NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In this Annual Report on Form 10-K, we use the terms “Advanced Energy,” “we,” “our,” and “us” to refer to Advanced Energy Industries, Inc. and its subsidiaries.
NOTE 1.
OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
We 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, solar panels, 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 primarily for commercial, and utility-scale solar projects and installations. Our network of global service support centers 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.
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”).
Corrections to Previously Reported Financial Statements
— During the quarter ended December 31, 2013, the Company identified an error in the accounting for income taxes. This error accumulated gradually over many years and was caused by an inadequate process to reconcile worldwide tax accounts. The Company assessed the materiality of this item on previously issued financial statements in accordance with the SEC's Staff Accounting Bulletin ("SAB") No. 99 and concluded that the error was not material to any of the individual annual or interim periods. In accordance with SAB No. 108, the Company has corrected the accompanying Consolidated Financial Statements by increasing 2011 beginning retained earnings by approximately
$2.0 million
and the respective lines in the balance sheet as of
December 31, 2012
as follows (in thousands):
|
|
|
|
|
|
Increase in current taxes receivable
|
|
$
|
636
|
|
(Decrease) in deferred tax assets
|
|
(1,554
|
)
|
Decrease in income tax payable
|
|
2,898
|
|
(Increase) in retained earnings at January 1, 2011
|
|
$
|
(1,980
|
)
|
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 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, 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”) 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,
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 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.
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, 2013
, our accounts receivable from
Applied Materials
were
$22.0 million
, comprising
17.4%
of our total accounts receivable. At
December 31, 2012
, our accounts receivable from
Applied Materials
, Ltd. were
$10.9 million
, comprising
13%
of our total accounts receivable. No other customer balance exceeded
10%
of our total accounts receivable balance at
December 31, 2013
or
December 31, 2012
. 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 have not historically charged interest on overdue balances, although we do notify our customers that we reserve the right to do so. We maintain a credit approval process and we make significant judgments in connection with assessing our customers’ ability to pay at the time of shipment. 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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Balances at beginning of period
|
|
$
|
4,589
|
|
|
$
|
6,796
|
|
|
$
|
3,440
|
|
Additions - charged to expense
|
|
1,121
|
|
|
1,705
|
|
|
4,806
|
|
Deductions - write-offs, net of recoveries
|
|
(2,790
|
)
|
|
(3,912
|
)
|
|
(1,450
|
)
|
Balances at end of period
|
|
$
|
2,920
|
|
|
$
|
4,589
|
|
|
$
|
6,796
|
|
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 market and are presented net of reserves for excess and obsolete inventory.
Reserves are provided 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
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
primarily on 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 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: building,
20
to
40
years; machinery, equipment, furniture and fixtures and vehicles,
three
to
10
years; and computer and communication equipment,
three
years.
Amortization of leasehold improvements and leased equipment is calculated using the straight-line method over the lease term or the estimated useful life of the assets, whichever period is shorter. Additions, improvements, and major renewals are capitalized, while maintenance, repairs, and minor renewals 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
— We completed our acquisitions of Solvix in November 2012 and Refusol in April 2013 for total costs of
$21.2 million
and
$87.2 million
, respectively. 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.
Due to the restructuring plan announced in 2011, we determined there were indicators of impairment related to one research and development project that was recorded as in-process research and development in conjunction with the acquisition of PV Powered. This project was abandoned as part of the restructuring plan and thus resulted in an impairment of the intangible asset recorded. In December 2011, we recorded an impairment of
$1.1 million
as part of our restructuring charges related to this project.
As a result of the acquisition of the three phase string inverter product line, we assessed the overall Solar product line for product optimization. Through this assessment, it was determined that the intangible assets related to products acquired from PV Powered were impaired. We performed an analysis using projected future cash flows and determined their carrying value was impaired resulting in an impairment of
$31.9 million
in 2013.
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. We performed an assessment of qualitative factors for our annual impairment test of the goodwill associated with our Solar Energy business in 2012 and the goodwill associated with our Thin Film business in 2013. The factors reviewed included macroeconomic conditions, industry and market conditions, cost factors, and overall financial performance of our solar inverter business. This assessment resulted in the conclusion that there is no impairment of goodwill in the respective years. For the 2013 annual impairment test of goodwill associated with our Solar Energy business unit, we performed a quantitative analysis by comparing the fair value of the Solar Energy reporting unit to its carrying value. This analysis used projected future cash flows and market multiples of comparable companies to arrive at the fair value of the reporting. The analysis of the Solar Energy business unit resulted in the conclusion that there is no impairment of goodwill in 2013.
Revenue Recognition
— We recognize revenue from product sales upon transfer of title and risk of loss to our customers provided that there is evidence of an arrangement, the sales price is fixed or determinable, and the collection of the related receivable is reasonably assured. In most transactions, we have no obligations to our customers after the date products
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
are shipped, other than pursuant to warranty obligations. For customers purchasing our Solar Energy products, we provide installation, support, and services after the product has been shipped. For arrangements containing these additional elements, we allocate revenue based on vendor specific objective evidence of the selling price of each individual element of the arrangement. As we also sell these additional elements separately, the evidence is our selling price for those elements when sold separately. We defer the revenue of any undelivered elements until the undelivered element is delivered. 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.
We maintain a worldwide support organization in eight countries, including the United States, the PRC, Japan, Korea, Taiwan, Canada, Germany, and Great Britain. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Revenue from repairs and replacements, that are non-warranty in nature, are recognized as the work is performed on a time and materials basis. Repairs that are covered under our standard warranty do not generate revenue.
We also provide our customers with extended warranty and preventive maintenance service contract options on the products we sell. 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 deferred revenue related to extended warranties totaling
$43.2 million
as of
December 31, 2013
and
$20.5 million
as of
December 31, 2012
, including the current portion.
Based on the credit worthiness of certain customers, we may require payment prior to the manufacture or shipment of products purchased by these customers. Cash payments received prior to shipment are recorded as customer deposits, a current liability, and then recognized as revenue when appropriate based upon the revenue recognition criteria discussed earlier in this section. As of
December 31, 2013
and
December 31, 2012
the total amount of customer deposits was
$7.0 million
and
$2.1 million
, respectively. We do not offer price protection to customers, or allow returns, unless covered by our normal policy for repair of defective products.
We occasionally agree to make payments to certain customers in order to participate in anticipated sales activity. Payments made to customers are accounted for as a reduction of revenue unless they are made in exchange for identifiable goods or services with fair values that can be reasonably estimated. These reductions in revenues are recognized immediately to the extent that the payments cannot be attributed to anticipated future sales, and are recognized in future periods to the extent that the payments relate to future sales, based on the specific facts and circumstances underlying each payment.
Taxes Collected from Customers
— In the course of doing business we collect various taxes from customers including, but not limited to, sales taxes and value added taxes. It is our policy to record revenue net of taxes collected from customers in our Consolidated Statements of Operations.
Shipping and Handling Costs
— Amounts billed to customers for shipping and handling are recorded in sales. Shipping and handling costs incurred by us for the delivery of products to customers are included in cost of sales.
Advertising Costs
— Advertising costs are expensed when incurred and are included in selling, general, and administrative expenses.
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.
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 thin-film products for periods typically ranging from 12 to 24 months after shipment. We warrant our solar inverter products for five to ten years. 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 of each product platform. 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. Except as noted below, 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
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
volatility assumption is based on the historical daily closing price of our stock over a period equivalent to the expected life of the options. Our Long-term Incentive Plan ("LTI Plan") includes a cash settlement option for awards of restricted stock units.
During 2011 we granted non-qualified stock options to our Chief Executive Officer that will vest based on the achievement of certain stock price targets. To estimate the fair value of these stock options on the grant date we used the Monte Carlo simulation method which is also affected by our stock price and assumptions regarding multiple variables.
