NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1.
|
BASIS OF PRESENTATION
|
Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-owned subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") design, manufacture, sell, and support power conversion and control products that transform power into various usable forms. Our products enable manufacturing processes that use thin film deposition for various products, such as semiconductor devices, flat panel displays, thin film renewables, and architectural glass. We also supply thermal instrumentation products for advanced temperature control in the thin film process for these same markets. Our solar inverter products support renewable power generation solutions primarily for commercial, and utility-scale solar projects and installations. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, and refurbishments to companies using our products. We also offer a wide variety of operations and maintenance service plans that can be tailored for photovoltaic ("PV") sites of all sizes.
We are organized into
two
strategic business units based on the products and services provided.
|
|
•
|
Precision Power Products strategic business unit ("Precision Power Products") offers products for direct current ("DC"), pulsed DC mid-frequency, and radio frequency ("RF") power supplies, matching networks and RF instrumentation as well as thermal instrumentation and digital power controller products.
|
|
|
•
|
Inverters strategic business unit ("Inverters SBU") offers both a transformer-based or transformerless advanced grid-tied PV inverter solution 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.
|
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company at
March 31, 2014
, and the results of our operations and cash flows for the
three months
ended
March 31, 2014
and
2013
.
The Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2013
and other financial information filed with the SEC.
ESTIMATES AND ASSUMPTIONS
The preparation of our Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We believe that the significant estimates, assumptions, and judgments when accounting for items and matters such as allowances for doubtful accounts, excess and obsolete inventory, warranty reserves, acquisitions, asset valuations, goodwill, asset life, depreciation, amortization, recoverability of assets, impairments, deferred revenue, stock option and restricted stock grants, taxes, and other provisions are reasonable, based upon information available at the time they are made. Actual results may differ from these estimates, making it possible that a change in these estimates could occur in the near term.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended
December 31, 2013
.
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,
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
whether adopted or to be adopted in the future, is not expected to have a material impact on the Condensed Consolidated Financial Statements upon adoption.
|
|
NOTE 2.
|
BUSINESS ACQUISITIONS
|
Acquisitions
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.; 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. The acquisition of Refusol is intended to broaden our portfolio and extend our geographic distribution.
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 Inverters 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 based on management's estimates of operating income for the Inverters SBU 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. AEI Holdings and Jolaos are in disagreement on various accounting adjustments to the closing date financial statements of Refusol. After repeated unsuccessful attempts to have Jolaos submit the dispute to an independent German accounting firm as required under the Agreement, AEI Holdings petitioned the designated court in Stuttgart, Germany to review the dispute.
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.
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, 2013. 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, 2013. The unaudited pro forma financial information for the
three months
ended
March 31, 2013
includes the historical results of Advanced Energy for the
three months
ended
March 31, 2013
and the historical results of Refusol for the same period.
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. The unaudited pro forma results follow (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
Sales
|
$
|
140,948
|
|
|
$
|
131,454
|
|
Net income
|
14,715
|
|
|
2,752
|
|
Earnings per share:
|
|
|
|
Basic
|
$
|
0.36
|
|
|
$
|
0.07
|
|
Diluted
|
$
|
0.35
|
|
|
$
|
0.07
|
|
Power Control Module
On January 27, 2014, we acquired the intellectual property related to AEG Power Solutions' Power Control Modules ("PCM"). PCM is comprised of the Thyro-Family of products and accessories and serves numerous power control applications in different industries ranging from materials thermal processing through chemical processing, glass manufacturing and numerous other general industrial power applications. This acquisition is expected broaden our product offerings and will be added to our Precision Power Products SBU. We paid total consideration of
$31.1 million
including contingent consideration, of which
$16.4 million
is included in Intangibles,
$14.6 million
in Goodwill, and
$0.1 million
in Property, plant, and equipment. Included in Goodwill is
$1.0 million
of contingent consideration payable if certain milestone targets are met. 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 our product offerings into new markets. Advanced Energy is in the process of finalizing valuations of the intangibles associated with the acquisition.
