NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1.
|
BASIS OF PRESENTATION
|
Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-owned subsidiaries (“we,” “us,” “our,” “Advanced Energy,” or the “Company”) design, manufacture, sell, and support power conversion products that transform power into various usable forms. Our products enable manufacturing processes that use thin-film deposition for various products, such as semiconductor devices, flat panel displays, thin film renewables, and architectural glass. We also supply thermal instrumentation products for advanced temperature control in the thin-film process for these same markets. Our solar inverter products support renewable power generation solutions for primarily commercial, and utility-scale solar projects and installations. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, and refurbishments to companies using our products. We also offer a wide variety of operations and maintenance service plans that can be tailored for individual photovoltaic ("PV") sites of all sizes.
We are organized into
two
strategic business units ("SBU") based on the products and services provided.
Thin Films Processing Power Conversion and Thermal Instrumentation
(“Thin Films”)
SBU offers our products for direct current (“DC”), pulsed DC mid frequency, and radio frequency (“RF") power supplies, matching networks and RF instrumentation as well as thermal instrumentation products.
Solar Energy
SBU offers both a transformer-based or transformerless advanced grid-tied PV inverter solution for commercial and utility-scale system installations and transformer-based solutions for residential installations. Our PV inverters are designed to convert renewable solar power, drawn from large and small scale solar arrays, into high-quality, reliable electrical power.
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company at
March 31, 2013
, and the results of our operations and cash flows for the
three months
ended
March 31, 2013
and
2012
.
The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2012
and other financial information filed with the SEC.
ESTIMATES AND ASSUMPTIONS
The preparation of our Condensed 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 assets and 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, goodwill, 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.
REVENUE RECOGNITION
Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended
December 31, 2012
.
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
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Condensed Consolidated Financial Statements upon adoption.
|
|
NOTE 2.
|
BUSINESS ACQUISITION & DISPOSITION
|
Acquisition
Solvix SA
On November 8, 2012, we acquired Solvix SA ("Solvix"), a privately-held Switzerland based company, pursuant to a stock purchase agreement dated November 8, 2012 between AEI International Holdings, CV ("AEI CV"), a wholly-owned subsidiary of Advanced Energy incorporated in the Netherlands, and CPA Group SA ("CPA Group"), a privately held Switzerland company. Pursuant to the stock purchase agreement, AEI CV purchased 100% of the outstanding stock of Solvix.
We acquired all of the outstanding Solvix common stock for total consideration with a fair value of approximately
$21.2 million
consisting of cash payments totaling
$15.3 million
, net of cash acquired, and contingent consideration payable to the former shareholders of Solvix. The additional cash consideration of up to
$7.9 million
is payable to CPA Group if certain milestone targets are met during the year ending December 31, 2013 and certain financial targets are met in the three years ended December 31, 2015. The estimated fair value of this contingent consideration is approximately
$5.3 million
as of November 8, 2012, of which
$2.8 million
is included in Other accrued expenses and
$2.3 million
is included in Other long-term liabilities on the Condensed Consolidated Balance Sheet.
Solvix is a manufacturer of power supplies for the surface treatment and thin films industry. Solvix manufactures products that bring plasma-based sputtering and cathodic arc deposition applications to Advanced Energy's existing product portfolio. Solvix has approximately
10
employees and had revenues of
$5.2 million
in its fiscal year ended September 30, 2012.
The Solvix product line will continue to be manufactured in Switzerland under a contract manufacturing agreement with CPA Group until production is moved to our Shenzhen facility in 2013.