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. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized, based upon an assessment of both negative and positive evidence, in future tax returns. 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.
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.
|
|
NOTE 2.
|
BUSINESS ACQUISITION AND 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
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
$16.0 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 the remaining balance of
$0.9 million
is included in Other accrued expenses and
$2.3 million
is included in Other long-term liabilities on the 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 and is included in our Thin Film business unit. Solvix has approximately
10
employees and had revenues of
$5.2 million
in its fiscal year ended September 30, 2012.
During 2013, we initiated the move of the Solvix product line from a contract manufacturer in Switzerland to our Shenzhen facility. The move was substantially completed by the end of the fourth quarter of 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
|
|
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
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
|
|
755
|
|
|
Straight-line
|
|
7
|
Customer relationships - design
|
|
4,643
|
|
|
Straight-line
|
|
12
|
|
|
$
|
8,227
|
|
|
|
|
|
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.
Refusol Holding
On April 8, 2013, we acquired all the outstanding shares of Refusol Holding GmbH pursuant to a Sale and Purchase Agreement (the "Agreement ") between AEI Holdings, GmbH (formerly Blitz S13-103, GmbH) ("AEI Holdings"), an indirect wholly-owned subsidiary of Advanced Energy Industries, Inc. and Jolaos Verwaltungs GmbH ("Jolaos") and Prettl Beteilgungs Holding GmbH. Refusol Holding GmbH ("Refusol Holding") 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.
All of the outstanding shares of Refusol Holding were acquired for total consideration of approximately
$87.2 million
, consisting of a cash payment of
$75.4 million
, net of cash acquired and a working capital reduction and assumption of debt totaling
$11.9 million
. The agreement calls for additional cash consideration if certain stretch financial targets are met by our Solar Energy business unit and Refusol, on a combined basis, at the end of the twelve (
12
) calendar months following April 1, 2013. The contingent consideration has no estimated fair value as of April 8, 2013 and December 31, 2013 based on management's estimates of operating income for the Solar Energy business unit for the specified period. 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.
Refusol develops three-phase string inverters for commercial customers across Europe and Asia. Its three-phase string inverter offerings range in size from 8kW to 24kW broadening the range of solar inverter products offered by Advanced Energy. Refusol is included in our Solar Energy business unit. Refusol had revenues of
$170.5 million
in its fiscal year ended December 31, 2012.
The components of the fair value of the total consideration transferred for the Refusol acquisition are as follows (in thousands):
|
|
|
|
|
Cash paid to owners
|
$
|
79,550
|
|
Debt assumed
|
11,873
|
|
Working capital adjustment
|
(2,340
|
)
|
Cash acquired
|
(1,836
|
)
|
Total fair value of consideration transferred
|
$
|
87,247
|
|
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 April 8, 2013 (in thousands):
|
|
|
|
|
Accounts receivable
|
$
|
9,929
|
|
Inventories
|
15,245
|
|
Other current assets
|
6,769
|
|
Property and equipment
|
4,746
|
|
Other long-term assets
|
130
|
|
Deferred tax assets
|
222
|
|
Current liabilities
|
(21,094
|
)
|
Long-term liabilities
|
(30,673
|
)
|
|
(14,726
|
)
|
Amortizable intangible assets:
|
|
Trademarks
|
1,300
|
|
Technology
|
5,700
|
|
Customer relationships
|
3,500
|
|
Total amortizable intangible assets
|
10,500
|
|
Total identifiable net assets
|
(4,226
|
)
|
Goodwill
|
91,473
|
|
Total fair value of consideration transferred
|
$
|
87,247
|
|
A summary of the intangible assets acquired, amortization method and estimated useful lives as of April 8, 2013 follows (in thousands, except useful life):
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Amortization Method
|
|
Useful Life
|
Trademarks
|
|
$
|
1,300
|
|
|
Straight-line
|
|
1.5
|
Technology
|
|
5,700
|
|
|
Straight-line
|
|
5
|
Customer relationships
|
|
3,500
|
|
|
Straight-line
|
|
5
|
|
|
$
|
10,500
|
|
|
|
|
|
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 associated with the acquisition is the result of expected synergies and expansion of the technology into additional markets that we already serve.
The cost of the acquisition may increase or decrease based on the final amount payable to the former owner of Refusol related to the financial targets to be met during the twelve month period subsequent to April 1, 2013 and a post-closing working capital adjustment based on confirmation of the financial statements of Refusol effective as of the closing date. Advanced Energy is in the process of finalizing valuations of accounts receivable, inventory, other intangibles, property, plant and equipment, estimates of the fair value of liabilities associated with the acquisition and deferred taxes.
The results of Refusol operations are included in our Consolidated Statements of Operations beginning
April 8, 2013
. For the period ended
December 31, 2013
, sales of approximately
$61.6 million
and operating loss of
$6.1 million
attributable to Refusol were included in the Consolidated Statements of Operations. Refusol's results of operations included restructuring charges of
$3.8 million
and amortization of purchased intangible assets of
$2.1 million
.
Pro Forma Results for Refusol Acquisition
The following unaudited
pro forma
financial information presents the combined results of operations of Advanced Energy and Refusol 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 January 1, 2012. The unaudited pro forma financial information for the
twelve months
ended
December 31, 2012
includes the historical results of Advanced Energy for the
twelve months
ended
December 31, 2012
and the historical results of Refusol for the same periods.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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)
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
Sales
|
|
$
|
567,087
|
|
|
$
|
622,388
|
|
Net income
|
|
27,380
|
|
|
19,978
|
|
Earnings per share:
|
|
|
|
|
Basic
|
|
$
|
0.69
|
|
|
$
|
0.51
|
|
Diluted
|
|
$
|
0.67
|
|
|
$
|
0.50
|
|
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, which were included in the Thin Film business unit.
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. 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. 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-K, 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 Consolidated Statements of Operations.
