e424b5
The
information in this prospectus supplement is not complete and
may be changed. This prospectus supplement and the related
prospectus are not an offer to sell these securities, and they
are not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not
permitted.
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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-110534
SUBJECT TO COMPLETION, DATED
AUGUST 3, 2005
PROSPECTUS SUPPLEMENT
(To Prospectus Dated November 14, 2003)
10,000,000 Shares
Advanced Energy Industries, Inc.
Common Stock
$ per
share
We are selling 10,000,000 shares of our common stock. We have
granted the underwriters an option to purchase up to 1,500,000
additional shares of common stock to cover over-allotments.
Our common stock is quoted on the Nasdaq National Market under
the symbol AEIS. The last reported sale price of our
common stock on the Nasdaq National Market on August 2,
2005 was $9.80 per share.
Investing in our common stock involves risks. See Risk
Factors beginning on page S-9 of this prospectus
supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
related prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
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Per Share |
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Public Offering Price
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Underwriting Discount
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$ |
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Proceeds to Advanced Energy Industries, Inc. (before expenses)
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$ |
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The underwriters expect to deliver the shares to purchasers on
or about August , 2005.
Sole Book-Runner
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Citigroup |
Lehman Brothers |
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Adams Harkness |
Needham & Company, LLC |
August , 2005
You should rely only on the information contained in or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not authorized anyone to
provide you with different information. We are not making an
offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained
in this prospectus supplement and the accompanying prospectus is
accurate as of any date other than the date on the front of this
prospectus supplement. Information in this prospectus supplement
updates and modifies the information in the accompanying
prospectus.
TABLE OF CONTENTS
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Prospectus Supplement |
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S-25 |
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S-25 |
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F-1 |
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Prospectus |
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i
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus are
part of a registration statement on Form S-3 (File
no. 333-110534) that we filed with the Securities and
Exchange Commission utilizing a shelf registration process and
that was declared effective on December 11, 2003. Under
this shelf registration process, we may, from time to time, sell
up to $250,000,000 of common stock or debt securities, of which
this offering is a part.
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of common
stock and also adds, updates and changes information contained
in the accompanying prospectus and the documents incorporated by
reference. The second part is the prospectus, which gives more
general information, some of which may not apply to this
offering of common stock. To the extent the information
contained in this prospectus supplement differs or varies from
the information contained in the accompanying prospectus or any
document incorporated by reference, the information in this
prospectus supplement shall control. You should read both this
prospectus supplement and the accompanying prospectus as well as
the additional information described under Where You Can
Find More Information on page S-25 of this prospectus
supplement before investing in our common stock.
Unless otherwise stated, information in this prospectus
supplement assumes the underwriters will not exercise their
over-allotment option to purchase additional shares of our
common stock and no other person will exercise any other
outstanding options or warrants to purchase shares of our common
stock or convert our outstanding convertible subordinated notes
into shares of our common stock.
This document includes product names, trade names and trademarks
of other companies. All such product names and trademarks
appearing in this document are the property of their respective
holders.
S-1
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information contained
elsewhere or incorporated by reference in this prospectus
supplement and the accompanying prospectus and may not contain
all the information that is important to you. For a more
complete understanding of this offering, you are encouraged to
read this entire prospectus supplement, the accompanying
prospectus, and the documents incorporated by reference. Unless
otherwise indicated, we, us, or
our refer to Advanced Energy Industries, Inc. and
its subsidiaries.
Advanced Energy Industries, Inc.
We design, manufacture and support a group of key components and
subsystems primarily for vacuum process systems. Our primary
products consist of complex power conversion and control
systems. Our products also control the flow of gases into the
process chambers for semiconductor equipment and provide thermal
control and sensing within the chamber. Our customers use our
products in plasma-based thin-film processing equipment that is
essential to the manufacture of, among other things:
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Semiconductor devices for electronics applications; |
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Flat panel displays for hand-held devices, computer and
television screens; |
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Compact discs, DVDs and other digital storage media; and |
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Optical coatings for architectural glass, eyeglasses and solar
panels. |
We also sell spare parts and provide support, educational and
consulting services worldwide through our customer service and
technical support organization.
We market and sell our products primarily to large, original
equipment manufacturers, or OEMs, of semiconductor, flat panel
display, data storage and other industrial thin-film
manufacturing equipment. Sales to customers in the semiconductor
capital equipment industry comprised 53% of our sales in the
first six months of 2005 and 60% of our sales in the full year
2004. Sales to customers in the flat panel display equipment
industry comprised 21% of our sales in the first six months of
2005 and 14% of our sales in the full year 2004. We sell our
products primarily through direct sales personnel to customers
in the United States, Europe and Asia and, to a much lesser
extent, through distributors. International sales represented
approximately 48% of our sales in the first six months of 2005
and 47% of our sales in the full year 2004. Additionally, many
of our products sold domestically are placed on systems shipped
overseas by our customers.
Our primary manufacturing facility is located in Shenzhen,
China. This manufacturing facility, now comprising over 100,000
square feet, was opened in April 2003 with the intention that it
would become our high volume manufacturing location.
Approximately 75% of the power units and approximately 90% of
the mass flow controller units that we sold in June 2005 were
manufactured at our Shenzhen, China facility. In connection with
the development of this manufacturing facility, we began to
source a significant portion of our raw materials, parts,
components and subassemblies from high-quality, low-cost Asian
suppliers. We continue to have other manufacturing facilities in
Fort Collins, Colorado; Stolberg, Germany; Hachioji, Japan; and
Vancouver, Washington. Our Fort Collins and Hachioji
manufacturing facilities are now focused on new product design
and launch programs, integrated services, low volume legacy
products and advanced manufacturing processes. We expect that
our manufacturing facility in Shenzhen, China and the use of our
Asian-based supply chain will permit us to lower our
manufacturing, repair and supply costs, and enhance our
operational efficiency.
Our Products
Our major products fall into four categories: Power, Flow
Control, Thermal Instrumentation and Source Technology. Our
product solutions are designed to maximize the efficiency and
productivity of our customers process equipment and lower
their cost of ownership of that equipment. We offer our customers
S-2
integrated and innovative solutions, which better enable their
advanced processes, such as plasma-based deposition, etch and
electroplating. These processes continue to be critical for our
semiconductor customers as silicon wafer sizes have increased to
300mm and line widths have decreased below 90 nanometers.
Through a focused and significant commitment to research and
development, we have created products that have achieved
technology and market leadership in their respective categories.
In 2004, according to VLSI Research, an independent research
firm, we were a market leader, based on revenue, for power and
flow control systems for the semiconductor capital equipment and
flat panel display manufacturing equipment industries.
Power. Our power systems include direct current, or DC,
high power, low and mid frequency, and radio frequency, or RF,
power supplies, matching networks and RF instrumentation. Our
power systems refine, modify and control the raw electrical
power from a utility and convert it into power that is uniform,
predictable and repeatable. Our power systems are primarily used
by semiconductor and flat panel display manufacturers in the
following applications: physical vapor deposition, or PVD;
chemical vapor deposition, or CVD; reactive sputtering;
electroplating; plasma vacuum processes and bias; and oxide,
poly and conductor etch. Our products are also used by optical
storage and architectural glass manufacturers. According to VLSI
Research estimates, our power systems captured a leading market
share, based on revenue, of approximately 50% of the DC and RF
power subsystems market in 2004.
Flow Control. Our flow control products include thermal
mass flow controllers, or MFCs, pressure-based MFCs, multi-gas,
multi-range MFCs, liquid MFCs, liquid vapor delivery systems and
pressure control systems. Our flow control products control and
monitor the flow of high-purity liquids, liquid vapor, and gases
encompassing a wide range of input pressures. Our flow control
products are primarily used in semiconductor and flat panel
display applications, fiber optics, safe delivery system
applications, chemical vapor deposition and silica industries.
VLSI Research estimated that our flow control products
represented approximately 21% of the mass flow controller
market, based on revenue, in 2004.
Thermal Instrumentation. Our thermal instrumentation
products, primarily used in the semiconductor industry, provide
thermal management and control solutions for applications where
time-temperature cycles affect productivity and yield. They are
used in physical vapor deposition, chemical vapor deposition,
rapid thermal processing and other semiconductor applications
requiring non-contact temperature measurement, chemical
mechanical polishing and lithography.
Source Technology. Our source technology products include
plasma and ion beam sources which are used in the direct
deposition of thin films of diamond-like carbon, ion-assisted
deposition, ion beam etching, optical coating, industrial
coating, pre-cleaning, poly-fluorocarbon abatement and chamber
cleaning.
Other Products. We also offer DC-to-DC converters
specifically designed to power low-voltage, high-current
microprocessors, application-specific integrated circuits, logic
and memory chips and servers.
Our Markets
Most of our sales have historically been to customers in the
semiconductor capital equipment industry. Our products are also
used in the flat panel display, data storage and advanced
product applications markets. Our objective is to leverage our
innovative technology solutions used in our core
S-3
markets to penetrate other adjacent and new high-growth markets.
The following table sets forth percentages of our sales by
customer type:
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Year Ended December 31, | |
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June 30, | |
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2004 | |
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2005 | |
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Semiconductor capital equipment
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59 |
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60 |
% |
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53 |
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Flat panel display
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11 |
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14 |
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21 |
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Data storage
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10 |
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8 |
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5 |
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Advanced product applications
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20 |
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18 |
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21 |
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Semiconductor Capital Equipment Manufacturing Market. We
sell our products to semiconductor capital equipment
manufacturers primarily for incorporation into equipment used to
make integrated circuits. Our power systems provide the energy
to drive the chemical reaction for thin-film processes such as
deposition and etch. Our flow control products control the fluid
or gas being delivered to ensure high-purity, our thermal
instrumentation products measure the temperature of the process
chamber and our source technology products optimize CVD clean,
deposition and etch processes. The precise control over
plasma-based processes enables the production of integrated
circuits with reduced feature sizes and increased speed and
performance. As the semiconductor industry continues to focus on
smaller line-widths and manufacturing geometries, our products
become increasingly critical components of leading-edge
semiconductor capital equipment. We anticipate that the
semiconductor capital equipment industry will continue to
constitute a substantial part of the market for our products for
the foreseeable future.
Flat Panel Display Manufacturing Equipment Market. We
sell our products to manufacturers of flat panel displays and
flat panel projection devices, which have fabrication processes
similar to those employed in manufacturing integrated circuits.
Flat panel technology produces bright, sharp, large, color-rich
images on flat screens for products ranging from hand-held
devices to laptop and desktop computer monitors to plasma and
liquid crystal display-screen televisions. The transition to
larger panel sizes and higher display resolution is driving the
need for tighter process controls to reduce manufacturing costs
and defects. We sell our power and MFC products into the major
submarkets of the flat panel display industry, including liquid
crystal displays; field emitter displays; gas plasma displays;
liquid crystal projection; and digital micro-mirror displays.