The components of the fair value of the total consideration transferred for the Solvix acquisition are as follows (in thousands):
|
|
|
|
|
Cash paid to owners
|
$
|
16,673
|
|
Contingent consideration
|
5,253
|
|
Cash acquired
|
(680
|
)
|
Total fair value of consideration transferred
|
$
|
21,246
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes estimated fair values of the assets acquired and liabilities assumed as of November 8, 2012 (in thousands):
|
|
|
|
|
Cash
|
$
|
680
|
|
Accounts receivable
|
1,074
|
|
Inventories
|
57
|
|
Other receivables
|
32
|
|
Other current assets
|
46
|
|
Property and equipment
|
43
|
|
Accounts payable
|
(390
|
)
|
Accrued payroll and employee benefits
|
(186
|
)
|
Other accrued expenses
|
(159
|
)
|
Customer deposits
|
(38
|
)
|
Deferred tax liabilities
|
(1,628
|
)
|
|
(469
|
)
|
Amortizable intangible assets:
|
|
Trademarks
|
106
|
|
Technology
|
2,723
|
|
Customer relationships
|
5,398
|
|
Total amortizable intangible assets
|
8,227
|
|
Total identifiable net assets
|
7,758
|
|
Goodwill
|
13,488
|
|
Total fair value of consideration transferred
|
$
|
21,246
|
|
A summary of the intangible assets acquired, amortization method and estimated useful lives as of November 8, 2012 follows (in thousands, except useful life):
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Amortization Method
|
|
Useful Life
|
Trademarks
|
|
$
|
106
|
|
|
Straight-line
|
|
3
|
Technology
|
|
2,723
|
|
|
Straight-line
|
|
9
|
Customer relationships - other
|
|
744
|
|
|
Straight-line
|
|
7
|
Customer relationships - design
|
|
4,643
|
|
|
Straight-line
|
|
12
|
|
|
$
|
8,216
|
|
|
|
|
|
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 cost of the acquisition may increase or decrease based on the final amount payable to the former owner of Solvix related to the financial targets to be met during the three years ending December 31, 2015. Advanced Energy is in the process of finalizing valuations of other intangibles, estimates of the fair value of liabilities associated with the acquisition and deferred taxes and expects to complete the acquisition accounting and required disclosures prior to December 31, 2013.
The results of Solvix operations are included in our Condensed Consolidated Statements of Operations beginning November 8, 2012. The results of Solvix's operations for the
three months
ended
March 31, 2013
are as follows (in thousands):
|
|
|
|
|
Sales
|
$
|
1,222
|
|
Net loss
|
(234
|
)
|
Pro Forma Results for Solvix Acquisition
The following unaudited
pro forma
financial information presents the combined results of operations of Advanced Energy and Solvix as if the acquisition had occurred as of January 1, 2012. The 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 acquisition had taken place at
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
January 1, 2012. The unaudited pro forma financial information for the three months ended March 31, 2012 includes the historical results of Advanced Energy for the three months ended March 31, 2012 and the historical results of Solvix for the same periods.
The unaudited pro forma results for all periods presented include amortization charges for acquired intangible assets and related tax effects. These pro forma results consider the sale of the gas flow control business and related product lines as discontinued operations. The unaudited pro forma results follow (in thousands, except per share data):
|
|
|
|
|
|
(Unaudited)
|
|
Three Months Ended March 31,
|
|
2012
|
Sales
|
$
|
107,317
|
|
Net income
|
1,070
|
|
Earnings per share:
|
|
Basic
|
$
|
0.03
|
|
Diluted
|
0.03
|
|
Disposition
On October 15, 2010, we completed the sale of our gas flow control business, which included the Aera
®
mass flow control and related product lines to Hitachi Metals, Ltd. ("Hitachi"), for approximately
$43.3 million
. Assets and liabilities sold included, without limitation, inventories, real property in Hachioji, Japan, equipment, certain contracts, intellectual property rights related to the gas flow control business and certain warranty liability obligations.
In connection with the closing of this asset disposition, we entered into a Master Services Agreement and a Supplemental Transition Services Agreement pursuant to which we provided certain transition services until October 2011 and we became an authorized service provider for Hitachi in all countries other than Japan. In March 2012, we entered into an agreement to sell certain fixed assets to Hitachi and cease providing contract manufacturing services. As of May 31, 2012, we ceased providing contract manufacturing services to Hitachi and completed the sale of certain fixed assets related to that manufacturing. The sale of these assets resulted in a
$1.9 million
gain, which is recorded in Other income (expense), net in our Condensed Consolidated Statements of Operations. As of
June 30, 2012
, all manufacturing activities and relationships with Hitachi related to the previously owned gas flow control business have ended. We do not anticipate any additional activity with Hitachi in respect of these assets that would materially impact our financial statements in the future.
In accordance with authoritative accounting guidance for reporting discontinued operations, for the periods reported in this Form 10-Q, the results of continuing operations were reduced by the revenue and costs associated with the gas flow control business, which are included in the Income from discontinued operations, net of income taxes, in our Condensed Consolidated Statements of Operations.