Operating results of discontinued operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2012
|
|
2011
|
Sales
|
|
$
|
8,959
|
|
|
$
|
27,823
|
|
Cost of sales
|
|
9,189
|
|
|
27,671
|
|
Gross profit (loss)
|
|
(230
|
)
|
|
152
|
|
Operating expenses:
|
|
|
|
|
|
|
Research and development
|
|
—
|
|
|
8
|
|
Selling, general, and administrative
|
|
88
|
|
|
862
|
|
Amortization of intangible assets
|
|
—
|
|
|
—
|
|
Total operating expenses
|
|
88
|
|
|
870
|
|
Operating income (loss) from discontinued operations
|
|
(318
|
)
|
|
(718
|
)
|
Other income
|
|
881
|
|
|
(26
|
)
|
Gain on sale of net assets of discontinued operation
|
|
—
|
|
|
—
|
|
Income from discontinued operations before income taxes
|
|
563
|
|
|
(744
|
)
|
Provision for income taxes
|
|
|
|
|
Income taxes on income from discontinued operations
|
|
158
|
|
|
(204
|
)
|
Total provision for income taxes
|
|
158
|
|
|
(204
|
)
|
Income from discontinued operations, net of income taxes
|
|
$
|
405
|
|
|
$
|
(540
|
)
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The geographic distribution of pretax income (loss) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Domestic
|
|
$
|
(9,480
|
)
|
|
$
|
17,905
|
|
|
$
|
54,339
|
|
Foreign
|
|
23,764
|
|
|
11,901
|
|
|
(3,871
|
)
|
|
|
$
|
14,284
|
|
|
$
|
29,806
|
|
|
$
|
50,468
|
|
The provision for income taxes is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
(6,866
|
)
|
|
$
|
11,248
|
|
|
$
|
9,101
|
|
State and local
|
|
(530
|
)
|
|
2,273
|
|
|
970
|
|
Foreign taxes
|
|
5,614
|
|
|
2,637
|
|
|
180
|
|
Total current provision
|
|
$
|
(1,782
|
)
|
|
$
|
16,158
|
|
|
$
|
10,251
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
$
|
(12,023
|
)
|
|
$
|
(7,914
|
)
|
|
$
|
3,525
|
|
State and local
|
|
(1,208
|
)
|
|
(1,174
|
)
|
|
145
|
|
Foreign taxes
|
|
(2,789
|
)
|
|
2,560
|
|
|
(307
|
)
|
Total deferred provision
|
|
(16,020
|
)
|
|
(6,528
|
)
|
|
3,363
|
|
Total provision for income taxes
|
|
$
|
(17,802
|
)
|
|
$
|
9,630
|
|
|
$
|
13,614
|
|
The following reconciles our effective tax rate on income from continuing operations to the federal statutory rate of 35% (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Income taxes per federal statutory rate
|
|
$
|
5,000
|
|
|
$
|
10,433
|
|
|
$
|
17,664
|
|
State income taxes, net of federal deduction
|
|
(1,553
|
)
|
|
417
|
|
|
777
|
|
Change in valuation allowance
|
|
(393
|
)
|
|
1,694
|
|
|
—
|
|
Stock based compensation
|
|
(296
|
)
|
|
745
|
|
|
1,150
|
|
Tax effect of foreign operations
|
|
(15,520
|
)
|
|
(2,166
|
)
|
|
(3,192
|
)
|
Tax credits
|
|
(2,691
|
)
|
|
(1,317
|
)
|
|
(1,432
|
)
|
Domestic production activity benefit
|
|
(408
|
)
|
|
(327
|
)
|
|
(1,436
|
)
|
Uncertain Tax Position reserves, net of releases
|
|
(2,723
|
)
|
|
—
|
|
|
—
|
|
Reorganization costs
|
|
576
|
|
|
—
|
|
|
—
|
|
Other permanent items, net
|
|
206
|
|
|
151
|
|
|
83
|
|
Total provision for income taxes
|
|
$
|
(17,802
|
)
|
|
$
|
9,630
|
|
|
$
|
13,614
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
Deferred tax assets
|
|
|
|
|
Stock based compensation
|
|
7,887
|
|
|
9,460
|
|
Net operating loss and tax credit carryforwards
|
|
8,723
|
|
|
6,106
|
|
Excess and obsolete inventory
|
|
4,207
|
|
|
5,381
|
|
Warranty reserve
|
|
11
|
|
|
4,024
|
|
Deferred revenue
|
|
12,338
|
|
|
3,958
|
|
Vacation accrual
|
|
1,253
|
|
|
700
|
|
Restructuring
|
|
2,087
|
|
|
515
|
|
Bad debt reserve
|
|
402
|
|
|
415
|
|
Employee bonuses and commissions
|
|
98
|
|
|
36
|
|
Unrealized gain/loss
|
|
587
|
|
|
—
|
|
Other
|
|
540
|
|
|
—
|
|
Deferred tax assets
|
|
$
|
38,133
|
|
|
$
|
30,595
|
|
Less: Valuation allowance
|
|
(2,158
|
)
|
|
(2,551
|
)
|
Net deferred tax assets
|
|
$
|
35,975
|
|
|
$
|
28,044
|
|
Deferred tax liabilities
|
|
|
|
|
Depreciation and amortization
|
|
5,069
|
|
|
16,342
|
|
Purchase accounting
|
|
2,686
|
|
|
—
|
|
Foreign other
|
|
1,565
|
|
|
—
|
|
Other
|
|
440
|
|
|
750
|
|
Deferred tax liabilities
|
|
$
|
9,760
|
|
|
$
|
17,092
|
|
Net deferred tax assets/liabilities
|
|
$
|
26,215
|
|
|
$
|
10,952
|
|
As of
December 31, 2013
, we had federal, foreign, and state net operating loss carryforwards of approximately
$0.7 million
,
$18.6 million
, and
$61.9 million
respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state laws. The foreign net operating losses consist primarily of Germany and Japan net operating losses totaling
$12.8 million
and
$5.6 million
, respectfully. The Germany net operating losses can be carried forward indefinitely subject to certain annual limitations. A valuation allowance has been provided on the full amount of the Japan net operating losses. If not utilized, the Japan net operating losses will begin to expire in 2021. The state net operating losses have various dates of expiration.
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. Unrepatriated earnings of approximately
$119.2 million
could become subject to U.S. income taxes subject to a reduction for foreign tax credits and withholding taxes payable to the various foreign countries if they are remitted as dividends, are loaned to us, or if we sell our stock in the subsidiaries. The determination of the additional deferred taxes that would be provided for undistributed earnings has not been determined because the hypothetical calculation 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.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reconciliation of our total gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Balance at beginning of period
|
|
$
|
12,810
|
|
|
$
|
16,018
|
|
|
$
|
15,665
|
|
Additions based on tax positions taken during a prior period
|
|
1,006
|
|
|
—
|
|
|
—
|
|
Additions based on tax positions taken during the current period
|
|
1,495
|
|
|
295
|
|
|
353
|
|
Reductions related to a lapse of applicable statute of limitations
|
|
(9,788
|
)
|
|
(3,503
|
)
|
|
—
|
|
Balance at end of period
|
|
$
|
5,523
|
|
|
$
|
12,810
|
|
|
$
|
16,018
|
|
If the
$5.5 million
of tax contingencies recorded on our balance sheet reverse,
$5.5 million
will affect our effective tax rate. The tax years 2004 through 2013 remain open to examination by the United States and foreign taxing jurisdictions to which we are subject. 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 an immaterial amount of accrued interest and penalties at
December 31, 2013
and
2012
. We do not anticipate a material change to the amount of unrecognized tax positions within the next 12 months.
|
|
NOTE 4.
|
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 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 (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, 2013
,
2012
, and
2011
(in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Income from continuing operations, net of income taxes
|
|
$
|
32,086
|
|
|
$
|
20,176
|
|
|
$
|
36,854
|
|
Basic weighted-average common shares outstanding
|
|
39,597
|
|
|
38,879
|
|
|
43,465
|
|
Assumed exercise of dilutive stock options and restricted stock units
|
|
1,070
|
|
|
568
|
|
|
489
|
|
Diluted weighted-average common shares outstanding
|
|
40,667
|
|
|
39,447
|
|
|
43,954
|
|
Income from continuing operations:
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.52
|
|
|
$
|
0.85
|
|
Diluted earnings per share
|
|
$
|
0.79
|
|
|
$
|
0.51
|
|
|
$
|
0.84
|
|
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,
|
|
|
2013
|
|
2012
|
|
2011
|
Stock options
|
|
413
|
|
|
4,960
|
|
|
4,550
|
|
Restricted stock units
|
|
—
|
|
|
—
|
|
|
18
|
|
Stock Buyback
In November 2011, our Board of Directors authorized a program to repurchase up to
$75.0 million
of our common stock over a twelve-month period. As of
June 30, 2012
, we completed this repurchase program. Total shares repurchased were
6.4 million
shares of our common stock for $
75.0 million
. All share repurchases were executed in the open market and no shares were repurchased from related parties. Repurchased shares were retired and assumed the status of authorized and unissued shares.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In October 2012, our Board of Directors authorized a program to repurchase up to
$25.0 million
of our common stock over a twelve-month period. We did not repurchase any shares under this program, which ended in the fourth quarter of 2013.