The following table sets out the tax expense and the effective tax rate for our income from continuing operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Income before income taxes
|
|
$
|
16,817
|
|
|
$
|
7,516
|
|
Provision for income taxes
|
|
2,102
|
|
|
690
|
|
Effective tax rate
|
|
12.5
|
%
|
|
9.2
|
%
|
The effective tax rate for the
three months
ended
March 31, 2014
differ from the federal statutory rate of 35% primarily due to the effect of changes in foreign earnings. The effective tax rate is also impacted by discrete items recorded in the period. For the
three months
ended
March 31, 2013
, the effective tax rate was impacted by a
$1.4 million
discrete tax benefit attributable to the January 2, 2013 reinstatement of the 2012 US research and development tax credit.
Our policy is to classify accrued interest and penalties related to unrecognized tax benefits in our income tax provision. For the
three months
ended
March 31, 2014
and
2013
, the amount of interest and penalties accrued related to our unrecognized tax benefits was not significant.
|
|
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 (e.g., stock options and restricted stock units) had been converted to common shares, and if such assumed conversion is dilutive.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted EPS (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Net Income
|
|
$
|
14,715
|
|
|
$
|
6,826
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
40,814
|
|
|
38,775
|
|
Assumed exercise of dilutive stock options and restricted stock units
|
|
1,056
|
|
|
823
|
|
Diluted weighted-average common shares outstanding
|
|
41,870
|
|
|
39,598
|
|
Net Income:
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.36
|
|
|
$
|
0.18
|
|
Diluted earnings per share
|
|
$
|
0.35
|
|
|
$
|
0.17
|
|
The following stock options were excluded in the computation of diluted earnings per share because they were anti-dilutive:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
Stock options
|
24
|
|
|
853
|
|
|
|
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.
Our marketable securities consist entirely of certificates of deposit as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
Total marketable securities
|
|
$
|
12,494
|
|
|
$
|
12,494
|
|
|
$
|
11,568
|
|
|
$
|
11,568
|
|
The maturities of our marketable securities available for sale as of
March 31, 2014
are as follows:
|
|
|
|
|
|
|
|
|
|
Earliest
|
|
|
|
Latest
|
Certificates of deposit
|
|
4/8/2014
|
|
to
|
|
2/26/2016
|
The value and liquidity of the marketable securities we hold are affected by market conditions, as well as the ability of the issuers of such securities to make principal and interest payments when due, and the functioning of the markets in which these securities are traded. Our current investments in marketable securities are expected to be liquidated during the next twelve months.
As of
March 31, 2014
, 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 attempt to mitigate these risks through the use of derivative financial instruments, primarily forward contracts. During the
three months
ended
March 31, 2014
and
2013
, we entered into foreign currency exchange forward contracts to attempt to mitigate the exchange rate risk associated with intercompany debt denominated in nonfunctional currencies. These derivative instruments are not designated as hedges; however, they tend to offset the fluctuations of our intercompany debt due to foreign exchange rate changes. These forward contracts are typically for one month periods. At
March 31, 2014
we did not have any outstanding forward contracts. At
December 31, 2013
we had outstanding Euro, Swiss Franc, and Canadian Dollar forward contracts.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The notional amount of foreign currency exchange contracts at
December 31, 2013
was
$25.0 million
, and the difference between the fair value and the notional value of these contracts was not significant. During the
three months
ended
March 31, 2014
and
2013
, we recognized a loss of
$1.3 million
and a gain of
$0.6 million
, respectively, on our foreign currency exchange contracts. These losses were offset by corresponding gains on the related intercompany debt and both are included as a component of Other income (expense), net, in our Condensed Consolidated Statements of Operations.
|
|
NOTE 7.
|
ASSETS MEASURED AT FAIR VALUE
|
The following tables present information about our financial assets measured at fair value, on a recurring basis, as of
March 31, 2014
, and
December 31, 2013
. The tables indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value. We did not have any financial liabilities measured at fair value, on a recurring basis, as of
March 31, 2014
, and
December 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Total marketable securities
|
|
$
|
—
|
|
|
$
|
12,494
|
|
|
$
|
—
|
|
|
$
|
12,494
|
|
|
|
|
December 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Total marketable securities
|
|
$
|
—
|
|
|
$
|
11,568
|
|
|
$
|
—
|
|
|
$
|
11,568
|
|
There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the
three months
ended
March 31, 2014
.