Operating results of discontinued operations are as follows (in thousands):
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2012
|
Sales
|
|
$
|
4,576
|
|
Cost of sales
|
|
5,145
|
|
Gross profit (loss)
|
|
(569
|
)
|
Operating expenses:
|
|
|
|
Research and development
|
|
—
|
|
Selling, general, and administrative
|
|
45
|
|
Total operating expenses
|
|
45
|
|
Operating income (loss) from discontinued operations
|
|
(614
|
)
|
Other income
|
|
1,023
|
|
Income from discontinued operations before income taxes
|
|
409
|
|
Provision for income taxes
|
|
106
|
|
Income from discontinued operations, net of income taxes
|
|
$
|
303
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets out the tax expense and the effective tax rate for our income from continuing operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Income from continuing operations before income taxes
|
|
$
|
7,516
|
|
|
$
|
1,034
|
|
Provision for income taxes
|
|
690
|
|
|
268
|
|
Effective tax rate
|
|
9.2
|
%
|
|
25.9
|
%
|
Our tax rate is lower than the U.S. federal income tax rate primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates. In addition, during the
three months
ended
March 31, 2013
, we recognized a discrete tax benefit of
$1.4 million
related to the January 2, 2013 reinstatement of the 2012 U.S. research and development tax credit.
Undistributed earnings of foreign subsidiaries are considered to be permanently reinvested and accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been made.
Our policy is to classify accrued penalties and interest related to unrecognized tax benefits in our income tax provision. For the
three months
ended
March 31, 2013
and
2012
, the amount of interest and penalties accrued related to our unrecognized tax benefits was not significant.
|
|
NOTE 4.
|
EARNINGS PER SHARE FOR CONTINUING OPERATIONS
|
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 numerator is increased to exclude charges that would not have been incurred, and 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 securities containing potentially dilutive common shares (e.g., 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 EPS (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Income from continuing operations, net of income taxes
|
|
$
|
6,826
|
|
|
$
|
766
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
38,775
|
|
|
40,781
|
|
Assumed exercise of dilutive stock options and restricted stock units
|
|
823
|
|
|
511
|
|
Diluted weighted-average common shares outstanding
|
|
39,598
|
|
|
41,292
|
|
Income from continuing operations:
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.02
|
|
Diluted earnings per share
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
The following stock options and restricted units were excluded in the computation of diluted earnings per share because they were anti-dilutive:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2013
|
|
2012
|
Stock options
|
853
|
|
|
5,847
|
|
Restricted stock units
|
—
|
|
|
23
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share Repurchases
In October 2012, our Board of Directors authorized a program to repurchase up to
$25.0 million
of our stock over a twelve-month period. Under this program, during the
three months
ended
March 31, 2013
, we have not yet repurchased any shares.
|
|
NOTE 5.
|
MARKETABLE SECURITIES
|
Our investments with original maturities of more than three months at time of purchase are considered marketable securities available for sale.
The composition of our marketable securities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Commercial paper
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
749
|
|
|
$
|
749
|
|
Certificates of deposit
|
|
12,260
|
|
|
12,260
|
|
|
12,498
|
|
|
12,498
|
|
Corporate bonds/notes
|
|
—
|
|
|
—
|
|
|
11,274
|
|
|
11,253
|
|
Municipal bonds/notes
|
|
283
|
|
|
283
|
|
|
285
|
|
|
285
|
|
Agency bonds/notes
|
|
—
|
|
|
—
|
|
|
900
|
|
|
898
|
|
Total marketable securities
|
|
$
|
12,543
|
|
|
$
|
12,543
|
|
|
$
|
25,706
|
|
|
$
|
25,683
|
|
The maturities of our marketable securities available for sale as of
March 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
Earliest
|
|
|
|
Latest
|
Certificates of deposit
|
|
4/2/2013
|
|
to
|
|
2/17/2015
|
Municipal bonds/notes
|
|
9/1/2013
|
|
to
|
|
9/1/2013
|
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. Our current investments in marketable securities are expected to be liquidated during the next twelve months.
As of
March 31, 2013
, we do not believe any of the underlying issuers of our marketable securities are presently at risk of default.
|
|
NOTE 6.
|
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. During the
three months
ended
March 31, 2013
and
2012
, 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. At March 31, 2013 and December 31, 2012 we had outstanding Euro, Swiss Franc, and Canadian Dollar forward contracts.