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Commercial paper
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
749
|
|
|
$
|
749
|
|
Certificates of deposit
|
|
11,568
|
|
|
11,568
|
|
|
12,498
|
|
|
12,498
|
|
Corporate bonds/notes
|
|
—
|
|
|
—
|
|
|
11,274
|
|
|
11,253
|
|
Municipal bonds/notes
|
|
—
|
|
|
—
|
|
|
285
|
|
|
285
|
|
Agency bonds/notes
|
|
—
|
|
|
—
|
|
|
900
|
|
|
898
|
|
Total marketable securities
|
|
$
|
11,568
|
|
|
$
|
11,568
|
|
|
$
|
25,706
|
|
|
$
|
25,683
|
|
The maturities of our marketable securities available for sale as of
December 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
Earliest
|
|
|
|
Latest
|
Certificates of deposit
|
|
1/21/2014
|
|
to
|
|
11/4/2015
|
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
December 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
years ended
December 31, 2013
,
2012
, and
2011
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
December 31, 2013
,
2012
, and
2011
we had both EUR and CAD forward contracts. At
December 31, 2013
and
2012
we also had CHF forward contracts.
The notional amount of foreign currency exchange contracts at
December 31, 2013
,
2012
, and
2011
was
$25.0 million
,
$20.5 million
, and
$32.3 million
, respectively, and the fair value of these contracts was not significant at
December 31, 2013
,
2012
, and
2011
. During the
years ended
December 31, 2013
,
2012
, and
2011
, we recognized losses of
$0.9 million
and
$0.5 million
, and a gain of
$1.6 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, net, in our Consolidated Statements of Operations.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 7.
|
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
|
Fair Value Hierarchy
Financial assets and liabilities recorded at fair value in our Consolidated Balance Sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:
|
|
|
Level 1:
|
Quoted market prices in active markets for identical assets or liabilities at the measurement date.
|
Level 2:
|
Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable and can be corroborated by observable market data.
|
Level 3:
|
Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present information about our financial assets measured at fair value, on a recurring basis, as of
December 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
December 31, 2013
, and
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Certificates of deposit
|
|
$
|
—
|
|
|
$
|
11,568
|
|
|
$
|
—
|
|
|
$
|
11,568
|
|
Total marketable securities
|
|
$
|
—
|
|
|
$
|
11,568
|
|
|
$
|
—
|
|
|
$
|
11,568
|
|
|
|
|
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
|
|
We did not have any Level 3 investments or financial liabilities measured at fair value, on a recurring basis, as of
December 31, 2013
and
December 31, 2012
. In the third quarter of 2012, we reclassified our investments in corporate bonds and municipal bonds from Level 1 into Level 2 as we believe this more appropriately reflects the level of inputs available for valuing these financial instruments. There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the year ended
December 31, 2013
.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For information regarding the valuation of our inventory refer to Note 1 -
Operations and Summary of Significant Accounting Policies and Estimates.
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):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Parts and raw materials
|
|
$
|
75,815
|
|
|
$
|
59,484
|
|
Work in process
|
|
3,507
|
|
|
3,728
|
|
Finished goods
|
|
30,449
|
|
|
18,270
|
|
|
|
$
|
109,771
|
|
|
$
|
81,482
|
|
|
|
NOTE 9.
|
PROPERTY AND EQUIPMENT
|
Details of property and equipment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
Buildings and land
|
|
$
|
1,807
|
|
|
$
|
1,794
|
|
Machinery and equipment
|
|
41,451
|
|
|
40,993
|
|
Computer and communication equipment
|
|
23,117
|
|
|
22,895
|
|
Furniture and fixtures
|
|
4,028
|
|
|
1,845
|
|
Vehicles
|
|
367
|
|
|
359
|
|
Leasehold improvements
|
|
24,369
|
|
|
27,976
|
|
Construction in process
|
|
5,426
|
|
|
3,362
|
|
|
|
100,565
|
|
|
99,224
|
|
Less: Accumulated depreciation
|
|
(65,677
|
)
|
|
(59,701
|
)
|
Total property and equipment, net
|
|
$
|
34,888
|
|
|
$
|
39,523
|
|
Depreciation expense recorded in continuing operations and included in selling, general and administrative expense is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Depreciation expense
|
|
$
|
12,729
|
|
|
$
|
12,090
|
|
|
$
|
10,673
|
|
The following summarizes the changes in goodwill during the years ended
December 31, 2013
and
2012
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
Gross carrying amount, beginning of period
|
|
$
|
60,391
|
|
|
$
|
46,515
|
|
Additions and adjustments
|
|
91,473
|
|
|
13,499
|
|
Translation adjustments
|
|
5,936
|
|
|
377
|
|
Gross carrying amount, end of period
|
|
$
|
157,800
|
|
|
$
|
60,391
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additions during the year represent the difference between the purchase price paid and the values assigned to identifiable assets acquired and liabilities assumed in purchase accounting, as described in Note 2,
Business Acquisition and Disposition
.
|
|
NOTE 11.
|
INTANGIBLE ASSETS
|
Other intangible assets consisted of the following as of
December 31, 2013
(in thousands, except weighted-average useful life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Effect of Changes in Exchange Rates
|
|
Impairment and Other Charges
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Weighted-Average Useful Life in Years
|
Amortizable intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$
|
50,368
|
|
|
$
|
441
|
|
|
$
|
(26,168
|
)
|
|
$
|
(14,712
|
)
|
|
$
|
9,929
|
|
|
4
|
Trademarks and other
|
|
18,515
|
|
|
514
|
|
|
(5,705
|
)
|
|
(3,842
|
)
|
|
9,482
|
|
|
7
|
Total intangible assets
|
|
$
|
68,883
|
|
|
$
|
955
|
|
|
$
|
(31,873
|
)
|
|
$
|
(18,554
|
)
|
|
$
|
19,411
|
|
|
|
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 intangible assets
|
|
$
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Amortization expense
|
$
|
6,142
|
|
|
$
|
5,696
|
|
|
$
|
3,852
|
|
Estimated amortization expense related to intangibles for each of the five years 2014 through 2018 and thereafter is as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
|
2014
|
|
$
|
5,116
|
|
2015
|
|
4,022
|
|
2016
|
|
2,787
|
|
2017
|
|
2,787
|
|
2018
|
|
1,328
|
|
Thereafter
|
|
3,371
|
|
|
|
$
|
19,411
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 12.
|
ACCRUED LIABILITIES
|
Accrued liabilities consisted of the following as of
December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Accrued liabilities:
|
|
|
|
|
Current deferred tax liability
|
|
$
|
4,519
|
|
|
$
|
4,137
|
|
Accrued restructuring costs
|
|
3,280
|
|
|
1,852
|
|
Current contingent consideration
|
|
933
|
|
|
2,773
|
|
Accrued sales and use tax
|
|
2,415
|
|
|
1,010
|
|
Other
|
|
9,557
|
|
|
5,627
|
|
Total accrued liabilities
|
|
$
|
20,704
|
|
|
$
|
15,399
|
|
Other accrued liabilities consists of items that are individually less than 5% of total current liabilities.
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. We estimate the anticipated costs of repairing our products under such warranties based on the historical cost 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. We also offer our Solar Energy customers the option to purchase additional warranty coverage up to
20
years after the base warranty period expires.
We establish accruals for warranty issues that are probable to result in future costs. Changes in product warranty accruals are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Balances at beginning of period
|
|
$
|
14,797
|
|
|
$
|
14,719
|
|
|
$
|
12,949
|
|
Warranty liabilities acquired
|
|
10,678
|
|
|
—
|
|
|
—
|
|
Increases to accruals related to sales during the period
|
|
14,087
|
|
|
7,561
|
|
|
10,203
|
|
Warranty expenditures
|
|
(17,495
|
)
|
|
(7,483
|
)
|
|
(8,433
|
)
|
Balances at end of period
|
|
$
|
22,067
|
|
|
$
|
14,797
|
|
|
$
|
14,719
|
|
|
|
NOTE 14.
|
STOCK-BASED COMPENSATION
|
As of
December 31, 2013
, we had two active stock-based incentive compensation plans; the 2008 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. At
December 31, 2013
, there were
5.2 million
shares reserved and
0.6 million
shares available for future grant under our stock-based incentive plans.