Our inventories are valued at the lower of cost or market and computed on a first-in, first-out (FIFO) basis. Components of Inventories, net of reserves, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
Parts and raw materials
|
|
$
|
73,241
|
|
|
$
|
75,815
|
|
Work in process
|
|
6,984
|
|
|
3,507
|
|
Finished goods
|
|
29,431
|
|
|
30,449
|
|
Inventories, net of reserves
|
|
$
|
109,656
|
|
|
$
|
109,771
|
|
|
|
NOTE 9.
|
PROPERTY AND EQUIPMENT
|
Details of property and equipment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
Buildings and land
|
|
$
|
1,792
|
|
|
$
|
1,807
|
|
Machinery and equipment
|
|
44,196
|
|
|
41,451
|
|
Computer and communication equipment
|
|
23,187
|
|
|
23,117
|
|
Furniture and fixtures
|
|
3,842
|
|
|
4,028
|
|
Vehicles
|
|
367
|
|
|
367
|
|
Leasehold improvements
|
|
25,894
|
|
|
24,369
|
|
Construction in process
|
|
2,048
|
|
|
5,426
|
|
|
|
101,326
|
|
|
100,565
|
|
Less: Accumulated depreciation
|
|
(68,285
|
)
|
|
(65,677
|
)
|
Property and equipment, net
|
|
$
|
33,041
|
|
|
$
|
34,888
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation expense, recorded in general and administrative expenses and cost of goods sold, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Depreciation expense
|
|
$
|
2,996
|
|
|
$
|
3,073
|
|
The following summarizes the changes in goodwill during the
three months
ended
March 31, 2014
(in thousands):
|
|
|
|
|
|
Gross carrying amount, beginning of period
|
|
$
|
157,800
|
|
Additions (see Note 2)
|
|
14,632
|
|
Translation adjustments
|
|
602
|
|
Gross carrying amount, end of period
|
|
$
|
173,034
|
|
|
|
NOTE 11.
|
INTANGIBLE ASSETS
|
Other intangible assets consisted of the following as of
March 31, 2014
(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
|
|
$
|
31,722
|
|
|
$
|
516
|
|
|
$
|
(15,502
|
)
|
|
$
|
16,736
|
|
|
7
|
Trademarks and other
|
|
21,726
|
|
|
643
|
|
|
(4,929
|
)
|
|
17,440
|
|
|
7
|
Total amortizable intangibles
|
|
$
|
53,448
|
|
|
$
|
1,159
|
|
|
$
|
(20,431
|
)
|
|
$
|
34,176
|
|
|
|
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
|
|
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 amortizable intangibles
|
|
$
|
68,883
|
|
|
$
|
955
|
|
|
$
|
(31,873
|
)
|
|
$
|
(18,554
|
)
|
|
$
|
19,411
|
|
|
|
Amortization expense relating to other intangible assets included in our income (loss) from continuing operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Amortization expense
|
|
$
|
1,875
|
|
|
$
|
2,213
|
|
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amortization expense related to intangibles for each of the five years
2014
(remaining) through 2018 and thereafter is as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
|
2014 (remaining)
|
|
$
|
5,172
|
|
2015
|
|
5,699
|
|
2016
|
|
4,464
|
|
2017
|
|
4,388
|
|
2018
|
|
2,906
|
|
Thereafter
|
|
11,547
|
|
|
|
$
|
34,176
|
|
|
|
NOTE 12.
|
OTHER ACCRUED EXPENSES
|
Other accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2014
|
|
2013
|
Other accrued expenses:
|
|
|
|
|
Current deferred tax liability
|
|
$
|
4,532
|
|
|
$
|
4,519
|
|
Accrued restructuring costs (See Note 13)
|
|
1,091
|
|
|
3,280
|
|
Current contingent consideration
|
|
1,444
|
|
|
933
|
|
Accrued sales and use tax
|
|
2,530
|
|
|
2,415
|
|
Other*
|
|
8,468
|
|
|
9,557
|
|
Total Other accrued expenses
|
|
$
|
18,065
|
|
|
$
|
20,704
|
|
*Other accrued expenses consists of items that are individually less than 5% of total current liabilities.
|
|
NOTE 13.
|
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. All activities under this restructuring plan were completed prior to December 31, 2013.