The notional amount of foreign currency exchange contracts at
March 31, 2013
and
2012
was
$24.2 million
and
$41.5 million
, respectively, and the fair value of these contracts was not significant at
March 31, 2013
and
2012
. During the
three months
ended
March 31, 2013
and
2012
, we recognized a gain of
$0.6 million
and a loss of
$1.0 million
, respectively, on our foreign currency exchange contracts. 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 (expense), net, in our Condensed Consolidated Statements of Operations.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 7.
|
ASSETS MEASURED AT FAIR VALUE
|
The following tables present information about our financial assets measured at fair value, on a recurring basis, as of
March 31, 2013
, and
December 31, 2012
. The tables indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value. We did not have any financial liabilities measured at fair value, on a recurring basis, as of
March 31, 2013
, and
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Certificates of deposit
|
|
—
|
|
|
12,260
|
|
|
—
|
|
|
12,260
|
|
Municipal bonds/notes
|
|
—
|
|
|
283
|
|
|
—
|
|
|
283
|
|
Total marketable securities
|
|
$
|
—
|
|
|
$
|
12,543
|
|
|
$
|
—
|
|
|
$
|
12,543
|
|
|
|
|
December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Commercial paper
|
|
$
|
—
|
|
|
$
|
749
|
|
|
$
|
—
|
|
|
$
|
749
|
|
Certificates of deposit
|
|
—
|
|
|
12,498
|
|
|
—
|
|
|
12,498
|
|
Corporate bonds/notes
|
|
—
|
|
|
11,253
|
|
|
—
|
|
|
11,253
|
|
Municipal bonds/notes
|
|
—
|
|
|
285
|
|
|
—
|
|
|
285
|
|
Agency bonds/notes
|
|
898
|
|
|
—
|
|
|
—
|
|
|
898
|
|
Total marketable securities
|
|
$
|
898
|
|
|
$
|
24,785
|
|
|
$
|
—
|
|
|
$
|
25,683
|
|
There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the
three months
ended
March 31, 2013
.
Our inventories are valued at the lower of cost or market and computed on a first-in, first-out (FIFO) basis. Components of inventories are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Parts and raw materials
|
|
$
|
61,570
|
|
|
$
|
59,484
|
|
Work in process
|
|
6,523
|
|
|
3,728
|
|
Finished goods
|
|
11,429
|
|
|
18,270
|
|
Inventories, net of reserves
|
|
$
|
79,522
|
|
|
$
|
81,482
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 9.
|
PROPERTY AND EQUIPMENT
|
Details of property and equipment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Buildings and land
|
|
$
|
1,715
|
|
|
$
|
1,794
|
|
Machinery and equipment
|
|
40,241
|
|
|
40,993
|
|
Computer and communication equipment
|
|
23,017
|
|
|
22,895
|
|
Furniture and fixtures
|
|
1,835
|
|
|
1,845
|
|
Vehicles
|
|
384
|
|
|
359
|
|
Leasehold improvements
|
|
27,972
|
|
|
27,976
|
|
Construction in process
|
|
3,909
|
|
|
3,362
|
|
|
|
99,073
|
|
|
99,224
|
|
Less: Accumulated depreciation
|
|
(61,934
|
)
|
|
(59,701
|
)
|
Property and equipment, net
|
|
$
|
37,139
|
|
|
$
|
39,523
|
|
Depreciation expense recorded in continuing operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Depreciation expense
|
|
$
|
3,073
|
|
|
$
|
2,841
|
|
The following summarizes the changes in goodwill during the
three months
ended
March 31, 2013
(in thousands):
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
$
|
60,391
|
|
Adjustments
|
|
(11
|
)
|
Translation adjustments
|
|
(495
|
)
|
Balance as of March 31, 2013
|
|
$
|
59,885
|
|
|
|
NOTE 11.
|
INTANGIBLE ASSETS
|
Other intangible assets consisted of the following as of
March 31, 2013
(in thousands, except weighted-average useful life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Effect of Changes in Exchange Rates
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted-Average Useful Life in Years
|
Amortizable intangibles:
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$
|
44,668
|
|
|
$
|
(14
|
)
|
|
$
|
(12,613
|
)
|
|
$
|
32,041
|
|
|
7
|
Trademarks and other
|
|
13,714
|
|
|
(29
|
)
|
|
(2,012
|
)
|
|
11,673
|
|
|
9
|
Total amortizable intangibles
|
|
$
|
58,382
|
|
|
$
|
(43
|
)
|
|
$
|
(14,625
|
)
|
|
$
|
43,714
|
|
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other intangible assets consisted of the following as of
December 31, 2012
(in thousands, except weighted-average useful life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Effect of Changes in Exchange Rates
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted-Average Useful Life in Years
|
Amortizable intangibles:
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$
|
44,668
|
|
|
$
|
83
|
|
|
$
|
(10,775
|
)
|
|
$
|
33,976
|
|
|
7
|
Trademarks and other
|
|
13,703
|
|
|
167
|
|
|
(1,637
|
)
|
|
12,233
|
|
|
9
|
Total amortizable intangibles
|
|
$
|
58,371
|
|
|
$
|
250
|
|
|
$
|
(12,412
|
)
|
|
$
|
46,209
|
|
|
|
Amortization expense relating to other intangible assets included in our income from continuing operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Amortization expense
|
|
$
|
2,213
|
|
|
$
|
1,372
|
|
Amortization expense related to intangibles for each of the five years
2013
through 2017 and thereafter is as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
|
2013 (remaining)
|
|
$
|
6,689
|
|
2014
|
|
9,681
|
|
2015
|
|
9,228
|
|
2016
|
|
7,031
|
|
2017
|
|
3,621
|
|
Thereafter
|
|
7,464
|
|
|
|
$
|
43,714
|
|
|
|
NOTE 12.