2
008 OMNIBUS INCENTIVE PLAN
— The 2008 Omnibus Incentive Plan (the “Plan”) provides officers, directors, key employees, and other persons an opportunity to acquire or increase a direct proprietary interest in our operations and future success. Our Board of Directors currently administers the Plan, and makes all decisions concerning which officers, directors, employees, and other persons are granted awards, how many to grant to each recipient, when awards are granted, how the Plan should be interpreted, whether to amend or terminate the Plan, and whether to delegate administration of the Plan to a committee. In May 2010, our shareholders approved an increase from 3,500,000 to 7,500,000 shares authorized for issuance under the Plan. The Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of the awards may be made as performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the Plan. Stock options granted under the Plan may be non-qualified stock options or incentive stock options except that stock options granted to outside directors, consultants, or advisers providing services to us shall in all cases be non-qualified stock options. Included in this plan is our LTI Plan which grants performance-based stock options and awards to selected participants that vest annually over a three-year period upon the achievement of certain annual return on net asset targets. This plan
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
contains an option to settle the restricted stock awards in cash or shares. The Plan will terminate on May 7, 2018 unless the administrator terminates the Plan earlier. As of
December 31, 2013
,
177,462
shares of common stock were available for grant under the Plan.
Stock-based Compensation Expense
Non-cash stock-based compensation expense is primarily included in selling, general and administrative expense and was $
13.7 million
, $
12.7 million
, and $
12.5 million
for the years ending
December 31, 2013
,
2012
, and
2011
, respectively.
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 options and RSUs was approximately
16%
for the year ended
December 31, 2013
,
14%
for the year ended
December 31, 2012
, and
13%
for the year ended
December 31, 2011
.
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 a four-year vesting schedule and a term of 10 years, except as noted below.
In January 2012, we made grants of performance based options and awards, which will vest annually over a three-year period based on the Company's achievement of return on net assets targets established by our Board of Directors at the time the grants were made. 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.
In the second quarter of 2013, we granted additional options and awards under the LTI plan to our Chief Executive Officer who was not previously a participant in the plan. The fair value of these shares was estimated using the Black-Scholes-Merton option pricing model utilizing an expected volatility of
68.9%
, a risk free rate of
0.74%
, a dividend yield of
zero
, and an expected term of
5.6
years. The weighted-average grant date fair value of the options is
$10.55
and the weighted-average grant date fair value of the awards is
$17.80
.
During the third quarter of 2011, we granted non-qualified stock options to our Chief Executive Officer that will vest based on the achievement of certain stock price targets. The stock-based compensation cost and derived service periods for these stock options were estimated using the Monte Carlo simulation method utilizing a volatility of
61.6%
and a risk-free rate of
2.4%
. The weighted-average fair value of these awards is $
2.92
and the derived service periods range from approximately one and one-half years to approximately two years. As of
December 31, 2013
, the first level target was met and the shares vested. If the remaining target is not met, the non-qualified stock options will expire on the third anniversary of the grant date.
The fair value of options granted during the years ended
December 31, 2013
,
2012
and
2011
was estimated on the date of grant using the Black-Scholes-Merton option-pricing model using the following assumptions by grant year (except the market awards granted to our Chief Executive Officer as noted above):
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Fair value assumptions - stock options:
|
|
|
|
|
|
|
Risk-free interest rates
|
|
0.74%
|
|
0.6% - 1.2%
|
|
1.09% - 2.4%
|
Expected dividend yield rates
|
|
—%
|
|
—%
|
|
—%
|
Expected term
|
|
5.6 years
|
|
5.9 years
|
|
5.5 years
|
Expected volatility
|
|
69%
|
|
61.5%
|
|
58%
|
The risk free interest rate is based on the five-year U.S. Treasury Bill at the time of the grant. Historically, company information is the primary basis for selection of the expected dividend yield. The expected term is based on historical experience. Expected volatility is based on historical volatility of our common stock using daily stock price observations.
The weighted-average fair value of options issued and total intrinsic value of options exercised were (in thousands, except share prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Weighted-average grant date fair value of options
|
|
$
|
10.55
|
|
|
$
|
6.24
|
|
|
$
|
6.68
|
|
Total intrinsic value of options exercised
|
|
$
|
12,917
|
|
|
$
|
1,697
|
|
|
$
|
896
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in outstanding time based stock options during the year ended
December 31, 2013
were as follows (in thousands, except share prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Exercise Price
|
Changes in outstanding stock options:
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of year
|
|
4,036
|
|
|
$
|
13.61
|
|
|
5,596
|
|
|
$
|
14.04
|
|
|
5,709
|
|
|
$
|
14.72
|
|
Options granted
|
|
—
|
|
|
—
|
|
|
18
|
|
|
11.67
|
|
|
1,518
|
|
|
12.52
|
|
Options exercised
|
|
(2,055
|
)
|
|
13.31
|
|
|
(446
|
)
|
|
9.17
|
|
|
(216
|
)
|
|
10.60
|
|
Options forfeited
|
|
(199
|
)
|
|
13.01
|
|
|
(455
|
)
|
|
12.99
|
|
|
(886
|
)
|
|
13.20
|
|
Options expired
|
|
(209
|
)
|
|
19.74
|
|
|
(677
|
)
|
|
20.41
|
|
|
(529
|
)
|
|
19.73
|
|
Options outstanding at end of year
|
|
1,573
|
|
|
13.29
|
|
|
4,036
|
|
|
13.61
|
|
|
5,596
|
|
|
14.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested during the year
|
|
294
|
|
|
|
|
73
|
|
|
|
|
49
|
|
|
|
Changes in outstanding performance based stock options during the year ended
December 31, 2013
were as follows (in thousands, except share prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Shares
|
|
Weighted-Average Exercise Price
|
Changes in outstanding stock options:
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of year
|
|
1,623
|
|
|
$
|
12.65
|
|
|
225
|
|
|
$
|
24.75
|
|
|
—
|
|
|
$
|
—
|
|
Options granted
|
|
43
|
|
|
17.80
|
|
|
1,660
|
|
|
11.15
|
|
|
225
|
|
|
24.75
|
|
Options exercised
|
|
(89
|
)
|
|
11.02
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options forfeited
|
|
(87
|
)
|
|
11.02
|
|
|
(262
|
)
|
|
11.02
|
|
|
—
|
|
|
—
|
|
Options expired
|
|
(251
|
)
|
|
11.10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Options outstanding at end of year
|
|
1,239
|
|
|
13.38
|
|
|
1,623
|
|
|
12.65
|
|
|
225
|
|
|
24.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested during the year
|
|
314
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
During each of the three years ended December 31, 2013, 2012, and 2011, the value of shares withheld for taxes from both time-based and performance based option exercises totaled
$1.3 million
,
$0.5 million
, and
$0.3 million
, respectively.