The following table summarizes our restructuring liabilities under the 2013 plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
|
Costs incurred and charged to expense
|
|
Cost paid or otherwise settled
|
|
Effect of change in exchange rates
|
|
Balances at March 31, 2014
|
Severance and related costs
|
|
$
|
2,078
|
|
|
$
|
—
|
|
|
$
|
(1,774
|
)
|
|
$
|
4
|
|
|
$
|
308
|
|
Facility closure costs
|
|
571
|
|
|
—
|
|
|
(380
|
)
|
|
1
|
|
|
192
|
|
Total restructuring liabilities
|
|
$
|
2,649
|
|
|
$
|
—
|
|
|
$
|
(2,154
|
)
|
|
$
|
5
|
|
|
$
|
500
|
|
In September 2011, we approved and committed to several initiatives over the following 16 months 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.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes our restructuring liabilities under this plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
|
Costs incurred and charged to expense
|
|
Cost paid or otherwise settled
|
|
Effect of change in exchange rates
|
|
Balances at March 31, 2014
|
Severance and related costs
|
|
$
|
217
|
|
|
$
|
—
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
206
|
|
Facility closure costs
|
|
414
|
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
385
|
|
Total restructuring liabilities
|
|
$
|
631
|
|
|
$
|
—
|
|
|
$
|
(40
|
)
|
|
$
|
—
|
|
|
$
|
591
|
|
Provisions of our sales agreements include product warranties customary to these types of agreements, ranging from
18
months to
24
months following installation for Precision Power products and
5
years to
10
years following installation for Inverter products. Our provision for the estimated cost of warranties is recorded when revenue is recognized. The warranty provision is based on historical experience by product, configuration and geographic region.
We establish accruals for warranty issues that are probable to result in future costs. Changes in product warranty accruals are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Balances at beginning of period
|
|
$
|
22,067
|
|
|
$
|
14,797
|
|
Increases to accruals related to sales during the period
|
|
1,568
|
|
|
2,001
|
|
Warranty expenditures
|
|
(2,985
|
)
|
|
(3,059
|
)
|
Balances at end of period
|
|
$
|
20,650
|
|
|
$
|
13,739
|
|
|
|
NOTE 15.
|
STOCK-BASED COMPENSATION
|
We recognize stock-based compensation expense in Selling, general & administrative expenses based on the fair value of the awards issued. Stock-based compensation for the
three months
ended
March 31, 2014
and
2013
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Stock-based compensation expense
|
|
$
|
1,764
|
|
|
$
|
2,034
|
|
Stock Options
Stock option awards, other than awards under our 2012-2014 Long Term Incentive Plan ("LTI Plan"), are generally granted with an exercise price equal to the market price of our common stock at the date of grant, a
four
-year vesting schedule, and a term of
10
years.
Under the LTI Plan, we made grants of performance based options and awards during the first quarter of 2014, which will vest in one year based on the Company's achievement of return on net assets targets established by our Board of Directors at the beginning of each year. These awards are granted with an exercise price equal to the market price of our common stock at the date of grant and have a term of
10
years. The fair value of each grant was estimated on the date of grant using the Black-Scholes-Merton option pricing model utilizing an expected volatility of
53.3%
, a risk-free rate of
1.7%
, a dividend yield of
zero
, and an expected term of
5.4
years. The weighted-average grant date fair value of the options is
$13.09
per share.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of our time based stock option activity for the
three months
ended
March 31, 2014
is as follows (in thousands):
|
|
|
|
|
|
|
Shares
|
Options outstanding at beginning of period
|
|
1,573
|
|
Options granted
|
|
—
|
|
Options exercised
|
|
(433
|
)
|
Options forfeited
|
|
(47
|
)
|
Options expired
|
|
(2
|
)
|
Options outstanding at end of period
|
|
1,091
|
|
Changes in outstanding performance based stock options during the
three months
ended
March 31, 2014
were as follows (in thousands):
|
|
|
|
|
|
|
Shares
|
Options outstanding at beginning of period
|
|
1,239
|
|
Options granted
|
|
42
|
|
Options exercised
|
|
(108
|
)
|
Options forfeited
|
|
(179
|
)
|
Options expired
|
|
—
|
|
Options outstanding at end of period
|
|
994
|
|
Restricted Stock Units
Restricted Stock Units ("RSU") are generally granted with a four-year vesting schedule.