|
OTHER ACCRUED EXPENSES
|
Other accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Other accrued expenses:
|
|
|
|
|
Current deferred tax liability
|
|
$
|
4,137
|
|
|
$
|
4,137
|
|
Accrued restructuring costs
|
|
655
|
|
|
1,853
|
|
Current contingent consideration
|
|
2,773
|
|
|
2,773
|
|
Accrued sales and use tax
|
|
983
|
|
|
1,010
|
|
Other*
|
|
6,820
|
|
|
5,626
|
|
Total Other accrued expenses
|
|
$
|
15,368
|
|
|
$
|
15,399
|
|
*Other accrued expenses consisted of items that are individually less than 5% of total current liabilities.
|
|
NOTE 13.
|
RESTRUCTURING COSTS
|
In September 2011, we approved and committed to several initiatives to realign our manufacturing and research and development activities in order to foster growth and enhance profitability. These initiatives are designed to align research and development activities with the location of our customers and reduce production costs. Under this plan, we reduced our global
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
headcount, consolidated our facilities by terminating or exiting several leases, and recorded impairments for assets no longer in use due to the restructuring of our business. All activities under this restructuring plan were completed prior to December 31, 2012.
The following table summarizes our restructuring liabilities under the plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2012
|
|
Costs incurred and charged to expense
|
|
Cost paid or otherwise settled
|
|
Effect of change in exchange rates
|
|
Balances at March 31, 2013
|
Severance and related costs
|
|
$
|
1,345
|
|
|
$
|
—
|
|
|
$
|
(1,044
|
)
|
|
$
|
(26
|
)
|
|
$
|
275
|
|
Facility closure costs
|
|
508
|
|
|
—
|
|
|
(128
|
)
|
|
—
|
|
|
380
|
|
Total restructuring liabilities
|
|
$
|
1,853
|
|
|
$
|
—
|
|
|
$
|
(1,172
|
)
|
|
$
|
(26
|
)
|
|
$
|
655
|
|
Provisions of our sales agreements include product warranties customary to these types of agreements, ranging from
18
months to
24
months following installation for Thin Films products and
5
years to
10
years following installation for Solar Energy products. Our provision for the estimated cost of warranties is recorded when revenue is recognized. The warranty provision is based on historical experience by product, configuration and geographic region.
We establish accruals for warranty issues that are probable to result in future costs. Changes in product warranty accruals are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Balances at beginning of period
|
|
$
|
14,797
|
|
|
$
|
14,719
|
|
Increases to accruals related to sales during the period
|
|
2,001
|
|
|
1,835
|
|
Warranty expenditures
|
|
(3,059
|
)
|
|
(2,235
|
)
|
Balances at end of period
|
|
$
|
13,739
|
|
|
$
|
14,319
|
|
We also offer our Solar Energy customers the option to purchase additional warranty coverage up to
20
years after the base warranty period expires. Deferred revenue related to such extended warranty contracts was
$20.8 million
as of
March 31, 2013
, of which
$0.3 million
is classified in Customer deposits and
$20.5 million
is classified in Other long-term liabilities in the Condensed Consolidated Balance Sheet as of
March 31, 2013
. As of
December 31, 2012
, deferred revenue related to extended warranty contracts was
$20.5 million
, of which
$0.4 million
is classified in Customer deposits and
$20.1 million
is classified in Other long-term liabilities.
|
|
NOTE 15.
|
STOCK-BASED COMPENSATION
|
We recognize stock-based compensation expense based on the fair value of the awards issued. Stock-based compensation for the
three months
ended
March 31, 2013
and
2012
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Stock-based compensation expense
|
|
$
|
2,034
|
|
|
$
|
5,009
|
|
Stock Options
Stock option awards, other than awards under our 2012-2014 Long Term Incentive Plan ("LTI Plan"), are generally granted with an exercise price equal to the market price of our common stock at the date of grant, a
four
-year vesting schedule, and a term of
10
years.
