTE 19.
|
RELATED PARTY TRANSACTIONS
|
Members of our Board of Directors hold various executive positions and serve as directors at other companies, including companies that are our customers. During the years ended
December 31, 2018
,
2017
, and
2016
, we engaged in the following transactions with companies related to members of our Board of Directors, as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Sales to related parties
|
$
|
1,028
|
|
|
$
|
1,425
|
|
|
$
|
616
|
|
Number of related party customers
|
1
|
|
|
1
|
|
|
2
|
|
Purchases from related parties
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43
|
|
Number of related party vendors
|
—
|
|
|
—
|
|
|
1
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Our accounts receivable balance from related party customers with outstanding balances as of
December 31, 2018
and
December 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2018
|
|
2017
|
Accounts receivable from related parties
|
$
|
109
|
|
|
$
|
27
|
|
Number of related party customers
|
1
|
|
|
1
|
|
We did not have any outstanding accounts payable with our related parties as of
December 31, 2018
or
December 31, 2017
.
|
|
NOTE 20.
|
GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
|
The following table summarizes sales, and percentages of sales, by customers that individually accounted for 10% or more of our sales for the
years ended
December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Applied Materials, Inc.
|
$
|
258,027
|
|
|
35.9
|
%
|
|
$
|
224,832
|
|
|
33.5
|
%
|
|
$
|
170,162
|
|
|
35.2
|
%
|
LAM Research
|
109,005
|
|
|
15.2
|
%
|
|
155,312
|
|
|
23.1
|
%
|
|
100,270
|
|
|
20.7
|
%
|
The following table summarizes the accounts receivable balances, and percentages of the total accounts receivable, for customers that individually accounted for 10% or more of accounts receivable as of
December 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2018
|
|
2017
|
Applied Materials, Inc.
|
$
|
34,301
|
|
|
34.2
|
%
|
|
$
|
36,755
|
|
|
42.0
|
%
|
LAM Research
|
12,181
|
|
|
12.1
|
%
|
|
5,421
|
|
|
6.2
|
%
|
Our sales to Applied Materials, Inc. and LAM Research include precision power products used in semiconductor processing and solar and flat panel display. No other customer accounted for
10%
or more of our sales or accounts receivable balances during these periods.
The following table summarizes long-lived assets by geographic area as of
December 31, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
United States
|
$
|
115,869
|
|
|
$
|
32,528
|
|
Asia
|
12,274
|
|
|
7,601
|
|
Europe
|
59,936
|
|
|
64,977
|
|
Total
|
$
|
188,079
|
|
|
$
|
105,106
|
|
|
|
|
|
Long-lived assets include property and equipment, goodwill and other intangible assets.
|
On July 28, 2017, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America N.A. ("BA") which provides a revolving line of credit of up to $100.0 million subject to certain funding conditions through July 28, 2022. On December 21, 2017, the Company entered into the First Amendment to the Loan Agreement with BA to increase the line of credit to
$150.0 million
. Interest on amounts drawn shall be paid quarterly based upon the LIBOR Daily Floating Rate then in effect, plus between one and one-quarter (
1.25%
) and one and three-quarters (
1.75%
) percentage points depending on the Funded Debt to EBITDA ratio. As of
December 31, 2018
, the interest rate was
3.77%
. The Loan Agreement also requires the Company to pay the lender on a quarterly basis an unused commitment fee based on credit availability. The obligations under the Loan Agreement are unsecured until the Funded Debt to EBITDA ratio exceeds
2.0
to 1.0, at which time the
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
Company and certain affiliates’ tangible and intangible personal property will be subject to a first priority, perfected lien and security interest in favor of BA pursuant to a Security Agreement. As of
December 31, 2018
, the Company is in compliance with all covenants required under the Loan Agreement. Our credit availability under the Loan Agreement was
$150.0 million
at
December 31, 2018
.
On September 9, 2016, the Company terminated its Credit Agreement with Wells Fargo Bank, National Association ("Wells Fargo") which provided for a secured revolving credit facility of up to
$50.0 million
(the "Credit Facility"), subject to a borrowing base calculation. The Company had
no
borrowing during 2016 until the termination of the Credit Agreement.