As of
December 31, 2013
, there was $
4.0 million
of total unrecognized compensation cost related to stock options granted and outstanding, net of expected forfeitures related to non-vested options, which is expected to be recognized through fiscal year
2016
, with a weighted-average remaining vesting period of
1.3 years
. Information about our stock options that are outstanding, options that we expect to vest and options that are exercisable at
December 31, 2013
follows (in thousands except share prices and lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expected to Vest:
|
|
Number
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value
|
Options outstanding
|
|
2,812
|
|
|
$
|
12.27
|
|
|
6.7 years
|
|
$
|
29,787
|
|
Options expected to vest
|
|
2,597
|
|
|
12.41
|
|
|
6.6 years
|
|
27,164
|
|
Options exercisable
|
|
1,243
|
|
|
12.82
|
|
|
5.4 years
|
|
12,505
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes information about the stock options outstanding at
December 31, 2013
(in thousands, except share prices and lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$7.15 to $7.95
|
|
132
|
|
|
2.2 years
|
|
$
|
7.35
|
|
|
132
|
|
|
$
|
7.35
|
|
$8.65 to $8.65
|
|
384
|
|
|
7.6 years
|
|
8.65
|
|
|
218
|
|
|
8.65
|
|
$8.95 to $10.90
|
|
160
|
|
|
6.3 years
|
|
9.61
|
|
|
83
|
|
|
9.70
|
|
$11.02 to $11.02
|
|
871
|
|
|
8.0 years
|
|
11.02
|
|
|
98
|
|
|
11.02
|
|
$11.21 to $12.77
|
|
293
|
|
|
7.0 years
|
|
12.24
|
|
|
153
|
|
|
12.18
|
|
$12.80 to $14.21
|
|
331
|
|
|
6.4 years
|
|
13.82
|
|
|
165
|
|
|
13.79
|
|
$14.40 to $15.65
|
|
327
|
|
|
6.6 years
|
|
14.82
|
|
|
161
|
|
|
14.88
|
|
$16.13 to $22.30
|
|
272
|
|
|
4.2 years
|
|
18.61
|
|
|
191
|
|
|
19.28
|
|
$22.47 to $22.47
|
|
21
|
|
|
3.6 years
|
|
22.47
|
|
|
21
|
|
|
22.47
|
|
$24.21 to $24.21
|
|
21
|
|
|
3.3 years
|
|
24.21
|
|
|
21
|
|
|
24.21
|
|
$7.15 to $24.21
|
|
2,812
|
|
|
6.7 years
|
|
12.27
|
|
|
1,243
|
|
|
12.82
|
|
Restricted Stock Units
The fair value of our RSUs is determined based upon the closing fair market value of our common stock on the grant date. Changes in the unvested time based restricted stock units during the year ended
December 31, 2013
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
Balance at beginning of year
|
|
442
|
|
|
$
|
12.96
|
|
|
764
|
|
|
$
|
12.99
|
|
|
447
|
|
|
$
|
13.82
|
|
RSUs granted
|
|
99
|
|
|
17.58
|
|
|
75
|
|
|
12.93
|
|
|
623
|
|
|
13.72
|
|
RSUs vested
|
|
(242
|
)
|
|
12.99
|
|
|
(253
|
)
|
|
12.93
|
|
|
(147
|
)
|
|
15.56
|
|
RSUs forfeited
|
|
(69
|
)
|
|
12.88
|
|
|
(144
|
)
|
|
12.94
|
|
|
(159
|
)
|
|
13.32
|
|
Balance at beginning of year
|
|
230
|
|
|
13.41
|
|
|
442
|
|
|
12.96
|
|
|
764
|
|
|
12.99
|
|
Changes in the unvested performance based restricted stock units during the year ended
December 31, 2013
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
|
Shares
|
|
Weighted-Average Grant Date Fair Value
|
Balance at beginning of year
|
|
1,631
|
|
|
$
|
11.15
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
RSUs granted
|
|
50
|
|
|
17.80
|
|
|
1,937
|
|
|
11.13
|
|
|
—
|
|
|
—
|
|
RSUs vested
|
|
(235
|
)
|
|
11.10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
RSUs forfeited
|
|
(102
|
)
|
|
11.02
|
|
|
(306
|
)
|
|
11.02
|
|
|
—
|
|
|
—
|
|
Balance at beginning of year
|
|
1,344
|
|
|
11.42
|
|
|
1,631
|
|
|
11.15
|
|
|
—
|
|
|
—
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted-average fair value of RSUs issued and total fair value of RSUs converted to shares were (in thousands, except share prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Weighted-average grant date fair value of RSUs
|
|
$
|
17.73
|
|
|
$
|
11.20
|
|
|
$
|
12.94
|
|
Total fair value of RSUs converted to shares
|
|
$
|
11,032
|
|
|
$
|
8,908
|
|
|
$
|
1,974
|
|
As of
December 31, 2013
, there was $
5.9 million
of total unrecognized compensation cost, net of expected forfeitures related to non-vested RSUs granted, which is expected to be recognized through fiscal
2016
, with a weighted-average remaining vesting period of
0.8 years
.
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, shareholders approved an increase from 500,000 to 1,000,000 shares authorized for sale under our ESPP. Employees 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 5% 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, 2013
,
409,876
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, 2013
, there was
$0.1 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 $
0.2 million
for each of the years ended
December 31, 2013
,
2012
, and
2011
.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Risk-free interest rates
|
|
0.07% - 0.1%
|
|
|
0.15% - 0.61%
|
|
|
0.05% - 0.1%
|
|
Expected dividend yield rates
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected term
|
|
0.5 years
|
|
|
0.5 years
|
|
|
0.5 years
|
|
Expected volatility
|
|
61.5
|
%
|
|
60.4
|
%
|
|
61.9
|
%
|
The risk free interest rate is based on the six month U.S. Treasury Bill at the time of the grant. Historical company information is the primary basis for selection of the expected dividend yield. The expected term is based on historical experience. Expected volatility is based on historical volatility of our common shares using daily stock price observations.
|
|
NOTE 15.
|
RETIREMENT 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, 2013
,
2012
, and
2011
our contribution for participants in our 401(k) plan was 50% matching on contributions by employees up to 6% of the employee’s compensation.
During the years ended
December 31, 2013
,
2012
, and
2011
we recognized total defined contribution benefit plan costs of $
1.0 million
, $
1.3 million
, and $
1.3 million
, respectively.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
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)
|
3,733
|
|
|
(1
|
)
|
|
3,732
|
|
Balances at December 31, 2013
|
$
|
33,463
|
|
|
$
|
(6
|
)
|
|
$
|
33,457
|
|
|
|
NOTE 17.
|
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.
Operating Leases
We have various operating leases for automobiles, equipment, and office and production facilities. Rent expense under operating leases was approximately $
6.1 million
in
2013
, $
5.8 million
in
2012
, and $
6.6 million
in
2011
.
The future minimum rental payments required under non-cancelable operating leases as of
December 31, 2013
are as follows (in thousands):
|
|
|
|
|
2014
|
$
|
5,909
|
|
2015
|
4,258
|
|
2016
|
1,978
|
|
2017
|
1,753
|
|
2018
|
1,639
|
|
Thereafter
|
5,226
|
|
|
$
|
20,763
|
|
*Future estimated payments on foreign leases are based on the estimated spot rate at
December 31, 2013
and are subject to change.
Purchase Commitments
We have firm purchase commitments and agreements with various suppliers to ensure the availability of components. The obligation as of
December 31, 2013
is approximately
$68.6 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.
|
|
NOTE 18.
|
RESTRUCTURING COSTS
|
In April 2013, we committed to a restructuring plan to take advantage of additional cost saving opportunities in connection with our acquisition of Refusol. The plan called for consolidating certain facilities, further centralizing our manufacturing and rationalizing certain products to most effectively meet customer needs. Collectively, these steps will enable us to more efficiently use our resources to achieve strategic goals.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a part of the product rationalization initiated under the restructuring plan, we determined that the intangible assets associated with certain technology should be tested for recoverability. To test the intangible assets for recoverability, we compared the carrying value of the assets with their fair value which resulted in an impairment of
$31.9 million
which is recorded in restructuring charges and asset impairment in the Consolidated Statement of Operations for the
twelve months
ended
December 31, 2013
. All activities under this restructuring plan were completed prior to
December 31, 2013
.