Under the LTI Plan, we made grants of performance based options and awards during the first quarter of 2012, which will vest annually over a
three-year period
based on the Company's achievement of return on net assets targets established by our
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Board of Directors at the beginning of each year. These awards are granted with an exercise price equal to the market price of our common stock at the date of grant and have a term of
10
years. The fair value of each grant was estimated on the date of grant using the Black-Scholes-Merton option pricing model utilizing an expected volatility of
61.5%
, a risk-free rate of
1.2%
, a dividend yield of
zero
, and an expected term of
5.9
years. The weighted-average grant date fair value of the options is
$6.19
per share. The weighted average grant date fair value of the awards is
$11.03
per share.
A summary of our stock option activity for the
three months
ended
March 31, 2013
is as follows (in thousands):
|
|
|
|
|
|
|
Shares
|
Options outstanding at December 31, 2012
|
|
5,659
|
|
Options granted
|
|
—
|
|
Options exercised
|
|
(1,068
|
)
|
Options forfeited
|
|
(415
|
)
|
Options expired
|
|
(21
|
)
|
Options outstanding at March 31, 2013
|
|
4,155
|
|
Restricted Stock Units
Restricted Stock Units ("RSU") are generally granted with a four-year vesting schedule.
A summary of our non-vested RSU activity for the
three months
ended
March 31, 2013
is as follows (in thousands):
|
|
|
|
|
|
|
Shares
|
Balance at December 31, 2012
|
|
2,073
|
|
RSUs granted
|
|
—
|
|
RSUs vested
|
|
(273
|
)
|
RSUs forfeited
|
|
(22
|
)
|
Balance at March 31, 2013
|
|
1,778
|
|
|
|
NOTE 16.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
Accumulated other comprehensive income consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Adjustments
|
|
Unrealized Gains (Losses) on Marketable Securities
|
|
Total Accumulated Other Comprehensive Income
|
Balances at December 31, 2012
|
$
|
29,730
|
|
|
$
|
(5
|
)
|
|
$
|
29,725
|
|
Current period other comprehensive income (loss)
|
(2,834
|
)
|
|
(7
|
)
|
|
(2,841
|
)
|
Balances at March 31, 2013
|
$
|
26,896
|
|
|
$
|
(12
|
)
|
|
$
|
26,884
|
|
|
|
NOTE 17.
|
COMMITMENTS AND CONTINGENCIES
|
We have firm purchase commitments and agreements with various suppliers to ensure the availability of components. The obligation as of
March 31, 2013
is approximately
$62.6 million
. Our policy with respect to all purchase commitments, is to record losses, if any, when they are probable and reasonably estimable. We continuously monitor these commitments for exposure to potential losses and will record a provision for losses when it is deemed necessary.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 18.
|
RELATED PARTY TRANSACTIONS
|
During the
three months
ended
March 31, 2013
and
2012
, we engaged in the following transactions with companies related to members of our Board of Directors, as described below (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2013
|
|
2012
|
Sales - related parties
|
$
|
31
|
|
|
$
|
154
|
|
Rent expense - related parties
|
475
|
|
|
460
|
|
Sales - Related Parties
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
three months
ended
March 31, 2013
, we had sales to
two
such customers as noted above and accounts receivable from
one
such customers totaled
$23,160
at
March 31, 2013
. During the
three months
ended
March 31, 2012
, we had sales to
two
such customers as noted above and no aggregate accounts receivable from these customers at
December 31, 2012
.
Rent Expense - Related Parties
We lease our executive offices, research and development, and manufacturing facilities in Fort Collins, Colorado from a limited liability partnership in which Douglas Schatz, our Chairman of the Board and former Chief Executive Officer, holds an interest. The leases relating to these spaces expire during
2021
and obligate us to total annual payments of approximately
$1.5 million
, which includes facilities rent and common area maintenance costs.
|
|
NOTE 19.
|
SEGMENT INFORMATION
|
Our Thin Films SBU offers power conversion products for direct current, pulsed DC mid frequency, and radio frequency power supplies, matching networks, and RF instrumentation, as well as thermal instrumentation products. Our power conversion systems refine, modify, and control the raw electrical power from a utility and convert it into power that may be customized and is predictable and repeatable. Our thermal instrumentation products provide temperature measurement solutions for applications in which time-temperature cycles affect material properties, productivity, and yield. These products are used in rapid thermal processing, chemical vapor deposition, and other semiconductor and solar applications requiring non-contact temperature measurement. Our network of global service support centers offer repair services, conversions, upgrades, and refurbishments to companies using our products. Our Thin Films SBU principally serves original equipment manufacturers (“OEMs”) and end customers in the semiconductor, flat panel display, solar panel, and other capital equipment markets.