Data Storage Manufacturing Equipment Markets. We sell
products to manufacturers of data storage equipment and data
storage devices for use in producing a variety of products,
including CDs, CD-ROMs and DVDs; computer hard discs, including
both media and thin-film heads; and optical storage media. These
products use a PVD process to produce optical and magnetic
thin-film layers as well as a protective-wear layer. In this
market, the trend towards higher recording densities requires
denser, thinner and more precise films. The use of equipment
incorporating magnetic media to store analog and digital data
has expanded with the growth of the laptop, desktop and
workstation computer markets and the consumer electronics audio
and video markets.
Advanced Product Applications Markets. We sell our
products to OEMs and producers of end products in a variety of
industrial markets. Thin-film optical coatings are used in the
manufacture of many industrial products, including solar panels,
architectural glass, eyeglasses, lenses, barcode readers and
front surface mirrors. Thin films of diamond-like coatings and
other materials are currently applied to products in
plasma-based processes to strengthen and harden surfaces on such
diverse products as tools, razor blades, automotive parts and
hip joint replacements. Other thin-film processes that use our
products enable a variety of industrial packaging applications
such as decorative wrapping and food packaging. The advanced
thin-film production processes allow precise control of various
optical and physical properties, including color, transparency
and electrical and thermal conductivity. The improved adhesion
and high-film quality resulting from plasma-based processing
make it the preferred method of applying thin films. Many of
these thin-film industrial applications require power levels
substantially greater than those used in our other markets.
S-4
Also included in the advanced product applications markets are
our sales to OEMs of industrial laser and medical applications,
high-end computing, and automated test equipment products.
Corporate Information
We incorporated in Colorado in 1981 and reincorporated in
Delaware in 1995. In 1995, we effected the initial public
offering of our common stock. Our executive offices are located
at 1625 Sharp Point Drive, Fort Collins, Colorado 80525, and our
telephone number is 970-221-4670. Our website address is
www.advanced-energy.com. The information available on or through
our website is not a part of this prospectus supplement or the
accompanying prospectus.
Recent Developments
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Second Quarter Results of Operations |
On July 28, 2005, we announced that our total sales for the
quarter ended June 30, 2005 were $87.4 million, up
1.4% compared to first quarter 2005 sales of $86.1 million
and down 19.7% from second quarter 2004 sales of $108.9 million.
Gross margin was 36.7% of sales in the second quarter of 2005
compared to 33.8% in the first quarter of 2005 and 34.0% in the
second quarter of 2004. Net income for the second quarter was
$5.9 million, or $0.18 per diluted share, which included
income from discontinued operations of $2.6 million, or
$0.08 per diluted share, reflecting a gain from the sale of our
EMCO Industrial Flow product line. Income from continuing
operations was $3.3 million, or $0.10 per diluted share,
compared to income from continuing operations of $734,000, or
$0.02 per diluted share, in the first quarter of 2005 and income
from continuing operations of $4.5 million, or $0.13 per
diluted share, in the second quarter of 2004. Included in the
second quarter 2005 income from continuing operations is a
$1.1 million, or $0.03 per diluted share, after-tax gain
from the sale of certain marketable securities.
Revenue for the six months ended June 30, 2005 was
$173.5 million compared to $213.4 million for the first six
months of 2004. Net income for the six months ended
June 30, 2005 was $6.7 million, or $0.20 per diluted
share, which included income from discontinued operations of
$2.6 million, or $0.08 per diluted share, reflecting a gain
from the sale of our EMCO Industrial Flow product line. Income
from continuing operations for the six months ended
June 30, 2005 was $4.0 million, or $0.12 per diluted
share, compared to income from continuing operations for the six
months ended June 30, 2004 of $11.4 million, or $0.34
per diluted share. Income from continuing operations for the six
months ended June 30, 2005 includes a $1.1 million, or
$0.03 per diluted share, after tax gain from the sale of certain
marketable securities.
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Appointment of Dr. Hans Betz as President and Chief
Executive Officer |
On August 1, 2005, Dr. Hans Betz became our President
and Chief Executive Officer. Dr. Betz has served on our
Board of Directors since July 2004. Douglas Schatz retired from
the President and Chief Executive Officer position, and he is
continuing to serve on our Board of Directors as Non-Executive
Chairman.
S-5
The Offering
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Common stock offered by Advanced Energy Industries, Inc. |
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10,000,000 shares |
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Common stock to be outstanding after the offering |
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42,839,899 shares |
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Use of proceeds |
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We intend to use approximately $68.1 million of the net
proceeds of this offering to redeem our
51/4%
convertible subordinated notes due 2006, and the remainder for
working capital and general corporate purposes, which could
include the redemption or repurchase of our outstanding 5%
convertible subordinated notes due 2006. Prior to their
application, we expect to invest the net proceeds in short-term,
interest-bearing, investment-grade securities. See Use of
Proceeds. |
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Nasdaq National Market symbol |
|
AEIS |
The number of shares of common stock that will be outstanding
after the offering is based on 32,839,899 shares
outstanding as of August 1, 2005. This number does not
include:
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3,959,630 shares of common stock subject to options
outstanding under our employee and director stock option plans,
with a weighted average exercise price of $18.23 per share; |
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277,810 shares of common stock subject to restricted stock
units outstanding under our 2003 employee stock option plan; |
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1,298,618 additional shares of common stock available for
issuance under our employee and director stock option plans; |
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166,650 shares of common stock issuable under our employee
stock purchase plan; |
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shares of common stock reserved for issuance upon the conversion
of our outstanding
51/4%
convertible subordinated notes, with a conversion price of
$49.53 per share; and |
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shares of common stock reserved for issuance upon the conversion
of our outstanding 5% convertible subordinated notes, with a
conversion price of $29.83 per share. |
S-6
Summary Consolidated Financial Data
The following summary consolidated financial data should be read
together with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and related notes included and
incorporated by reference in this prospectus supplement and the
accompanying prospectus. The summary consolidated statement of
operations data for the year ended December 31, 2004, was
derived from our consolidated financial statements audited by
Grant Thornton LLP, independent registered public accounting
firm. The summary consolidated statement of operations data for
the years ended December 31, 2002 and 2003 were derived
from our consolidated financial statements audited by KPMG LLP,
independent registered public accounting firm. The related audit
reports are included and incorporated by reference in this
prospectus supplement and incorporated by reference in the
accompanying prospectus. The unaudited summary consolidated
financial data for the six months ended June 30, 2004 and 2005
and as of June 30, 2005 have been prepared on the same basis as
the audited consolidated financial statements included and
incorporated by reference in this prospectus supplement and the
accompanying prospectus and include all adjustments, consisting
only of normal recurring adjustments, that we consider necessary
for a fair presentation of our financial position and operating
results for the periods presented. Historical results are not
necessarily indicative of the results to be expected in the
future, and results of interim periods are not necessarily
indicative of results to be expected for the entire year. The
unaudited as adjusted balance sheet data gives effect to the
issuance by us of 10,000,000 shares of our common stock,
after deducting underwriting discounts and commissions and
estimated offering expenses, at an assumed public offering price
of $9.80 per share, and the application of the net proceeds
therefrom.
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Six Months Ended | |
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Years Ended December 31, | |
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June 30, | |
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2002 | |
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2003 | |
|
2004 | |
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2004 | |
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2005 | |
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(In thousands, except per share data) | |
Statement of Operations Data:
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Sales
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$ |
238,898 |
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$ |
262,402 |
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$ |
395,305 |
|
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$ |
213,356 |
|
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$ |
173,526 |
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Cost of goods sold
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|
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170,138 |
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|
|
174,455 |
|
|
|
275,626 |
|
|
|
137,980 |
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|
|
112,403 |
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Gross profit
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|
|
68,760 |
|
|
|
87,947 |
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|
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119,679 |
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|
|
75,376 |
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61,123 |
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Research and development expenses
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|
|
48,995 |
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51,647 |
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51,541 |
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|
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26,219 |
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22,031 |
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Selling, general and administrative expenses
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66,586 |
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53,951 |
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62,444 |
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30,186 |
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27,959 |
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Total operating expenses
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130,745 |
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|
111,079 |
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121,223 |
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56,812 |
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52,320 |
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(Loss) income from operations
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|
|
(61,985 |
) |
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|
(23,132 |
) |
|
|
(1,544 |
) |
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|
18,564 |
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|
|
8,803 |
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Net (loss) income
|
|
$ |
(41,399 |
) |
|
$ |
(44,241 |
) |
|
$ |
(12,747 |
) |
|
$ |
11,394 |
|
|
$ |
6,683 |
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Diluted net (loss) earnings per share
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|
$ |
(1.29 |
) |
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$ |
(1.37 |
) |
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$ |
(0.39 |
) |
|
$ |
0.34 |
|
|
$ |
0.20 |
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Diluted weighted-average common shares outstanding
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|
32,026 |
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|
|
32,271 |
|
|
|
32,649 |
|
|
|
33,435 |
|
|
|
32,986 |
|
|
|
|
|
|
|
|
|
|
|
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As of June 30, 2005 | |
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| |
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Actual | |
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As Adjusted | |
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(In thousands) | |
Balance Sheet Data:
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Cash, cash equivalents and marketable securities
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|
$ |
137,787 |
|
|
$ |
162,741 |
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Working capital
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|
|
214,740 |
|
|
|
240,129 |
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Total assets
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|
|
391,233 |
|
|
|
415,810 |
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Total debt and capital lease obligations
|
|
|
193,719 |
|
|
|
127,501 |
|
Stockholders equity
|
|
|
146,135 |
|
|
|
237,365 |
|
S-7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus
include and incorporate by reference certain
forward-looking statements within the meanings of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. All statements contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus,
other than statements of historical fact, are
forward-looking statements. For example, statements
relating to our beliefs, expectations, plans and projections are
forward-looking as are statements that specified actions,
conditions or circumstances will continue or change.
Forward-looking statements involve risks and uncertainties. In
some cases, forward-looking statements can be identified by the
inclusion of words such as believe,
expect, plan, anticipate,
estimate and similar words.