A summary of our time-based unvested RSU activity for the
three months
ended
March 31, 2014
is as follows (in thousands):
|
|
|
|
|
|
|
Shares
|
Balance at beginning of period
|
|
230
|
|
RSUs granted
|
|
26
|
|
RSUs vested
|
|
(18
|
)
|
RSUs forfeited
|
|
(15
|
)
|
Balance at end of period
|
|
223
|
|
Changes in the unvested performance based RSUs during the
three months
ended
March 31, 2014
were as follows (in thousands):
|
|
|
|
|
|
|
Shares
|
Balance at beginning of period
|
|
1,344
|
|
RSUs granted
|
|
49
|
|
RSUs vested
|
|
—
|
|
RSUs settled in cash
|
|
(418
|
)
|
RSUs forfeited
|
|
(476
|
)
|
Balance at end of period
|
|
499
|
|
During the first quarter of 2014, Performance Stock Options (“PSOs”) and Performance Stock Units (“PSUs”) vested in accordance with performance targets for fiscal 2013. At that time, the Board of Directors authorized the settlement of the PSUs in cash at a value equal to the fair market value of the equity instrument on the vest date. Due to the settlement,
$11.2 million
was deducted from Additional paid-in capital and paid in cash in lieu of the issuance of shares. Our statement of cash flows represents this transaction as “Settlement of performance stock units.” All compensation expense related to these awards was recognized during the performance period ending December 31, 2013.
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
NOTE 16.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
Accumulated other comprehensive income, net of tax, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Adjustments
|
|
Unrealized Gains (Losses) on Marketable Securities
|
|
Total Accumulated Other Comprehensive Income
|
Balances at December 31, 2013
|
$
|
33,463
|
|
|
$
|
(6
|
)
|
|
$
|
33,457
|
|
Current period other comprehensive income (loss)
|
(1,664
|
)
|
|
2
|
|
|
(1,662
|
)
|
Balances at March 31, 2014
|
$
|
31,799
|
|
|
$
|
(4
|
)
|
|
$
|
31,795
|
|
|
|
NOTE 17.
|
COMMITMENTS AND CONTINGENCIES
|
We have firm purchase commitments and agreements with various suppliers to ensure the availability of components. The obligation as of
March 31, 2014
is approximately
$78.1 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.
We are involved in disputes and legal actions arising in the normal course of our business. There have been no material developments in legal proceedings in which we are involved during the
three months
ended
March 31, 2014
.
|
|
NOTE 18.
|
RELATED PARTY TRANSACTIONS
|
During the
three months
ended
March 31, 2014
and
2013
, we engaged in the following transactions with companies related to members of our Board of Directors, as described below (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
Sales - related parties
|
$
|
127
|
|
|
$
|
31
|
|
Rent expense - related parties
|
435
|
|
|
475
|
|
Sales - Related Parties
Members of our Board of Directors hold various executive positions and serve as directors at other companies, including companies that are our customers. During the
three months
ended
March 31, 2014
, we had sales to
one
customer as noted above and accounts receivable from
one
such customer that totaled
$126,656
at
March 31, 2014
. During the
three months
ended
March 31, 2013
, we had sales to
one
customers as noted above and no aggregate accounts receivable from this customer at
December 31, 2013
.
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
$1.7 million
, which includes facilities rent and common area maintenance costs.
|
|
NOTE 19.
|
SEGMENT INFORMATION
|
Precision Power Products 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
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Precision Power Products principally serves original equipment manufacturers ("OEMs") and end customers in the semiconductor, flat panel display, solar panel, and other capital equipment markets.
Our Inverters 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 Inverters 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 Inverters revenue has seasonal variations. Installations of inverters are normally lowest during the first quarter as a result of typically poor weather and as a result, reduced 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.
Sales with respect to our operating segments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Precision Power Products
|
|
$
|
82,872
|
|
|
$
|
61,777
|
|
Inverters
|
|
58,076
|
|
|
50,037
|
|
Total
|
|
$
|
140,948
|
|
|
$
|
111,814
|
|
Income (loss) from continuing operations before income taxes by operating segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2014
|
|
2013
|
Precision Power Products
|
|
$
|
23,211
|
|
|
$
|
7,511
|
|
Inverters
|
|
(6,298
|
)
|
|
208
|
|
Total segment operating income
|
|
16,913
|
|
|
7,719
|
|
Other expense, net
|
|
(96
|
)
|
|
(203
|
)
|
Income from continuing operations before income taxes
|
|
$
|
16,817
|
|
|
$
|
7,516
|
|
Beginning in 2014, certain support functions such as human resources, information technology, accounting and finance, and legal, are now allocated to the business units based on corporate activities in each product area. This change was implemented in an effort to provide investors with a clearer understanding of the business unit's operating performance.