Our Solar Energy SBU offers both a transformer-based and a transformerless advanced grid-tied PV inverter solution primarily for commercial and utility-scale system installations. Our PV inverters are designed to convert renewable solar power, drawn from large and small scale solar arrays, into high-quality, reliable electrical power. Our Solar Energy SBU focuses on commercial and utility-scale solar projects and installations, selling primarily to distributors, engineering, procurement, and construction contractors, developers, and utility companies. Our Solar Energy revenue has seasonal variations. Installations of inverters are normally lowest during the first quarter as a result of typically poor weather and installation scheduling by our customers.
Our chief operating decision maker, who is our Chief Executive Officer, and other management personnel regularly review our performance and make resource allocation decisions by reviewing the results of our two business segments separately. Revenue and operating profit is reviewed by our chief operating decision maker. We have also divided inventory and property and equipment based on business segment.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Sales with respect to our operating segments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Thin Films
|
|
$
|
61,777
|
|
|
$
|
60,390
|
|
Solar Energy
|
|
50,037
|
|
|
45,397
|
|
Total
|
|
$
|
111,814
|
|
|
$
|
105,787
|
|
Income from continuing operations before income taxes by operating segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2013
|
|
2012
|
Thin Films
|
|
$
|
7,511
|
|
|
$
|
3,167
|
|
Solar Energy
|
|
208
|
|
|
493
|
|
Total segment operating income
|
|
7,719
|
|
|
3,660
|
|
Corporate expenses
|
|
—
|
|
|
(462
|
)
|
Restructuring charges
|
|
—
|
|
|
(2,575
|
)
|
Other income (expense), net
|
|
(203
|
)
|
|
411
|
|
Income from continuing operations before income taxes
|
|
$
|
7,516
|
|
|
$
|
1,034
|
|
Corporate expenses in 2012 consist of intangible amortization that is now being allocated to the business units.
Segment assets consist of inventories, net and property and equipment, net. A summary of consolidated total assets by segment follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
Thin Films
|
|
$
|
38,932
|
|
|
$
|
40,965
|
|
Solar Energy
|
|
73,593
|
|
|
76,393
|
|
Total segment assets
|
|
112,525
|
|
|
117,358
|
|
Unallocated corporate property and equipment
|
|
4,136
|
|
|
3,647
|
|
Unallocated corporate assets
|
|
434,868
|
|
|
417,155
|
|
Consolidated total assets
|
|
$
|
551,529
|
|
|
$
|
538,160
|
|
"Corporate” is a non-operating business segment with the main purpose of supporting operations. Unallocated corporate assets include accounts receivable, deferred income taxes, other current assets and intangible assets.
During the three months ended
March 31, 2013
, we had two customers accounting for 10% or more of our sales. Sales to Applied Materials, Inc. were
$18.7 million
or
16.7%
of total sales and sales to Fluor Enterprises, Inc. were
$13.5 million
or
12.1%
of total sales. During the three months ended
March 31, 2012
, we had one customer accounting for 10% or more of our sales. Sales to Applied Materials, Inc. were
$17.8 million
or
16.9%
of total sales. Our sales to Applied Materials, Inc. include thin film products used in semiconductor processing and solar, flat panel display, and architectural glass applications and our sales to Fluor Enterprises include power stations. No other customer accounted for
10%
or more of our sales during these periods.
In October 2012, we, along with two of our wholly-owned subsidiaries, AE Solar Energy, Inc. and Sekidenko, Inc., entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as agent for and on behalf of certain lenders (each a “Lender”), which provides for a new secured revolving credit facility of up to
$50.0 million
(the “Credit Facility”). The Credit Facility provides us with the ability to borrow up to
$50.0 million
, although the amount of the Credit Facility may be increased by an additional
$25.0 million
up to a total of
$75.0 million
subject to receipt of lender commitments and other conditions. Borrowings under the Credit Facility are subject to a borrowing base based upon our domestic accounts receivable and inventory and are available for various corporate purposes, including general working capital, capital expenditures, and certain permitted acquisitions. The Credit Agreement also permits us to issue letters of credit. The maturity date of the Credit
Facility is
October 12, 2017
.