The following table summarizes the components of our restructuring costs incurred under the 2013 plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
Cumulative costs through
|
|
|
December 31, 2013
|
|
December 31, 2013
|
Severance and related costs
|
|
$
|
7,002
|
|
|
$
|
7,002
|
|
Property and equipment and intangible asset impairments
|
|
36,624
|
|
|
36,624
|
|
Facility closure costs
|
|
2,769
|
|
|
2,769
|
|
Total restructuring charges and asset impairments
|
|
$
|
46,395
|
|
|
$
|
46,395
|
|
The following table summarizes our restructuring liabilities under the 2013 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 December 31, 2013
|
Severance and related costs
|
|
$
|
—
|
|
|
$
|
7,002
|
|
|
$
|
(5,049
|
)
|
|
$
|
125
|
|
|
$
|
2,078
|
|
Property and equipment and intangible asset impairments
|
|
—
|
|
|
36,624
|
|
|
(36,624
|
)
|
|
—
|
|
|
—
|
|
Facility closure costs
|
|
—
|
|
|
2,769
|
|
|
(2,220
|
)
|
|
22
|
|
|
571
|
|
Total restructuring liabilities
|
|
$
|
—
|
|
|
$
|
46,395
|
|
|
$
|
(43,893
|
)
|
|
$
|
147
|
|
|
$
|
2,649
|
|
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 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 this 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 December 31, 2013
|
Severance and related costs
|
|
$
|
1,345
|
|
|
$
|
—
|
|
|
$
|
(1,128
|
)
|
|
$
|
—
|
|
|
$
|
217
|
|
Facility closure costs
|
|
508
|
|
|
—
|
|
|
(94
|
)
|
|
—
|
|
|
414
|
|
Total restructuring liabilities
|
|
$
|
1,853
|
|
|
$
|
—
|
|
|
$
|
(1,222
|
)
|
|
$
|
—
|
|
|
$
|
631
|
|
|
|
NOTE 19.
|
OTHER INCOME, NET
|
During
2013
,
2012
and
2011
, we participated, through our wholly-owned subsidiary AE Solar Energy, Inc., in the Solar Energy Grid Integration System Program (“SEGIS”) sponsored by the Department of Energy and administered by Sandia National Labs. Our participation in the SEGIS program is performed in stages, and revenue, net of costs incurred, is recognized in other income, net, in our Consolidated Statements of Operations. We invoice SEGIS upon completion of certain milestones. Net revenues for the years ended
December 31, 2013
,
2012
and
2011
were $
0.8 million
, $
0.7 million
and
$0.4 million
, respectively. The revenues were recognized and recorded in other income, net, as this project does not represent commercial product sales and we are not normally engaged in research and development type projects from which revenue is generated.
Included in Other income, net for the year ended
December 31, 2012
is a
$1.9 million
gain on the sale of manufacturing assets to Hitachi. These assets were sold in May 2012 when we ceased our contracting manufacturing relationship with Hitachi.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 20.
|
RELATED PARTY TRANSACTIONS
|
During the years ended
December 31, 2013
,
2012
, and
2011
, we engaged in the following transactions with companies related to members of our Board of Directors, as described below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Sales - related parties
|
|
$
|
622
|
|
|
$
|
583
|
|
|
$
|
3,874
|
|
Rent expense - related parties
|
|
1,880
|
|
|
1,872
|
|
|
2,306
|
|
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 year ended
December 31, 2013
, we had sales to
one
such company as noted above and there were no aggregate accounts receivable from this customer at
December 31, 2013
. During the year ended
December 31, 2012
we had sales to
two
such companies as noted above and there were no aggregate accounts receivable from these customers at
December 31, 2012
. During the year ended
December 31, 2011
we had sales to
three
such companies as noted above and there were no aggregate accounts receivable from these customers at
December 31, 2011
.
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
$1.9 million
, which includes facilities rent and common area maintenance costs.
|
|
NOTE 21.
|
SEGMENT INFORMATION
|
Our Thin Films Strategic Business Unit ("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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Thin Films
|
|
$
|
296,535
|
|
|
$
|
235,335
|
|
|
$
|
328,614
|
|
Solar Energy
|
|
250,469
|
|
|
216,596
|
|
|
188,185
|
|
Total
|
|
$
|
547,004
|
|
|
$
|
451,931
|
|
|
$
|
516,799
|
|
Income from continuing operations before income taxes by operating segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Thin Films
|
|
$
|
64,790
|
|
|
$
|
22,804
|
|
|
$
|
68,241
|
|
Solar Energy
|
|
(3,772
|
)
|
|
14,003
|
|
|
4,323
|
|
Total segment operating income
|
|
61,018
|
|
|
36,807
|
|
|
72,564
|
|
Corporate expenses
|
|
—
|
|
|
(1,960
|
)
|
|
(15,965
|
)
|
Restructuring charges
|
|
(46,395
|
)
|
|
(7,473
|
)
|
|
(7,348
|
)
|
Other income (expense), net
|
|
(339
|
)
|
|
2,432
|
|
|
1,217
|
|
Income from continuing operations before income taxes
|
|
$
|
14,284
|
|
|
$
|
29,806
|
|
|
$
|
50,468
|
|
Beginning in 2012, we are allocating "corporate expenses" in full to our business units. These expenses, which include certain support functions such as legal, human resources, information technology, accounting and finance, are now allocated as noted below to the business units based on sales contribution. This change was implemented in an effort to provide investors with a clearer understanding of the business unit's operating performance. The remaining corporate expenses consist of intangible amortization from past acquisitions that management determined should not be charged to either business unit.
Segment assets consist of inventories, net and property and equipment, net. A summary of consolidated total assets by segment follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
Thin Films
|
|
$
|
39,450
|
|
|
$
|
40,965
|
|
Solar Energy
|
|
104,227
|
|
|
76,393
|
|
Total segment assets
|
|
143,677
|
|
|
117,358
|
|
Unallocated corporate property and equipment
|
|
982
|
|
|
3,647
|
|
Unallocated corporate assets
|
|
508,318
|
|
|
416,237
|
|
Consolidated total assets
|
|
$
|
652,977
|
|
|
$
|
537,242
|
|
"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.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have operations in the United States, Europe and Asia. Our disclosure about sales and long-lived assets by geographic area and information relating to major customers are presented below. Sales attributed to individual countries are based on customer location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
Sales to external customers:
|
|
2013
|
|
2012
|
|
2011
|
|
|
(In thousands)
|
United States
|
|
$
|
328,330
|
|
|
60.0
|
%
|
|
$
|
322,847
|
|
|
71.4
|
%
|
|
$
|
338,343
|
|
|
65.5
|
%
|
Canada
|
|
33,000
|
|
|
6.0
|
%
|
|
30,113
|
|
|
6.7
|
%
|
|
3,622
|
|
|
0.7
|
%
|
North America
|
|
361,330
|
|
|
66.1
|
%
|
|
352,960
|
|
|
78.1
|
%
|
|
341,965
|
|
|
66.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
People's Republic of China
|
|
27,420
|
|
|
5.0
|
%
|
|
19,987
|
|
|
4.4
|
%
|
|
38,654
|
|
|
7.5
|
%
|
Other Asian countries
|
|
62,990
|
|
|
11.6
|
%
|
|
54,825
|
|
|
12.0
|
%
|
|
79,424
|
|
|
15.4
|
%
|
Asia
|
|
90,410
|
|
|
16.5
|
%
|
|
74,812
|
|
|
16.6
|
%
|
|
118,078
|
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
87,115
|
|
|
15.9
|
%
|
|
18,374
|
|
|
4.1
|
%
|
|
47,228
|
|
|
9.1
|
%
|
Other European Countries
|
|
8,149
|
|
|
1.4
|
%
|
|
5,785
|
|
|
1.4
|
%
|
|
9,528
|
|
|
1.8
|
%
|
Europe
|
|
95,264
|
|
|
17.4
|
%
|
|
24,159
|
|
|
5.3
|
%
|
|
56,756
|
|
|
11.0
|
%
|
Total sales
|
|
$
|
547,004
|
|
|
100.0
|
%
|
|
$
|
451,931
|
|
|
100.0
|
%
|
|
$
|
516,799
|
|
|
100.0
|
%
|
Sales to Applied Materials Inc., our largest customer, were $
97.0 million
or
17.4%
of total sales for
2013
, $
63.9 million
, or
14.1%
of total sales, for
2012
and $
68.0 million
, or
13.1%
of total sales for
2011
. Additionally, in June 2012, Lam Research merged with Novellus Systems, Inc. Had the two businesses been a combined entity for the full year, they would have accounted for
10.7%
of our sales in 2012. Our sales to Applied Materials, Lam Research, and Novellus include thin film products used in semiconductor processing and solar, flat panel display, and architectural glass applications. No other customer accounted for
10%
or more of our sales during these periods.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(in thousands)
|
*Long lived assets:
|
|
2013
|
|
2012
|
United States
|
|
$
|
75,097
|
|
|
$
|
118,553
|
|
Canada
|
|
884
|
|
|
1,246
|
|
Asia
|
|
3,412
|
|
|
3,963
|
|
Europe
|
|
132,706
|
|
|
8,576
|
|
|
|
$
|
212,099
|
|
|
$
|
132,338
|
|
|
|
|
*
|
Long-lived assets include property and equipment, goodwill and other intangible assets.