Segment assets consist of inventories, net and property and equipment, net. A summary of consolidated total assets by segment follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
Precision Power Products
|
|
$
|
42,341
|
|
|
$
|
39,450
|
|
Inverters
|
|
98,156
|
|
|
104,227
|
|
Total segment assets
|
|
140,497
|
|
|
143,677
|
|
Unallocated corporate property and equipment
|
|
2,292
|
|
|
982
|
|
Unallocated corporate assets
|
|
523,419
|
|
|
508,318
|
|
Consolidated total assets
|
|
$
|
666,208
|
|
|
$
|
652,977
|
|
"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)
During the
three months
ended
March 31, 2014
, we had three customers which individually accounted for 10% or more of our sales. Sales to Applied Materials, Inc., AMEC, and LAM Research were
$27.0 million
,
$18.6 million
, and
$17.8 million
or
19.2%
,
13.2%
, and
12.6%
, respectively, of total sales for the three month period. During the
three months
ended
March 31, 2013
, we had two customers individually accounting for 10% or more of our sales. Sales to Applied Materials, Inc. were
$18.7 million
or
16.7%
of total sales during the three month period and sales to Fluor Enterprises, Inc. were
$13.5 million
or
12.1%
of total sales for the same period. Our sales to Applied Materials, Inc. and LAM Research include precision power products used in semiconductor processing and solar, flat panel display, and architectural glass applications. Our sales to AMEC include solar inverters. No other customer accounted for
10%
or more of our sales during these periods.
|
|
NOTE 20.
|
CREDIT FACILITIES
|
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 which reduce availability under the Credit Agreement. The maturity date of the Credit Facility is
October 12, 2017
.
At our election, the loans comprising each borrowing will bear interest at a rate per annum equal to either: (a) a "base rate" plus between one-half (
0.5%
) and one (
1.0%
) full percentage point depending on the amount available for additional draws under the Credit Facility ("Base Rate Loan"); or (b) the LIBOR rate then in effect plus between one and one-half (
1.5%
) and two (
2%
) percentage points depending on the amount available for additional draws under the Credit Facility. The "base rate" for any Base Rate Loan will be the greatest of the federal funds rate plus one-half (
0.5%
) percentage point; the one-month LIBOR rate plus one (
1.0%
) percentage point; and Wells Fargo's "prime rate" then in effect. As of
March 31, 2014
, 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
three months
ended
March 31, 2014
, 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 during the
three months
ended
March 31, 2014
.
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 Acquisitions 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
March 31, 2014
,
$9.6 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
March 31, 2014
$5.5 million
was outstanding on this line of credit.
Refusol, Inc., a wholly-owned subsidiary of Refusol, GmbH located in the United States, had 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 were 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 bore 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. had the option to select the method of interest each month. A commitment fee of
0.125%
was payable by Refusol, Inc. on the unused portion of the line of credit. The line of credit contained 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
.
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NOTE 21.
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SUBSEQUENT EVENT
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On April 12, 2014, Advanced Energy acquired all outstanding common stock of HiTek Power Group ("HiTek"), a privately-held provider of high voltage power solutions. Based in the United Kingdom, HiTek offers a comprehensive portfolio of high voltage and custom built power conversion products ranging from 100V to 500kV designed to meet the demanding requirements of OEMs worldwide. These products target applications including semiconductor wafer processing and metrology, scientific instrumentation, mass spectrometry, industrial printing, and analytical x-ray systems for industrial and analytical applications. HiTek's unique product architecture, encapsulation technology and control algorithms combined with its deep knowledge of its customer-specific applications have made it a leading provider of critical, high-end, high voltage power solutions. We acquired HiTek to expand our product offerings in our Precision Power Products portfolio.
Under the terms of the Agreement, we paid
£2.1 million
in cash and assumed net liabilities of
£4.5 million
. In conjunction with the purchase of HiTek Power, HiTek entered into a funding arrangement for the underfunded portion of the pension liability. We provided a guarantee as it relates to HiTek's funding obligation into the HiTek Power Limited Pension Scheme. The preliminary base price is subject to a post-closing adjustment based on confirmation of the financial statements of HiTek effective as of the closing date.