Some of the forward-looking statements contained or incorporated
by reference in this prospectus supplement and the accompanying
prospectus are expectations or projections relating to:
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Our future revenues; |
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Our future operating expenses and operating results; |
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Demand for our products and our customers products in the
semiconductor, semiconductor capital equipment and flat panel
display industries; |
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Our recent transition of high-volume manufacturing to Shenzhen,
China; |
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Our recent transition to high-quality, low-cost suppliers in
Asia; |
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Our international operations, including currency fluctuations; |
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Customer inventory levels, requirements and order levels; |
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Remediation of material weaknesses in our internal controls over
financial reporting; |
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Sufficiency and availability of raw materials, parts, components
and subassemblies; |
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Our ability to redeem, repurchase or refinance our 5%
convertible subordinated notes due in 2006; |
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Actions of our competitors; |
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Protection of our existing and future intellectual
property; and |
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General global economic conditions. |
Our actual results could differ materially from those projected
or assumed in our forward-looking statements, because
forward-looking statements by their nature are subject to risks
and uncertainties. Factors that could contribute to these
differences or prove our forward-looking statements, in
hindsight, to have been overly optimistic or unachievable
include the factors described in the following section entitled
Risk Factors. Other factors might also contribute to
differences between our forward-looking statements and our
actual results. We assume no obligation to update any
forward-looking statement or to explain the reasons why our
actual results might differ.
S-8
RISK FACTORS
You should carefully consider the risks described below before
making an investment decision.
Risks Related to our Business
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The semiconductor, semiconductor capital equipment and
flat panel display industries are highly cyclical, which impacts
our operating results. |
Our business and operating results depend in significant part
upon capital expenditures by manufacturers of semiconductors and
flat panel displays, which in turn depend upon current and
anticipated demand for their products. Historically, these
industries have been highly cyclical, with recurring periods of
over-supply that have had a negative impact on the demand for
capital equipment used to manufacture their products.
During periods of declining demand, our customers typically
reduce purchases of, and cancel orders for, our products and
delay delivery of their own products. We may incur significant
charges as we seek to align our cost structure with any such
reduction in sales to these customers. In addition, we may not
be able to respond adequately or quickly to the declining demand
by reducing our costs. We may also be required to record
significant reserves for excess and obsolete inventory as demand
for our products changes. Our inability to reduce costs and the
charges resulting from other actions taken in response to
changes in demand for our products would adversely affect our
business, financial condition and operating results.
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Our quarterly and annual operating results fluctuate
significantly and are difficult to predict. |
Our operating results may be adversely affected by a variety of
factors, many of which are beyond our control and difficult to
predict. These factors include:
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Fluctuations in demand in the semiconductor, semiconductor
capital equipment and flat panel display industries and other
industries in which our customers operate; |
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The timing and nature of orders placed by our customers; |
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Seasonal variations in capital spending by our customers; |
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Changes in our customers inventory management practices; |
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Customer cancellation or postponement of previously placed
orders; |
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Pricing competition from our competitors; |
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Customer requests for us to reduce prices, enhance features,
improve reliability, shorten delivery times and extend payment
terms; |
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Component shortages or allocations or other factors that result
in delays in manufacturing and sales or result in changes to our
inventory levels or causes us to substantially increase our
spending on inventory; |
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The introduction of new products by us or our competitors; |
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Declines in macroeconomic conditions; |
S-9
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Litigation, especially regarding intellectual property; and |
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Currency exchange rate fluctuations. |
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We have recently transferred the production of
substantially all of our product lines to our manufacturing
facility in Shenzhen, China, and may experience unforeseen
difficulties and challenges with these new operations. |
We have invested significant human and financial resources to
establish our manufacturing facility in Shenzhen, China. These
investments were made with the goal of reducing our labor costs
by increasing our workforce in China and correspondingly
decreasing our workforce in the United States.
Because our operating history in Shenzhen is limited, we cannot
predict the impact that this new facility will have on our
operating results. We may continue to incur costs with respect
to the integration of this facility and the related workforce.
While most of the products we manufacture in Shenzhen have been
qualified for many of our customers, we could still incur
requalification costs for some customers.
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We might not realize all of the intended benefits of
transitioning a substantial portion of our supply base to Asian
suppliers. |
We anticipate purchasing a substantial portion of components for
our products from high-quality, low-cost Asian suppliers, by the
end of 2005. These components might have unexpected quality
problems and require us to incur higher than anticipated test,
repair or warranty costs, which would have an adverse effect on
our operating results. Customers, including major customers,
might not accept our products if they contain these lower-priced
components. A delay or refusal by our customers to accept such
products might require us to continue to purchase higher-priced
components from our existing suppliers or might cause us to lose
sales to these customers, which would have an adverse effect on
our business, financial condition and operating results.
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Raw material, part, component and subassembly shortages,
exacerbated by our dependence on sole and limited source
suppliers, could affect our ability to manufacture products and
systems and could delay our shipments. |
Our business depends on our ability to manufacture products that
meet the rapidly changing demands of our customers. Our ability
to timely manufacture our products depends in part on the timely
delivery of raw materials, parts, components and subassemblies
from suppliers. We rely on sole and limited source suppliers for
some of our raw materials, parts, components and subassemblies
that are critical to the manufacturing of our products. This
reliance involves several potential risks, including the
following:
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Inability to obtain an adequate supply of required parts,
components or subassemblies; |
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Supply shortages if a sole source provider ceases operations; |
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Need to fund the operating losses of a sole source provider; |
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Reduced control over pricing and timing of delivery of raw
materials, parts, components or subassemblies; |
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Need to qualify alternative suppliers which could be time
consuming and lead to delays in delivery of products to our
customers, as well as increased costs; and |
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Inability of our suppliers to develop technologically advanced
products to support our growth and development of new products. |
If we are unable to successfully qualify additional suppliers
and manage relationships with our existing and future suppliers
or if our suppliers cannot meet our performance or quality
specifications, or timing requirements, we may experience
shortages of raw materials, parts, components or subassemblies,
increased material costs and shipping delays for our products,
which would adversely affect our business, financial condition
and operating results and relationships with our current and
prospective customers.
S-10
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A significant portion of our sales is concentrated among a
few customers. |
Our ten largest customers accounted for 55% of our total sales
during the first six months of 2005 and 59% of our total sales
during the full year 2004. Our largest customer, Applied
Materials, accounted for 23% of our total sales in the first six
months of 2005 and 27% of our total sales in the full year 2004.
No other customer represented greater than 10% of our total
sales for any of the three years ended December 31, 2004 or
for the six months ended June 30, 2005. The loss of any of
our significant customers or a material reduction in any of
their purchase orders would significantly harm our business,
financial condition and results of operations.
Our customers continuously exert pressure on us to reduce our
prices and extend payment terms. Given the nature of our
customer base and the highly competitive markets in which we
compete, we may be required to reduce our prices or extend
payment terms to remain competitive. We may not be able to
reduce our operating expenses in an amount sufficient to offset
potential margin declines.
Certain of our largest customers also exert pressure on us to
limit the sale of our products to certain OEMs, and to agree to
prohibit sales to our end user customer base entirely, among
other limitations. Given our size relative to certain of our
largest customers, we may be required to agree to limitations of
this nature to remain competitive. Limitations imposed on us
with respect to our potential customer base could significantly
adversely affect our business, financial condition and operating
results.
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We generally have no written long-term contracts with our
customers, which diminishes our ability to plan for future
manufacturing needs. |
As is typical in our industry, our sales are primarily made on a
purchase order basis, and we generally have no written long-term
purchase contracts with our customers. As a result, we are
limited in our ability to predict the level of future sales or
commitments from our current customers, which diminishes our
ability to effectively allocate labor, materials and equipment
in the manufacturing process. In addition, we may accumulate
inventory in anticipation of sales that do not materialize
resulting in excess and absolute inventory write-offs.
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If we are unable to adjust our business strategy
successfully for some of our product lines to reflect the
increasing price sensitivity on the part of our customers, our
business and financial condition could be harmed. |
Our business strategy for many of our product lines has been
focused on product performance and technology innovation to
provide enhanced efficiencies and productivity. As a result of
recent economic conditions and changes in various markets that
we serve, our customers have experienced significant cost
pressures and, as a result, we have observed increased price
sensitivity on the part of our customers. If competition for any
of our product lines should come to focus solely on price rather
than on product performance and technology innovation, we will
need to adjust our business strategy and product offerings
accordingly and, if we are unable to do so, our business,
financial condition and operating results could be materially
and adversely affected.
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The markets in which we operate are highly
competitive. |
We face substantial competition, primarily from established
companies, some of which have greater financial, marketing and
technical resources than we do. We expect our competitors will
continue to develop new products in direct competition with
ours, improve the design and performance of their products and
introduce new products with enhanced performance characteristics.
To remain competitive, we must improve and expand our products
and product offerings. In addition, we may need to maintain a
high level of investment in research and development and expand
our sales and marketing efforts, particularly outside of the
United States. We might not be able to make the technological
advances and investments necessary to remain competitive. Our
inability to improve and
S-11
expand our products and product offerings would have an adverse
affect on our sales and results of operations.
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Our competitive position could be weakened if we are
unable to convince end users to specify that our products be
used in the equipment sold by our customers. |
Our competitive success often depends upon factors outside of
our control. For example, in some cases, particularly with
respect to mass flow controller products, semiconductor device
and flat panel display manufacturers may direct equipment
manufacturers to use a specified suppliers product in
their equipment at a particular facility. Accordingly, for such
products, our success will depend in part on our ability to have
end users specify that our products be used at their facilities.
In addition, we may encounter difficulties in changing
established relationships of competitors that already have a
large installed base of products within such facilities. If
device manufacturers do not specify the use of our products, our
sales may be reduced which would negatively affect our business,
financial condition and operating results.
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We must achieve design wins to retain our existing
customers and to obtain new customers. |
The constantly changing nature of semiconductor fabrication and
flat panel display technology causes equipment manufacturers to
continually design new systems. We must work with these
manufacturers early in their design cycles to modify our
equipment or design new equipment to meet the requirements of
their new systems. Manufacturers typically choose one or two
vendors to provide the components for use with the early system
shipments. Selection as one of these vendors is called a design
win. It is critical that we achieve these design wins in order
to retain existing customers and to obtain new customers.
Once a manufacturer chooses a component for use in a particular
product, it is likely to retain that component for the life of
that product. Our sales and growth could experience material and
prolonged adverse effects if we fail to achieve design wins.
However, design wins do not always result in substantial sales
or profits.
We believe that equipment manufacturers often select their
suppliers based on factors such as long-term relationships.
Accordingly, we may have difficulty achieving design wins from
equipment manufacturers who are not currently our customers. In
addition, we must compete for design wins for new systems and
products of our existing customers, including those with whom we
have had long-term relationships. If we are not successful in
achieving design wins, our business, financial condition and
operating results will be adversely impacted.
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Material weaknesses in our internal control over financial
reporting require us to perform additional analyses and pre and
post-closing procedures that if not performed effectively may
prevent us from reporting our financial results in an accurate
and timely manner. |
We have identified the following two material weaknesses in our
internal control over financial reporting: a lack of appropriate
segregation of duties defined within our enterprise resource
planning system, and the combination of a lack of information
system integration and uniformity regarding our Japan operations
and a lack of sufficient human resources for proper segregation
of duties and oversight in Japan. Management also has
identified, and is developing remediation plans to address,
certain significant deficiencies and other control deficiencies
which our management did not determine to be material
weaknesses. In addition, our internal control over financial
reporting might not prevent or detect all misstatements,
including immaterial misstatements and misstatements created by
collusion or fraud.