|
In October 2012, we, along with two of our wholly-owned subsidiaries, AE Solar Energy, Inc. and Sekidenko, Inc., entered into a Credit Agreement, subsequently amended in November 2012 and August 2013, (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
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
plus one (
1.0%
) percentage point; and Wells Fargo's "prime rate" then in effect. As of
December 31, 2013
, the rate in effect was
3.75%
.
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, there are the following financial covenants: (i) 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; and (ii) if there is any indebtedness under any issued and outstanding convertible notes, we are required to maintain a specified level of liquidity.
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. During the
twelve months
ended
December 31, 2013
, we expensed
$0.2 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
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.
As part of the acquisition of Refusol described in
Note 2. Business Acquisition and Disposition
, we assumed the outstanding debt of Refusol as of the acquisition date. There were three outstanding loans with banks related to this debt, of which one was repaid and cancelled during the third quarter of 2013.
Refusol, GmbH has an outstanding loan agreement with Commerzbank Aktiengesellschaft ("Commerzbank") for up to
8.0 million
Euros ("Commerzbank Loan Agreement"). The agreement allows Refusol to borrow up to
8.0 million
Euros through various types of instruments including an overdraft (revolving) facilities, money market (term) loans, surety loans, or guarantees. There is no maturity date. Borrowings under the revolving credit facility bear interest at
5.32%
. Surety and guarantee loans bear interest at
1.5%
. Money market loans are granted by separate agreement when requested and must meet certain Euro thresholds related to the value depending on the maturity date chosen. The Commerzbank Loan Agreement requires the payment of a credit commission of
0.5%
of the total loan amount. The agreement contains a various covenants including a financial covenant requiring a specified level of equity
. At
December 31, 2013
$9.0 million
was outstanding on this line of credit.
Refusol, GmbH also had an outstanding loan agreement with Bayerische Landesbank ("Bayern") which allowed it to borrow up to
4.0 million
Euros either as overdraft facilities, term loans, or guarantees with repayment occurring one lump sum at the maturity date of the individual transaction with respect to term loans, or maturity of the loan agreement which was
July 31, 2013
(the "Bayern Loan Agreement"). The overdraft facility bore interest at
4.5%
. Term loans bore interest at the money market rate established by Bayern at the time of the loan plus a margin of
1.9%
. Guarantees bore interest at
1.25%
and had an issuing fee per guarantee. Loan commitment fees were
0.25%
on the unused portion of the total loan amount. The Bayern Loan Agreement contained certain reporting requirements and a financial covenant requiring a specified level of equity.
Upon expiration of this agreement, Refusol, GmbH entered into a new loan agreement with Bayerische Landesbank ("Bayern") under which it has the ability to borrow up to
4.0 million
Euros as either bank overdrafts, term loans, guarantees, or letters of credit. The overdraft facility bears interest at
3.9%
, guarantees bears a rate of
1.64%
and interest on term loans is a fixed rate set for each term loan period based on money market rates. Loan commitment fees are
0.25%
. The loan matures on
July 31, 2014
. At
December 31, 2013
$4.6 million
was outstanding on this line of credit.
Refusol, Inc., a wholly-owned subsidiary of Refusol, GmbH located in the United States, has a revolving line of credit with Wells Fargo with an aggregate principal amount of
$1.5 million
and a maturity date of
July 1, 2013
. Borrowings under the line of credit are secured by all of Refusol, Inc.'s accounts receivable, inventory, and property, plant, and equipment and a letter of credit issued under the Commerzbank Loan Agreement. The line of credit bears interest at either (a) a fluctuating rate per annum one quarter of one percent (
0.25%
) above the Prime Rate or (b) the LIBOR rate then in effect plus two percent (
2.0%
). Refusol, Inc. has the option to select the method of interest each month. A commitment fee of
0.125%
is payable by Refusol, Inc. on the unused portion of the line of credit. The line of credit contains certain affirmative and negative covenants limiting Refusol, Inc.'s ability to borrow additional funds or guarantee the debt of others. This line of credit was paid down and cancelled on its maturity date of
July 1, 2013
.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 23.
|
Supplemental Quarterly Financial Data (Unaudited)
|
The following tables present unaudited quarterly results for each of the eight quarters in the period ended
December 31, 2013
. 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, 2013
|
|
September 30, 2013
|
|
June 30, 2013
|
|
March 31, 2013
|
|
December 31, 2012
|
|
September 30, 2012
|
|
Jun. 30, 2012
|
|
Mar. 31, 2012
|
|
|
(in thousands except per share data)
|
Sales
|
|
$
|
152,580
|
|
|
$
|
142,899
|
|
|
$
|
139,711
|
|
|
$
|
111,814
|
|
|
$
|
112,971
|
|
|
$
|
117,515
|
|
|
$
|
115,658
|
|
|
$
|
105,787
|
|
Gross Profit
|
|
58,827
|
|
|
56,211
|
|
|
53,259
|
|
|
41,839
|
|
|
38,546
|
|
|
45,727
|
|
|
43,729
|
|
|
39,744
|
|
Restructuring
|
|
2,305
|
|
|
19,884
|
|
|
24,206
|
|
|
—
|
|
|
2,039
|
|
|
3,003
|
|
|
(144
|
)
|
|
2,575
|
|
Operating income (loss)
|
|
20,018
|
|
|
(1,542
|
)
|
|
(11,572
|
)
|
|
7,719
|
|
|
5,499
|
|
|
9,938
|
|
|
11,314
|
|
|
623
|
|
Income (loss) from continuing operations, net of income taxes
|
|
34,355
|
|
|
687
|
|
|
(9,782
|
)
|
|
6,826
|
|
|
4,874
|
|
|
5,735
|
|
|
8,801
|
|
|
766
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
127
|
|
|
303
|
|
Net income (loss)
|
|
34,355
|
|
|
687
|
|
|
(9,782
|
)
|
|
6,826
|
|
|
4,849
|
|
|
5,735
|
|
|
8,928
|
|
|
1,069
|
|
Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.85
|
|
|
$
|
0.02
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.18
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
|
$
|
0.02
|
|
Diluted earnings (loss) per share
|
|
$
|
0.83
|
|
|
$
|
0.02
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.17
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.22
|
|
|
$
|
0.02
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
Diluted earnings (loss) per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.85
|
|
|
$
|
0.02
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.18
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
|
$
|
0.03
|
|
Diluted earnings (loss) per share
|
|
$
|
0.83
|
|
|
$
|
0.02
|
|
|
$
|
(0.24
|
)
|
|
$
|
0.17
|
|
|
$
|
0.13
|
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
|
$
|
0.03
|
|