Expense relating to interest, unused commitment fees and amortization of debt issuance costs included in our income from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Credit facility costs
|
$
|
228
|
|
|
$
|
66
|
|
|
$
|
346
|
|
|
|
NOTE 22.
|
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
|
The following tables present unaudited quarterly results for each of the eight quarters in the periods ended
December 31, 2018
and
2017
, in thousands. We believe that all necessary adjustments have been included in the amounts stated below to present fairly such quarterly information. Due to the volatility of the industries in which our customers operate, the operating results for any quarter are not necessarily indicative of results for any subsequent period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
December 31, 2018
|
|
September 30, 2018
|
|
June 30, 2018
|
|
March 31, 2018
|
Sales, net
|
|
$
|
154,161
|
|
|
$
|
173,082
|
|
|
$
|
196,032
|
|
|
$
|
195,617
|
|
Gross Profit
|
|
$
|
75,188
|
|
|
$
|
85,539
|
|
|
$
|
101,235
|
|
|
$
|
103,645
|
|
Restructuring Expense
|
|
$
|
3,836
|
|
|
$
|
403
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating income
|
|
$
|
19,570
|
|
|
$
|
39,862
|
|
|
$
|
56,018
|
|
|
$
|
56,103
|
|
Income from continuing operations, net of income taxes
|
|
$
|
19,222
|
|
|
$
|
35,157
|
|
|
$
|
46,400
|
|
|
$
|
46,370
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
$
|
188
|
|
|
$
|
(371
|
)
|
|
$
|
5
|
|
|
$
|
140
|
|
Net Income
|
|
$
|
19,410
|
|
|
$
|
34,786
|
|
|
$
|
46,405
|
|
|
$
|
46,510
|
|
Income from continuing operations attributable to noncontrolling interest
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
44
|
|
|
$
|
31
|
|
Net income attributable to Advanced Energy Industries, Inc.
|
|
$
|
19,406
|
|
|
$
|
34,779
|
|
|
$
|
46,361
|
|
|
$
|
46,479
|
|
Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.50
|
|
|
$
|
0.90
|
|
|
$
|
1.18
|
|
|
$
|
1.17
|
|
Diluted earnings per share
|
|
$
|
0.50
|
|
|
$
|
0.90
|
|
|
$
|
1.17
|
|
|
$
|
1.16
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Diluted loss per share
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Net Income:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.51
|
|
|
$
|
0.89
|
|
|
$
|
1.18
|
|
|
$
|
1.17
|
|
Diluted earnings per share
|
|
$
|
0.50
|
|
|
$
|
0.89
|
|
|
$
|
1.17
|
|
|
$
|
1.16
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
December 31, 2017
|
|
September 30, 2017
|
|
June 30, 2017
|
|
March 31, 2017
|
Sales, net
|
|
$
|
179,214
|
|
|
$
|
176,575
|
|
|
$
|
165,872
|
|
|
$
|
149,351
|
|
Gross Profit
|
|
$
|
98,175
|
|
|
$
|
92,234
|
|
|
$
|
87,141
|
|
|
$
|
78,831
|
|
Operating income
|
|
$
|
58,062
|
|
|
$
|
51,673
|
|
|
$
|
47,767
|
|
|
$
|
43,268
|
|
Income (loss) from continuing operations, net of income taxes
|
|
$
|
(29,007
|
)
|
|
$
|
83,794
|
|
|
$
|
45,873
|
|
|
$
|
35,441
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
$
|
(583
|
)
|
|
$
|
70
|
|
|
$
|
179
|
|
|
$
|
2,094
|
|
Net income (loss) attributable to Advanced Energy Industries, Inc.
|
|
$
|
(29,590
|
)
|
|
$
|
83,864
|
|
|
$
|
46,052
|
|
|
$
|
37,535
|
|
Earnings per Share:
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.73
|
)
|
|
$
|
2.11
|
|
|
$
|
1.15
|
|
|
$
|
0.89
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.73
|
)
|
|
$
|
2.09
|
|
|
$
|
1.14
|
|
|
$
|
0.88
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.05
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.05
|
|
Net Income (loss):
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.75
|
)
|
|
$
|
2.11
|
|
|
$
|
1.16
|
|
|
$
|
0.94
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.75
|
)
|
|
$
|
2.09
|
|
|
$
|
1.14
|
|
|
$
|
0.93
|
|