In light of these material weaknesses and the inherent
limitations of internal control over financial reporting, we
perform additional analyses and other pre and post-closing
procedures to ensure that our condensed consolidated financial
statements are presented fairly in all material respects in
accordance with generally accepted accounting principles in the
United States. These procedures include monthly business reviews
led by our Chief Executive Officer and monthly operating and
financial statement reviews by various levels of our management
team, including our executive officers. We also vigorously
enforce our policies and code of ethical conduct applicable to
our employees, including the obligation to act in good
S-12
faith and with due care in connection with the reporting of our
financial results, which enforcement has included reassignment
of duties, terminations of employment and other appropriate
measures.
If the additional analyses and pre and post-closing procedures
are not effective or if actions to remediate these material
weaknesses are not successfully implemented or if other material
weaknesses are identified in the future, our ability to report
our quarterly and annual financial results on a timely and
accurate basis could be adversely affected. In addition, if our
controls become inadequate because of changes in conditions or
our degree of compliance with our own policies or procedures
deteriorates, our ability to report our quarterly and annual
financial results on a timely and accurate basis could be
adversely affected.
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Following the application of the net proceeds of this
offering, we will have $121.5 million principal amount of
our 5% convertible subordinated notes outstanding. There can be
no assurance that we will have sufficient cash to repay this
debt on the maturity date. |
We will be required to repay our 5% convertible subordinated
notes on September 1, 2006, unless the noteholders convert
their notes into common stock before the maturity date. There is
currently $121.5 million principal amount outstanding under
the notes. Our existing, undrawn $40 million line of credit
will expire on July 6, 2006, unless renewed by the lender
and us. Noteholders will be unlikely to convert their notes
unless our stock price rises above the conversion price of
$29.83 per share. On August 2, 2005 the closing price
of our common stock on the Nasdaq National Market was
$9.80 per share. There can be no assurance that we will
have sufficient cash to repay these notes when due or be able to
refinance them on acceptable terms.
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We might not be able to compete successfully in
international markets or meet the service and support needs of
our international customers. |
Our sales to customers outside the United States were
approximately 48% in the first six months of 2005 and 47% in the
full year 2004. Our success in competing in international
markets is subject to our ability to manage various risks and
difficulties, including, but not limited to:
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Our ability to effectively manage our employees at remote
locations who are operating in different business environments
from the United States; |
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Our ability to develop relationships with suppliers and other
local businesses; |
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Compliance with product safety requirements and standards that
are different from those of the United States; |
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Variations in enforcement of intellectual property and contract
rights in different jurisdictions; |
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Trade restrictions, political instability, disruptions in
financial markets and deterioration of economic conditions; |
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The ability to provide sufficient levels of technical support in
different locations; |
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Collecting past due accounts receivable from foreign customers;
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Changes in tariffs, taxes and foreign currency exchange rates. |
Our ability to implement our business strategies, maintain
market share and compete successfully in international markets
will be compromised if we are unable to manage these and other
international risks successfully.
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Unfavorable currency exchange rate fluctuations may lead
to lower operating margins, or may cause us to raise prices
which could result in reduced sales. |
Currency exchange rate fluctuations could have an adverse effect
on our sales and results of operations and we could experience
losses with respect to our forward exchange contracts.
Unfavorable
S-13
currency fluctuations could require us to increase prices to
foreign customers which could result in lower net sales by us to
such customers. Alternatively, if we do not adjust the prices
for our products in response to unfavorable currency
fluctuations, our operating results could be adversely affected.
In addition, most sales made by our foreign subsidiaries are
denominated in the currency of the country in which these
products are sold and the currency they receive in payment for
such sales could be less valuable at the time of receipt as a
result of exchange rate fluctuations. We enter into forward
exchange contracts and local currency purchased options to
reduce currency exposure arising from intercompany sales of
inventory. However, we cannot be certain that our efforts will
be adequate to protect us against significant currency
fluctuations or that such efforts will not expose us to
additional exchange rate risks which could adversely affect our
operating results.
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Changes in the value of the Chinese renminbi could impact
the cost of our operation in Shenzhen, China. |
The Chinese government is continually pressured by its trading
partners to allow its currency to float in a manner similar to
other major currencies. The recent revaluation of the renminbi
has not had a material impact on our operations. Any further
change may impact our ability to control the cost of our
products in the world market. Specifically, the decision by the
Chinese government to allow the renminbi to begin to float
against the U.S. dollar could significantly increase the labor
and other costs incurred in the operation of our Shenzhen
facility and the cost of raw materials, parts, components and
subassemblies that we source in China, thereby negatively
affecting our financial condition and operating results.
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Warranty costs on certain products may be in excess of
historical experience. |
In recent years, we have experienced higher than expected levels
of warranty costs on some products. We have been required to
repair, rework and, in some cases, replace these products. Our
warranty costs generally increase when we introduce newer, more
complex products. We recorded warranty expense of approximately
$6.0 million in the first six months of 2005 and
$10.5 million in the full year 2004. These expenses
represented approximately 3.4% of our sales in the first six
months of 2005 and 2.6% of our sales in the full year 2004.
Within the last several years, our warranty expense has been as
high as $13.2 million, or 5.5% of our total sales, which
occurred in 2002. If our level of warranty costs increases in
the future, our financial condition and operating results would
be adversely affected.
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We are highly dependent on our intellectual
property. |
Our success depends significantly on our proprietary technology.
We attempt to protect our intellectual property rights through
patents and non-disclosure agreements; however, we might not be
able to protect our technology, and competitors might be able to
develop similar technology independently. In addition, the laws
of some foreign countries might not afford our intellectual
property the same protections as do the laws of the United
States. Our intellectual property is not protected by patents in
several countries in which we do business, and we have limited
patent protection in other countries, including China. The cost
of applying for patents in foreign countries and translating the
applications into foreign languages requires us to select
carefully the inventions for which we apply for patent
protection and the countries in which we seek such protection.
Generally, our efforts to obtain international patents have been
concentrated in the United Kingdom, Germany, France and selected
countries in Asia, because there are other manufacturers and
developers of power conversion and control systems in those
countries as well as customers for those systems. If we are
unable to protect our intellectual property successfully, our
business, financial condition and operating results could be
adversely affected.
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Intellectual property rights are difficult to enforce in
China. |
Commercial law in China is relatively undeveloped compared to
the commercial law in the United States. Limited protection of
intellectual property is available under Chinese law.
Consequently, manufacturing our products in China may subject us
to an increased risk that unauthorized parties may attempt to
copy or otherwise obtain or use our intellectual property. We
cannot assure you that we will be
S-14
able to protect our intellectual property rights effectively or
have adequate legal recourse in the event that we encounter
infringements of our intellectual property under Chinese law.
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We have been and continue to be involved in patent
litigation, which has resulted in substantial costs and could
result in additional costs, restrictions on our ability to sell
certain products and an inability to prevent others from using
technology we have developed. |
MKS Instruments, Inc., or MKS, filed a patent infringement suit
against us in the United States District Court in Wilmington,
Delaware, alleging that our Xstream With Active Matching Network
reactive gas generator products, or Xstream products, infringe
patents held by MKS. In July 2004, a jury returned a verdict
against us, finding that our Xstream products infringe three MKS
patents. We have made a motion to the court for judgment as a
matter of law in our favor notwithstanding the verdict, or in
the alternative, a new trial on the question of infringement, as
well as for the court to consider our challenge to the validity
of MKSs patents. A trial on our remaining defenses is
scheduled to commence on October 31, 2005. While MKS has
requested both injunctive relief and damages against us, the
court will address the question of remedies after a final ruling
on the merits of the claims presented. If we are unsuccessful,
we could be subject to damages and an injunction preventing us
from manufacturing and selling Xstream products in the United
States in the future.
In August, 2004, MKS filed a petition in the District Court in
Mannheim, Germany, alleging infringement by our Xstream products
of a counterpart German patent owned by MKS. On April 8,
2005, the Mannheim court issued a judgment against us for
infringement of MKSs patent, which did not specify
damages. A petition for invalidity of MKSs patent brought
by us is still pending before the German Federal Patent Court.
Although we may be enjoined from making or selling the Xstream
product in Germany, we believe that the impact of an injunction
and the scale of any damages award should be minimal because we
have not made or sold the product in Germany and have no plans
to do so. We continue to make and sell the Xstream product in
countries in which MKS has no corresponding patent rights.
On October 21, 2004, one of our competitors, Huettinger
Electronik, and two customers, von Ardenne Anlagentechnik and
Interpane Entwicklungs, petitioned for Opposition of our
European patent directed to pulsed-DC reactive sputtering
technology. In the event we are unsuccessful in defending
against this Opposition, our ability to prevent others from
using this technology in Europe may be limited.
Further patent litigation might:
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Cause us to incur substantial costs in the form of legal fees,
fines and royalty payments; |
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Result in restrictions on our ability to sell certain products; |
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Result in an inability to prevent others from using technology
we have developed; and |
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Require us to redesign products or seek alternative technologies. |
Any of these events could have a significant adverse effect on
our business, financial condition and results of operations.
Even apart from patent litigation, our own intellectual property
rights may be subject to challenge by other parties. In many
countries in which we hold patent rights, for example,
procedures are available that permit third parties to contest,
oppose, or request reexamination of our issued patents.
Defending against these proceedings might cause us to incur
substantial costs in the form of legal fees and may result in an
inability to prevent others from using technology we have
developed.
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We are subject to numerous governmental
regulations. |
We are subject to federal, state, local and foreign regulations,
including environmental regulations and regulations relating to
the design and operation of our products and control systems. We
might incur significant costs as we seek to ensure that our
products meet safety and emissions standards, many of
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which vary across the states and countries in which our products
are used. In the past, we have invested significant resources to
redesign our products to comply with these directives.
Compliance with future regulations, directives and standards
could require us to modify or redesign some products, make
capital expenditures or incur substantial costs. If we do not
comply with current or future regulations, directives and
standards:
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We could be subject to fines; |
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Our production could be suspended; or |
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We could be prohibited from offering particular products in
specified markets. |
Any inability to comply with current or future regulations,
directives and standards could adversely affect our business,
financial condition or operating results.
Risks Related to Our Common Stock
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We do not intend to pay dividends in the foreseeable
future, and therefore investors must rely solely on the market
value of our shares to realize a return on their
investment. |
We have not declared or paid any cash dividends on our shares
since we terminated our election to be treated as an
S-corporation for tax purposes effective January 1, 1994.