At our election, the loans comprising each borrowing will bear interest at a rate per annum equal to either: (a) a “base rate” plus between one-half (
0.5%
) and one (
1.0%
) full percentage point depending on the amount available for additional draws under the Credit Facility (“Base Rate Loan”); or (b) the LIBOR rate then in effect plus between one and one-half (
1.5%
) and two (
2%
) percentage points depending on the amount available for additional draws under the Credit Facility. The “base rate” for any Base Rate Loan will be the greatest of the federal funds rate plus one-half (
0.5%
) percentage point; the one-month LIBOR rate plus one (
1.0%
) percentage point; and Wells Fargo's “prime rate” then in effect. As of
March 31, 2013
, the rate in effect was
4.25%
.
The Credit Agreement requires us to pay certain fees to the Lenders and contains affirmative and negative covenants, which, among other things, require us to deliver to the Lenders specified quarterly and annual financial information, and limit us and our Guarantors (as defined below), subject to various exceptions and thresholds, from, among other things: (i) creating liens on our assets; (ii) merging with other companies or engaging in other extraordinary corporate transactions; (iii) selling certain assets or properties; (iv) entering into transactions with affiliates; (v) making certain types of investments; (vi) changing the nature of our business; and (vii) paying certain distributions or certain other payments to affiliates. Additionally, during any period in which $12.5 million or less is available to us under the Credit Facility and for sixty (60) days thereafter, the Credit Agreement requires the maintenance of a defined consolidated fixed charge coverage ratio.
The Credit Agreement requires us to pay certain fees to the Lenders, including a
$2,500
collateral management fee for each month that the Credit Facility is in place, and a fee based on the unused amount of the Credit Facility. In addition, if the Credit Agreement is terminated by us within one (1) year we will be obligated to pay an early termination fee equal to one percent (
1%
) of the maximum amount that may be drawn or borrowed under the Credit Facility. During the three months ended
March 31, 2013
, we expensed
$0.1 million
in interest and fees related to unused line of credit fees and amortization of debt issuance costs. We did not borrow against the Credit Facility in the first quarter of
2013
.
Pursuant to a Guaranty and Security Agreement (the “GS Agreement”), borrowings under the Credit Facility are guaranteed by our wholly-owned subsidiaries Aera Corporation and AEI US Subsidiary, Inc., (collectively the “ Guarantors”). Under the GS Agreement, we and the Guarantors granted the Lenders a security interest in certain, but not all, of our and the Guarantors' assets.
|
|
NOTE 21.
|
SUBSEQUENT EVENT
|
On April 8, 2013, Advanced Energy and Blitz S13-103, GmbH, an indirect wholly-owned subsidiary of Advanced Energy (“Purchaser”) entered into a Sale and Purchase Agreement (the “Agreement ”) with Jolaos Verwaltungs GmbH (“Seller”) and Prettl Beteilgungs Holding Gmbh (“Seller's Guarantor”) whereby the Purchaser acquired from Seller, on the same date, all of the shares of RefuSol Holding GmbH (“Refusol Holding”) which owns all of the shares of RefuSol GmbH and its subsidiaries (collectively and together with RefuSol Holding, “RefuSol”). RefuSol develops, manufactures, distributes and services photovoltaic inverters.
Under the terms of the Agreement, Seller received
€59.0 million
in cash, we assumed
€9.0 million
of debt and had a working capital reduction of
€1.8 million
. The preliminary base price is subject to a post-closing adjustment based on confirmation of the financial statements of RefuSol effective as of the closing date. Each party has agreed to pay its own expenses related to the transaction.
Additional earn-out cash and stock consideration, up to a maximum of
€10.0 million
total, is payable to Seller if certain stretch financial targets are met by Advanced Energy's Solar Energy Business Unit and RefuSol, on a combined basis, at the end of the twelve (12) calendar months following April 1, 2013. Half of the earn-out, or up to
€5.0 million
, is payable in cash. The other half of the earn-out, up to
€5.0 million
is payable in Advanced Energy common stock at a price of approximately
$18.85
per share. The per share price was determined based on the volume-weighted average price of Advanced Energy's common stock during the fifteen (15) trading days prior to April 5, 2013. No more than
342,105
shares are issuable pursuant to the earn-out.