We currently intend to retain any future earnings to fund the
development and growth of our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future.
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The market price of our common stock has fluctuated and
may continue to fluctuate for reasons over which we have no
control. |
The stock market has from time to time experienced, and is
likely to continue to experience, extreme price and volume
fluctuations. Prices of securities of technology companies have
been especially volatile and have often fluctuated for reasons
that are unrelated to their operating performance. In the past,
companies that have experienced volatility in the market price
of their stock have been the objects of securities class action
litigation. If we were the object of securities class action
litigation, it could result in substantial costs and a diversion
of our managements attention and resources.
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Future sales of our common stock by our Non-Executive
Chairman of the Board may negatively affect the market price of
our common stock. |
Following this offering, Mr. Schatz, our Non-Executive
Chairman of the Board, will beneficially own approximately 25.1%
of our outstanding common stock. The sale of a substantial
amount of the shares owned by him could negatively affect the
market price of our common stock. Mr. Schatz may sell up to
850,000 shares of common stock pursuant to a written
trading plan pursuant to Rule 10b5-1 under the Securities
Exchange Act of 1934, as amended, that are not subject to the
90-day lock-up agreement that Mr. Schatz has entered into with
the underwriters of this offering and which is described in the
Underwriting section on page S-22 of this
prospectus supplement.
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Our Non-Executive Chairman of the Board owns a significant
percentage of our outstanding common stock, which could enable
him to control our business and affairs. |
Following this offering, Mr. Schatz will beneficially own
approximately 25.1% of our outstanding common stock. This
stockholding gives Mr. Schatz significant voting power.
Depending on the number of shares that abstain or otherwise are
not voted on a particular matter, Mr. Schatz may be able to
elect all of the members of our board of directors and to
control our business affairs for the foreseeable future in a
manner with which our other stockholders may not agree.
S-16
USE OF PROCEEDS
The net proceeds from the sale of the shares of our common stock
in this offering are estimated to be approximately
$92.6 million ($106.6 million if the
underwriters over-allotment option is exercised in full),
based on a public offering price of $9.80 per share and
after deducting the underwriting discounts and commission and
estimated offering expenses.
We intend to use approximately $68.1 million of the net
proceeds of this offering to redeem our
51/4%
convertible subordinated notes due 2006, and the remainder for
working capital and general corporate purposes, which could
include the redemption or repurchase of our outstanding 5%
convertible subordinated notes due 2006.
At August 1, 2005, approximately $66.2 million
principal amount of our
51/4%
convertible subordinated notes due November 15, 2006 and
$121.5 million principal amount of our 5% convertible
subordinated notes due September 1, 2006 remained outstanding.
We can redeem our
51/4%
convertible subordinated notes at 101.5% of the outstanding
principal amount, plus accrued and unpaid interest. Beginning
September 1, 2005, we can redeem our 5% convertible
subordinated notes at 101% of the outstanding principal amount,
plus accrued and unpaid interest. Prior to September 1,
2005, to redeem our 5% convertible subordinated notes, we would
be required to pay 102% of the outstanding principal amount,
plus accrued and unpaid interest.
We intend to issue a notice of redemption for our
51/4%
convertible subordinated notes promptly following the completion
of this offering.
Pending their application, we expect to invest the net proceeds
of this offering in short-term, interest-bearing,
investment-grade securities.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under
the symbol AEIS. The following table sets forth, for
each of the quarterly periods indicated, the range of high and
low closing sale prices of our common stock, as reported
(without retail markup or markdown and without commissions) on
the Nasdaq National Market. The prices cited below do not
necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
Quarter |
|
High | |
|
Low | |
|
|
| |
|
| |
2003:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
17.43 |
|
|
$ |
7.91 |
|
|
Second Quarter
|
|
|
16.83 |
|
|
|
7.37 |
|
|
Third Quarter
|
|
|
24.65 |
|
|
|
13.56 |
|
|
Fourth Quarter
|
|
|
29.99 |
|
|
|
18.66 |
|
2004:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
28.19 |
|
|
$ |
19.13 |
|
|
Second Quarter
|
|
|
23.07 |
|
|
|
12.83 |
|
|
Third Quarter
|
|
|
15.32 |
|
|
|
8.78 |
|
|
Fourth Quarter
|
|
|
10.97 |
|
|
|
7.92 |
|
2005:
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
9.96 |
|
|
$ |
6.88 |
|
|
Second Quarter
|
|
|
11.10 |
|
|
|
7.86 |
|
|
Third Quarter (through August 2, 2005)
|
|
|
10.65 |
|
|
|
7.76 |
|
On August 2, 2005, the last sale price of our common stock
as reported on the Nasdaq National Market was $9.80 per
share. On August 1, 2005 the number of our common stockholders
of record was 813.
S-17
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital
stock since we terminated our election to be treated as an
S-corporation for tax purposes, effective January 1, 1994.
We currently intend to retain all future earnings to finance our
business and do not anticipate paying cash or other dividends on
our common stock in the foreseeable future. Furthermore, our
revolving credit facility prohibits the declaration or payment
of any cash dividends on our common stock.
S-18
CAPITALIZATION
The following table shows our cash, cash equivalents and
short-term investments and capitalization as of June 30,
2005 on an actual basis and on an as adjusted basis to give
effect to the issuance by us of 10,000,000 shares of our common
stock, after deducting underwriting discounts and commissions
and estimated offering expenses at an assumed public offering
price of $9.80 per share, and the application of the net
proceeds therefrom. This table should be read in conjunction
with the Summary Consolidated Financial Data and our
financial statements and notes thereto that are included in this
prospectus supplement, as well as Managements
Discussion and Analysis of Financial Condition and Results of
Operations that is incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
|
| |
|
| |
|
|
(in thousands | |
|
|
except per share amounts) | |
Cash, cash equivalents and short-term investments
|
|
$ |
137,787 |
|
|
$ |
162,741 |
|
|
|
|
|
|
|
|
Senior borrowings and capital leases, net of current portion
|
|
$ |
3,280 |
|
|
$ |
3,280 |
|
Convertible subordinated notes due 2006 5% notes
|
|
|
121,500 |
|
|
|
121,500 |
|
Convertible subordinated notes due 2006
51/4%
notes
|
|
|
66,218 |
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 1,000 shares authorized;
no shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 70,000 shares authorized;
32,816 shares outstanding; as adjusted
42,816 shares
|
|
|
33 |
|
|
|
43 |
|
|
Additional paid-in capital
|
|
|
146,276 |
|
|
|
238,866 |
|
|
Accumulated deficit
|
|
|
(6,112 |
) |
|
|
(7,482 |
)(1) |
|
Deferred compensation
|
|
|
(1,201 |
) |
|
|
(1,201 |
) |
|
Unrealized holding gains on available-for-sale securities, net
of tax
|
|
|
520 |
|
|
|
520 |
|
|
Cumulative translation adjustments, net of tax
|
|
|
6,619 |
|
|
|
6,619 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
146,135 |
|
|
|
237,365 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
337,133 |
|
|
$ |
362,145 |
|
|
|
|
|
|
|
|
|
|
(1) |
The change relates to the expensing of a 1.5% redemption premium
of $993,000 and the write-off of the unamortized deferred debt
issuance costs of $377,000 related thereto. |
The number of shares of common stock outstanding is based on
32,816,222 shares outstanding as of June 30, 2005. This
number does not include:
|
|
|
|
|
3,863,728 shares of common stock subject to options
outstanding as of June 30, 2005, under our employee and
director stock option plans, with a weighted average exercise
price of $18.56 per share; |
|
|
|
227,510 shares of common stock subject to restricted stock
units outstanding as of June 30, 2005, under our 2003
employee stock option plan; |
|
|
|
1,457,612 additional shares of common stock available as of
June 30, 2005 under our employee and director stock option
plans; |
|
|
|
190,327 shares of common stock issuable under our employee
stock purchase plan; |
|
|
|
shares of common stock reserved for issuance upon the conversion
of our
51/4%
convertible subordinated notes, with a conversion price of
$49.53 per share; or |
|
|
|
shares of common stock reserved for issuance upon the conversion
of our 5% convertible subordinated notes, with a conversion
price of $29.83 per share. |
The table above assumes no exercise of the underwriters
over-allotment option to purchase an additional 1,500,000 shares
of our common stock.
S-19
MANAGEMENT
Our directors and executive officers are:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Douglas S. Schatz
|
|
|
59 |
|
|
Non-Executive Chairman of the Board |
Hans Betz
|
|
|
59 |
|
|
Chief Executive Officer, President and Director |
Richard P. Beck
|
|
|
72 |
|
|
Director |
Joseph R. Bronson
|
|
|
57 |
|
|
Director |
Barry Z. Posner
|
|
|
56 |
|
|
Director |
Elwood Spedden
|
|
|
68 |
|
|
Director |
Michael El-Hillow
|
|
|
53 |
|
|
Executive Vice President, Chief Financial Officer |
C. Stephen Rhodes
|
|
|
44 |
|
|
Executive Vice President, Products and Operations |
James G. Guilmart
|
|
|
50 |
|
|
Senior Vice President, Sales |
Douglas S. Schatz is a co-founder of Advanced Energy and
has been our Chairman since our incorporation in 1981.
Mr. Schatz served as our Chief Executive Officer from our
incorporation until his retirement on July 31, 2005.
Mr. Schatz also serves as a director of Advanced Power
Technology, Inc., a publicly held company that provides high
power, high voltage and high performance semiconductors and
power modules, and is a member of its nominating committee and
the chairman of its compensation committee. Mr. Schatz is
also a member of the CEO Committee of the Mountain States
Council of the American Electronics Association and serves on
the Engineering Advisory Board of Colorado State University.
Hans Betz joined our Board of Directors in July 2004. On
August 1, 2005, Dr. Betz became our Chief Executive
Officer and President. Dr. Betz had been Chief Executive
Officer of West STEAG Partners GmbH, a German-based venture
capital company focused on the high-technology industry, a
position he had held since August 2001. From January 1996 to
July 2001, he was Chief Executive Officer of STEAG Electronic
Systems AG and a Managing Director at Leybold AG. Dr. Betz
currently serves as a director of Mattson Technology, Inc., a
publicly held supplier of advanced process equipment used to
manufacture semiconductors, and serves as a member of its audit
and compensation committees. He also serves as a board member
and compensation committee member of Steag HamaTech AG, a
publicly held supplier of manufacturing equipment and process
technology for the manufacture of optical media (CD/DVD) and for
processing photomask and wafers for the semiconductor industry.
Richard P. Beck joined Advanced Energy in March 1992 as
Vice President and Chief Financial Officer, became Senior Vice
President in February 1998 and joined our Board of Directors in
September 1995. In October 2001, Mr. Beck retired from the
position of Chief Financial Officer, but remained as a Senior
Vice President until May 2002. Mr. Beck is Chairman of the
Board of Applied Films Corporation, a publicly held manufacturer
of flat panel display equipment, and serves on its audit,
compensation and nominating and governance committees. He is
also a director of TTM Technologies, Inc., a publicly held
manufacturer of printed circuit boards, and serves as a member
of its nominations and corporate governance committee and as
chairman of its audit committee.
Joseph R. Bronson joined our Board of Directors in
December 2004. Mr. Bronson is currently President of
FormFactor, Inc., a designer and manufacturer of advanced
semiconductor wafer probe cards. Mr. Bronson was appointed
President of FormFactor in November 2004 and has been a director
of FormFactor since April 2002. Prior to becoming President of
FormFactor, Mr. Bronson held significant leadership
positions with Applied Materials, Inc., a manufacturer of
semiconductor capital equipment. Until his resignation from
Applied Materials in October 2004, he had served as an Executive
Vice President since December 2000 and as its Chief Financial
Officer since January 1998. Mr. Bronson is also a director
of Jacobs Engineering Group, a diversified technical consulting
firm.
Barry Z. Posner joined our Board of Directors in
September 2004. Dr. Posner is Dean of the Leavey School of
Business at Santa Clara University, a professor of leadership
and an award-winning author.
S-20
Dr. Posner has been Dean of the Leavey School of Business
since July 1997. Dr. Posner is currently on the editorial
review boards of the Journal of Business Ethics and Leadership
Review, and section editor for the Journal of Management
Inquiry. Dr. Posner also conducts leadership-based
workshops for corporations around the world.
Elwood Spedden joined our Board of Directors in September
1995. Mr. Spedden was Chief Executive Officer of Photon
Dynamics, Inc., a publicly held manufacturer of flat panel
display test equipment, from January 2003 until his retirement
in January 2004. From July 1996 to June 1997, Mr. Spedden
was a Vice President of KLA-Tencor Semiconductor, a manufacturer
of automatic test equipment used in the fabrication of
semiconductors.
Michael El-Hillow joined us in November 2001 as Senior
Vice President of Finance and Administration and Chief Financial
Officer. In February 2003, Mr. El-Hillow was named
Executive Vice President. From April 1997 to July 2001,
Mr. El-Hillow was Senior Vice President and Chief Financial
Officer of Helix Technology Corporation, a manufacturer of
vacuum products for semiconductors, flat panel display and data
storage markets. He was Senior Vice President and Chief
Financial Officer of Spike Broadband Systems, Inc. from July
2001 to October 2001. Prior to his roles at Helix Technology
Corporation, he was Vice President, Finance, Treasurer and Chief
Financial Officer at A.T. Cross Company, and an audit partner at
Ernst & Young LLP. Mr. El-Hillow serves on the
board of directors and as chairman of the audit committee of
Evergreen Solar, Inc., a manufacturer of solar panels and
related products.
C. Stephen Rhoades joined us in September 2002 as
Senior Vice President and General Manager of Control Systems and
Instrumentation. In November 2004, Mr. Rhoades was named
Executive Vice President of Products and Operations. From March
2000 to September 2002, Mr. Rhoades was Vice President,
Corporate Development at Portera Systems. Prior to Portera
Systems, he was Managing Director of Product Development at Lam
Research.
James G. Guilmart joined us in September 1999 as Director
of Applied Materials Account Team and was named Senior Vice
President of Sales in October 2000. From October 1998 to August
1999, he was Senior Vice President, SAP Business Unit at Siemens
Information and Communications Products, LLC. Prior to Siemens,
he was Vice President, Business Implementation at Unisys
Corporation.
S-21
UNDERWRITING
Citigroup Global Markets Inc., Lehman Brothers Inc., Adams
Harkness, Inc. and Needham & Company, LLC are acting as
representatives of the underwriters named below. Subject to the
terms and conditions stated in the underwriting agreement dated
the date of this prospectus supplement, each underwriter named
below has severally agreed to purchase, and we have agreed to
sell to that underwriter, the number of shares set forth
opposite the underwriters name.
|
|
|
|
|
|
|
|
Number of | |
Underwriter |
|
Shares | |
|
|
| |
Citigroup Global Markets Inc.
|
|
|
|
|
Lehman Brothers Inc.
|
|
|
|
|
Adams Harkness, Inc.
|
|
|
|
|
Needham & Company, LLC
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,000,000 |
|
|
|
|
|
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering
are subject to approval of legal matters by counsel and to other
conditions. The underwriters are obligated to purchase all the
shares (other than those covered by the over-allotment option
described below) if they purchase any of the shares.
The underwriters propose to offer some of the shares directly to
the public at the public offering price set forth on the cover
page of this prospectus supplement and some of the shares to
dealers at the public offering price less a concession not to
exceed
$ per
share. The underwriters may allow, and dealers may reallow, a
concession not to exceed $ per share on sales to other
dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public
offering price and the other selling terms.
We have granted to the underwriters an option, exercisable for
30 days from the date of this prospectus supplement, to
purchase up to 1,500,000 additional shares of common stock at
the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of
covering over-allotments, if any, in connection with this
offering. To the extent the option is exercised, each
underwriter must purchase a number of additional shares
approximately proportionate to that underwriters initial
purchase commitment.
We and our executive officers, other than our Chief Technology
Officer who is leaving us on or before August 31, 2005, and
directors have agreed that, for a period of 90 days from
the date of this prospectus supplement, we and they will not,
without the prior written consent of Citigroup, dispose of or
hedge any shares of our common stock or any securities
convertible into or exchangeable for our common stock, except
that Douglas Schatz may sell up to 850,000 shares of common
stock pursuant to a written trading plan established or to be
established on substantially the same terms as his most recent
plan, pursuant to Rule 10b5-1 under the Securities Exchange
Act of 1934, or the Exchange Act, and Richard Beck may sell up
to 19,000 shares of common stock pursuant to a written trading
plan established or to be established pursuant to
Rule 10b5-1 under the Exchange Act. Our officers and
directors are also permitted to transfer shares of common stock
as bona fide gifts, provided that the donee or donees
agree to be bound by the restrictions set forth in the lock-up
agreements. Citigroup in its sole discretion may release any of
the securities subject to these lock-up agreements at any time
without notice.
Each underwriter has represented, warranted and agreed that:
|
|
|
|
|
it has not offered or sold and, prior to the expiry of a period
of six months from the closing date, will not offer or sell any
share included in this offering to persons in the United Kingdom
except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in |
S-22
|
|
|
|
|
circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; |
|
|
|
it has only communicated and caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of section 21 of the Financial Services and Markets Act 2000
(FSMA)) received by it in connection with the issue
or sale of any shares included in this offering in circumstances
in which section 21(1) of FSMA does not apply to us; |
|
|
|
it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to
the shares included in this offering in, from or otherwise
involving the United Kingdom; and |
|
|
|
the offer in The Netherlands of the shares included in this
offering is exclusively limited to persons who trade or invest
in securities in the conduct of a profession or business (which
include banks, stockbrokers, insurance companies, pension funds,
other institutional investors and finance companies and treasury
departments of large enterprises). |
The common stock is quoted on the Nasdaq National Market under
the symbol AEIS.
The following table shows the underwriting discounts and
commissions that we are to pay to the underwriters in connection
with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase additional shares of common stock.
|
|
|
|
|
|
|
|
|
|
|
Paid by | |
|
|
Advanced Energy | |
|
|
Industries, Inc. | |
|
|
| |
|
|
No Exercise | |
|
Full Exercise | |
|
|
| |
|
| |
Per share of common stock
|
|
$ |
|
|
|
$ |
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
In connection with this offering, Citigroup on behalf of the
underwriters, may purchase and sell shares of common stock in
the open market. These transactions may include short sales,
syndicate covering transactions and stabilizing transactions.
Short sales involve syndicate sales of common stock in excess of
the number of shares to be purchased by the underwriters in the
offering, which creates a syndicate short position.
Covered short sales are sales of shares made in an
amount up to the number of shares represented by the
underwriters over-allotment option. In determining the
source of shares to close out the covered syndicate short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. Transactions to close out the covered
syndicate short involve either purchases of the common stock in
the open market after the distribution has been completed or the
exercise of the over-allotment option. The underwriters may also
make naked short sales of shares in excess of the
over-allotment option. The underwriters must close out any naked
short position by purchasing shares of common stock in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in
the offering. Stabilizing transactions consist of bids for or
purchases of shares in the open market while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids
permit the underwriters to reclaim a selling concession from a
syndicate member when Citigroup repurchases shares originally
sold by that syndicate member in order to cover syndicate short
positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or
retarding a decline in the market price of the common stock.
They may also cause the price of the common stock to be higher
than the price that would otherwise exist in the open market in
the absence of these transactions. The underwriters may conduct
these transactions on the Nasdaq National Market or in the
over-the-counter market, or
S-23
otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
In addition, in connection with this offering, some of the
underwriters (and selling group members) may engage in passive
market making transactions in the common stock on the Nasdaq
National Market, prior to the pricing and completion of the
offering. Passive market making consists of displaying bids on
the Nasdaq National Market no higher than the bid prices of
independent market makers and making purchases at prices no
higher than those independent bids and effected in response to
order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market
makers average daily trading volume in the common stock
during a specified period and must be discontinued when that
limit is reached. Passive market making may cause the price of
the common stock to be higher than the price that otherwise
would exist in the open market in the absence of those
transactions. If the underwriters commence passive market making
transactions, they may discontinue them at any time.
We estimate that the total expenses of this offering will be
$500,000.
The underwriters have performed investment banking and advisory
services for us from time to time for which they have received
customary fees and expenses. The underwriters may, from time to
time, engage in transactions with and perform services for us in
the ordinary course of their business.
This prospectus supplement and the accompanying prospectus in
electronic format may be made available on the websites
maintained by one or more of the underwriters. The
representatives may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders.
The representatives will allocate shares to underwriters that
may make Internet distributions on the same basis as other
allocations. In addition, shares may be sold by the underwriters
to securities dealers who resell shares to online brokerage
account holders.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make because of any of those liabilities.
LEGAL MATTERS
The validity of the common stock offered by this prospectus
supplement is being passed upon for us by Hogan & Hartson
LLP, Los Angeles, California. Davis Polk & Wardwell, Menlo
Park, California will pass upon legal matters for the
underwriters. Davis Polk & Wardwell has acted as counsel to
our audit committee in connection with certain matters.
FINANCIAL STATEMENTS
The consolidated financial statements of Advanced Energy
Industries, Inc. as of December 31, 2004 and for the year
then ended are set forth in this prospectus supplement and
incorporated by reference in the registration statement that
contains this prospectus supplement and have been audited by
Grant Thornton LLP, independent registered public accounting
firm, as indicated in their reports with respect thereto.
The consolidated financial statements of Advanced Energy
Industries, Inc. as of December 31, 2003, and for each of
the years in the two-year period ended December 31, 2003,
as set forth in this prospectus supplement and incorporated by
reference in the registration statement that contains this
prospectus supplement, have been audited by KPMG LLP,
independent registered public accounting firm, as indicated in
their report with respect thereto. KPMG LLPs report dated
February 20, 2004 contains an explanatory paragraph
relating to the fact that effective January 1, 2002 the
Company adopted Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. KPMG LLPs
report dated February 20, 2004 contains an explanatory
paragraph relating to the fact that effective January 1,
2003, Advanced Energy Industries, Inc. and subsidiaries adopted
the
S-24
provisions of Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other documents with the Securities and Exchange Commission,
or the SEC. We also submit copies of such reports, statements
and documents to the Nasdaq Stock Market. You may access any of
these reports, statements or documents by:
|
|
|
|
|
Reading or copying them at the SECs public reference
office located at 100 F Street, NE, Room 1580, Washington,
D.C. 20549; |
|
|
|
Writing to the SECs public reference office and requesting
copies, with payment of a duplicating fee; |
|
|
|
Reading or copying them at the office of Nasdaq Operations, 1735
K Street, N.W., Washington, D.C. 20006; |
|
|
|
Visiting the SECs website at http://www.sec.gov; or |
|
|
|
Visiting our website at http://www.aei.com. The information
available on or through our website is not a part of this
prospectus supplement or the accompanying prospectus. |
Please call the SEC at 1-800-SEC-0330 for information on the
public reference office.
INCORPORATION BY REFERENCE
In this document, we incorporate by reference
information that we file with the SEC, which means that we can
disclose important information to you by referring to that
information. The information incorporated by reference is
considered to be a part of this prospectus supplement, and later
information filed with the SEC will update and supersede this
information. We incorporate by reference the documents listed
below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
until the offering is completed:
|
|
|
|
|
Our annual report on Form 10-K and Form 10-K/A for the
year ended December 31, 2004; |
|
|
|
Our quarterly report on Form 10-Q for the quarter ended
March 31, 2005; |
|
|
|
Our current reports on Form 8-K filed January 6, 2005;
February 3, 2005; May 10, 2005; May 25, 2005;
July 6, 2005; July 12, 2005 and August 3, 2005; |
|
|
|
Our definitive proxy statement filed on Schedule 14A on
April 7, 2005; and |
|
|
|
The description of our common stock contained in our
registration statement on Form 8-A, filed with the SEC on
October 12, 1995, and any further amendment or report filed
thereafter for purposes of updating any such description. |
You may request a copy of any or all of the information that has
been incorporated by reference in this prospectus supplement but
that has not been delivered, at no cost, by writing or calling
us at the following address or telephone number:
Advanced
Energy Industries, Inc.
1625
Sharp Point Drive
Fort
Collins, CO 80525
Attention:
Investor Relations
(970) 221-4670
S-25
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page | |
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Audited Financial Statements
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F-2 |
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F-5 |
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F-6 |
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F-8 |
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F-9 |
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F-10 |
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F-11 |
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F-41 |
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Unaudited Financial Statements
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F-42 |
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F-43 |
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F-44 |
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F-45 |
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of Advanced Energy Industries, Inc.
We have audited the accompanying consolidated balance sheet of
Advanced Energy Industries, Inc. and subsidiaries (the Company)
as of December 31, 2004, and the related consolidated
statements of operations, stockholders equity and
comprehensive loss, and cash flows for the year then ended.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Advanced Energy Industries, Inc. and subsidiaries as
of December 31, 2004, and the results of their operations
and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole.
Schedule II listed in the index of financial statements is
presented for purposes of additional analysis and is not a
required part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Advanced Energy Industries, Inc.s
internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated July 6, 2005
expressed an unqualified opinion on managements assessment
of the effectiveness of internal control over financial
reporting and an adverse opinion on the effectiveness of
internal control over financial reporting because of the
existence of material weaknesses.
Denver, Colorado
July 6, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of Advanced Energy Industries, Inc.
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting (included in Item 9A of this
Form 10-K/ A), that Advanced Energy Industries, Inc. (the
Company) did not maintain effective internal control over
financial reporting as of December 31, 2004, because of the
effect of material weaknesses identified in management
assessment, based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
Companys management has identified and included in its
assessment two material weaknesses. The first material weakness
relates to the lack of segregation of duties within the
Companys enterprise resource planning (ERP) system,
as certain employees have ERP system access to record
transactions outside of their assigned job responsibilities. The
Companys ERP system is integrated throughout the
organization including material foreign locations, with the
exception of the Japan locations. The ERP system interacts with
most of the Companys major processes including
manufacturing, payables, receivables and inventory controls.
This material weakness could result in a material misstatement
of annual and interim financial statements that would not be
prevented or detected in the normal course of operations. The
second material weakness relates to two significant deficiencies
in the Companys Japan operations, that when considered in
the aggregate, represents a material weakness. The first
significant deficiency relates to each of the two Japan
facilities having its own unique information system, as well as
a lack of segregation of duties, with certain employees having
access in these systems to
F-3
record transactions outside of their assigned job
responsibilities. The second significant deficiency in Japan was
the lack of proper segregation of duties and oversight at the
local level. This material weakness could result in a material
misstatement of the operating results of the Japanese
subsidiaries which are included in the Companys annual and
interim financial statements that would not be prevented or
detected in the normal course of operations. These material
weaknesses were considered in determining the nature, timing and
extent of audit tests applied in our audit of the 2004
consolidated financial statements, and this report does not
affect our report dated July 6, 2005, on those financial
statements.
In our opinion, managements assessment that Advanced
Energy Industries, Inc. did not maintain effective internal
control over financial reporting as of December 31, 2004,
is fairly stated, in all material respects, based on COSO. Also
in our opinion, because of the effect of the material weaknesses
described above on the achievement of the objectives of the
control criteria, Advanced Energy Industries, Inc. has not
maintained effective internal control over financial reporting
as of December 31, 2004, based on COSO.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Advanced Energy Industries, Inc.
and subsidiaries as of December 31, 2004, and the related
consolidated statements of operations, stockholders equity
and comprehensive loss, and cash flows for the year then ended,
and our report dated July 6, 2005, expressed an unqualified
opinion.
Denver, Colorado
July 6, 2005
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Advanced Energy Industries, Inc.:
We have audited the accompanying consolidated balance sheet of
Advanced Energy Industries, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 2003 and the related
consolidated statements of operations, stockholders equity
and comprehensive loss, and cash flows for each of the years in
the two-year period then ended. In connection with our audits of
these consolidated financial statements, we also have audited
the related financial statement schedules as listed in the
accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Advanced Energy Industries, Inc. and subsidiaries as
of December 31, 2003, and the results of their operations
and their cash flows for each of the years in the two-year
period then ended, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set
forth therein.
Advanced Energy Industries, Inc. and subsidiaries adopted the
provisions of Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective
January 1, 2002.
Advanced Energy Industries, Inc. and subsidiaries adopted the
provisions of Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, effective January 1, 2003.
Denver, Colorado
February 20, 2004
F-5
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
38,404 |
|
|
$ |
41,522 |
|
|
Marketable securities
|
|
|
69,578 |
|
|
|
93,370 |
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
Trade (less allowances for doubtful accounts of approximately
$1,049 and $1,303 at December 31, 2004 and 2003,
respectively)
|
|
|
66,610 |
|
|
|
57,156 |
|
|
|
Other
|
|
|
5,443 |
|
|
|
4,771 |
|
|
Income tax receivable
|
|
|
404 |
|
|
|
151 |
|
|
Inventories, net
|
|
|
73,224 |
|
|
|
65,703 |
|
|
Other current assets
|
|
|
5,736 |
|
|
|
5,486 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
259,399 |
|
|
|
268,159 |
|
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $59,464 and $50,848 at December 31, 2004 and 2003,
respectively
|
|
|
44,746 |
|
|
|
44,725 |
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Deposits and other
|
|
|
6,468 |
|
|
|
5,951 |
|
|
Goodwill
|
|
|
68,276 |
|
|
|
69,510 |
|
|
Other intangible assets, net of accumulated amortization of
$9,624 and $11,197 at December 31, 2004 and 2003, respectively
|
|
|
12,032 |
|
|
|
19,433 |
|
|
Demonstration and customer service equipment, net of accumulated
amortization of $6,880 and $5,688 at December 31, 2004 and
2003, respectively
|
|
|
2,968 |
|
|
|
3,934 |
|
|
Deferred debt issuance costs, net
|
|
|
2,086 |
|
|
|
3,019 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
395,975 |
|
|
$ |
414,731 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-6
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$ |
17,683 |
|
|
$ |
23,066 |
|
|
Taxes payable
|
|
|
2,974 |
|
|
|
445 |
|
|
Accrued payroll and employee benefits
|
|
|
7,788 |
|
|
|
7,953 |
|
|
Accrued warranty expense
|
|
|
6,791 |
|
|
|
6,612 |
|
|
Accrued restructuring charges
|
|
|
4,414 |
|
|
|
3,175 |
|
|
Other accrued expenses
|
|
|
5,986 |
|
|
|
7,079 |
|
|
Customer deposits and deferred revenue
|
|
|
662 |
|
|
|
2,952 |
|
|
Capital lease obligations, current portion
|
|
|
294 |
|
|
|
554 |
|
|
Senior borrowings, current portion
|
|
|
3,432 |
|
|
|
8,028 |
|
|
Accrued interest payable on convertible subordinated notes
|
|
|
2,460 |
|
|
|
2,460 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
52,484 |
|
|
|
62,324 |
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Capital leases, net of current portion
|
|
|
421 |
|
|
|
263 |
|
|
Senior borrowings, net of current portion
|
|
|
4,258 |
|
|
|
5,905 |
|
|
Deferred income tax liabilities, net
|
|
|
3,709 |
|
|
|
4,672 |
|
|
Convertible subordinated notes payable
|
|
|
187,718 |
|
|
|
187,718 |
|
|
Other long-term liabilities
|
|
|
2,407 |
|
|
|
2,015 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
198,513 |
|
|
|
200,573 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
250,997 |
|
|
|
262,897 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 1,000 shares authorized, none
issued and outstanding
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 70,000 shares authorized; 32,760
and 32,573 shares issued and outstanding at December 31,
2004 and 2003, respectively
|
|
|
33 |
|
|
|
33 |
|
|
Additional paid-in capital
|
|
|
144,500 |
|
|
|
142,667 |
|
|
Accumulated deficit
|
|
|
(12,795 |
) |
|
|
(48 |
) |
|
Deferred compensation
|
|
|
|
|
|
|
(60 |
) |
|
Unrealized holding gains on available-for-sale securities, net
|
|
|
1,051 |
|
|
|
1,491 |
|
|
Cumulative translation adjustments, net
|
|
|
12,189 |
|
|
|
7,751 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
144,978 |
|
|
|
151,834 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
395,975 |
|
|
$ |
414,731 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-7
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
SALES
|
|
$ |
395,305 |
|
|
$ |
262,402 |
|
|
$ |
238,898 |
|
COST OF SALES
|
|
|
275,626 |
|
|
|
174,455 |
|
|
|
170,138 |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
119,679 |
|
|
|
87,947 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
51,541 |
|
|
|
51,647 |
|
|
|
48,995 |
|
|
Selling, general and administrative
|
|
|
62,444 |
|
|
|
53,951 |
|
|
|
66,586 |
|
|
Litigation damages
|
|
|
|
|
|
|
|
|
|
|
4,200 |
|
|
Restructuring charges
|
|
|
3,912 |
|
|
|
4,306 |
|
|
|
9,060 |
|
|
Impairment of intangible assets
|
|
|
3,326 |
|
|
|
1,175 |
|
|
|
1,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
121,223 |
|
|
|
111,079 |
|
|
|
130,745 |
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,544 |
) |
|
|
(23,132 |
) |
|
|
(61,985 |
) |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,737 |
|
|
|
1,721 |
|
|
|
3,314 |
|
|
Interest expense
|
|
|
(11,049 |
) |
|
|
(11,254 |
) |
|
|
(12,460 |
) |
|
Foreign currency gain
|
|
|
1,023 |
|
|
|
869 |
|
|
|
5,280 |
|
|
Gain on retirement of convertible subordinated notes
|
|
|
|
|
|
|
|
|
|
|
4,223 |
|
|
Other income (expense), net
|
|
|
1,033 |
|
|
|
(644 |
) |
|
|
(2,064 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,256 |
) |
|
|
(9,308 |
) |
|
|
(1,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(8,800 |
) |
|
|
(32,440 |
) |
|
|
(63,692 |
) |
(PROVISION) BENEFIT FOR INCOME TAXES
|
|
|
(3,947 |
) |
|
|
(11,801 |
) |
|
|
22,293 |
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$ |
(12,747 |
) |
|
$ |
(44,241 |
) |
|
$ |
(41,399 |
) |
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER SHARE
|
|
$ |
(0.39 |
) |
|
$ |
(1.37 |
) |
|
$ |
(1.29 |
) |
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
32,649 |
|
|
|
32,271 |
|
|
|
32,026 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-8
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE LOSS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained | |
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
Additional | |
|
Earnings | |
|
|
|
Other | |
|
Total | |
|
|
| |
|
Paid-in | |
|
(Accumulated | |
|
Deferred | |
|
Comprehensive | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Deficit) | |
|
Compensation | |
|
(Loss) Income | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
BALANCES, December 31, 2001
|
|
|
31,848 |
|
|
$ |
32 |
|
|
$ |
131,698 |
|
|
$ |
85,592 |
|
|
$ |
(1,094 |
) |
|
$ |
(1,883 |
) |
|
$ |
214,345 |
|
|
Exercise of stock options for cash
|
|
|
118 |
|
|
|
|
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,389 |
|
|
Issuance of common stock for acquisition of minority interest of
Litmas
|
|
|
120 |
|
|
|
|
|
|
|
4,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,219 |
|
|
Sale of common stock through employee stock purchase plan
|
|
|
54 |
|
|
|
|
|
|
|
689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689 |
|
|
Tax benefit related to shares acquired by employees under stock
compensation plans
|
|
|
|
|
|
|
|
|
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468 |
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
518 |
|
|
Adjustment for forfeited options
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity adjustment from foreign currency translation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400 |
|
|
|
|
|
|
|
|
Unrealized holding losses, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,641 |
) |
|
|
|
|
|
|
|
Less: reclassification adjustment for amounts included in net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,351 |
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2002
|
|
|
32,140 |
|
|
$ |
32 |
|
|
$ |
138,429 |
|
|
$ |
44,193 |
|
|
$ |
(542 |
) |
|
$ |
1,227 |
|
|
$ |
183,339 |
|
Exercise of stock options for cash
|
|
|
360 |
|
|
|
1 |
|
|
|
3,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
Sale of common stock through employee stock purchase plan
|
|
|
73 |
|
|
|
|
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739 |
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482 |
|
|
|
|
|
|
|
482 |
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity adjustment from foreign currency translation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,491 |
|
|
|
|
|
|
|
|
Unrealized holding gains, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,524 |
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2003
|
|
|
32,573 |
|
|
$ |
33 |
|
|
$ |
142,667 |
|
|
$ |
(48 |
) |
|
$ |
(60 |
) |
|
$ |
9,242 |
|
|
$ |
151,834 |
|
|
Exercise of stock options for cash
|
|
|
122 |
|
|
|
|
|
|
|
1,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,224 |
|
|
Sale of common stock through employee stock purchase plan
|
|
|
65 |
|
|
|
|
|
|
|
609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
609 |
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity adjustment from foreign currency translation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,438 |
|
|
|
|
|
|
|
|
Unrealized holding losses, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146 |
) |
|
|
|
|
|
Reclassification adjustment for amounts included in net loss
related to sales of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294 |
) |
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2004
|
|
|
32,760 |
|
|
$ |
33 |
|
|
$ |
144,500 |
|
|
$ |
(12,795 |
) |
|
$ |
|
|
|
$ |
13,240 |
|
|
$ |
144,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-9
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(12,747 |
) |
|
$ |
(44,241 |
) |
|
$ |
(41,399 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,119 |
|
|
|
21,829 |
|
|
|
23,289 |
|
|
|
Demonstration and evaluation equipment write-off
|
|
|
3,752 |
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for deferred income taxes
|
|
|
444 |
|
|
|
6,429 |
|
|
|
(6,888 |
) |
|
|
Provision for excess and obsolete inventory
|
|
|
11,262 |
|
|
|
3,016 |
|
|
|
5,803 |
|
|
|
Asset impairment charges
|
|
|
3,326 |
|
|
|
1,350 |
|
|
|
5,066 |
|
|
|
Provision for (recovery of) doubtful accounts
|
|
|
198 |
|
|
|
(429 |
) |
|
|
1,870 |
|
|
|
Unrealized (gain) loss on foreign currency forward contracts
|
|
|
(107 |
) |
|
|
160 |
|
|
|
388 |
|
|
|
Gain on retirement of convertible subordinated notes
|
|
|
|
|
|
|
|
|
|
|
(4,223 |
) |
|
|
Net (gain) loss on disposal of assets
|
|
|
(864 |
) |
|
|
2,846 |
|
|
|
359 |
|
|
|
Unrealized gain on intercompany foreign currency loan
|
|
|
|
|
|
|
|
|
|
|
(4,879 |
) |
|
|
Changes in operating assets and liabilities, net of assets and
liabilities acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable trade
|
|
|
(8,925 |
) |
|
|
(14,556 |
) |
|
|
(5,067 |
) |
|
|
|
Inventories
|
|
|
(19,783 |
) |
|
|
(11,339 |
) |
|
|
3,021 |
|
|
|
|
Other current assets
|
|
|
(675 |
) |
|
|
(62 |
) |
|
|
(846 |
) |
|
|
|
Accounts payable trade
|
|
|
(5,849 |
) |
|
|
5,873 |
|
|
|
2,366 |
|
|
|
|
Other current liabilities and accrued expenses
|
|
|
(2,329 |
) |
|
|
(2,379 |
) |
|
|
8,293 |
|
|
|
|
Income taxes payable/receivable, net
|
|
|
2,507 |
|
|
|
16,530 |
|
|
|
608 |
|
|
|
|
Non-current assets
|
|
|
(3,099 |
) |
|
|
666 |
|
|
|
(3,760 |
) |
|
|
|
Non-current liabilities
|
|
|
392 |
|
|
|
1,321 |
|
|
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(11,378 |
) |
|
|
(12,986 |
) |
|
|
(15,305 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(1,208 |
) |
|
|
(1,308 |
) |
|
|
(2,499 |
) |
|
Proceeds from sale of marketable securities
|
|
|
25,000 |
|
|
|
10,106 |
|
|
|
90,439 |
|
|
Proceeds from sale of assets
|
|
|
2,556 |
|
|
|
5,196 |
|
|
|
350 |
|
|
Purchase of property and equipment
|
|
|
(14,019 |
) |
|
|
(20,509 |
) |
|
|
(10,714 |
) |
|
Purchase of investments and advances
|
|
|
|
|
|
|
(400 |
) |
|
|
(2,781 |
) |
|
Acquisition of Aera Japan Limited, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(35,689 |
) |
|
Acquisition of Dressler HF Technik GmbH, net of cash acquired
|
|
|
|
|
|
|
(1,675 |
) |
|
|
(14,395 |
) |
|
Acquisition of interest in Litmas, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
12,329 |
|
|
|
(8,590 |
) |
|
|
24,311 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from senior borrowings
|
|
|
1,585 |
|
|
|
|
|
|
|
|
|
|
Repayment of senior borrowings and capital lease obligations
|
|
|
(8,609 |
) |
|
|
(12,847 |
) |
|
|
(10,190 |
) |
|
Repurchase of convertible subordinated debt, net
|
|
|
|
|
|
|
|
|
|
|
(14,522 |
) |
|
Sale of common stock through employee stock purchase plan
|
|
|
609 |
|
|
|
739 |
|
|
|
689 |
|
|
Proceeds from exercise of stock options
|
|
|
1,224 |
|
|
|
3,500 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(5,191 |
) |
|
|
(8,608 |
) |
|
|
(22,634 |
) |
|
|
|
|
|
|
|
|
|
|
EFFECT OF CURRENCY TRANSLATION ON CASH
|
|
|
1,122 |
|
|
|
1,518 |
|
|
|
1,861 |
|
|
|
|
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(3,118 |
) |
|
|
(28,666 |
) |
|
|
(11,767 |
) |
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
41,522 |
|
|
|
70,188 |
|
|
|
81,955 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$ |
38,404 |
|
|
$ |
41,522 |
|
|
$ |
70,188 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to shares acquired by employees under stock
option plans
|
|
$ |
|
|
|
$ |
|
|
|
$ |
468 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
9,949 |
|
|
$ |
10,521 |
|
|
$ |
11,517 |
|
|
Cash paid (received) for income taxes, net
|
|
$ |
1,227 |
|
|
$ |
(9,642 |
) |
|
$ |
(16,086 |
) |
|
Assets sold for note receivable
|
|
$ |
1,842 |
|
|
$ |
1,538 |
|
|
$ |
|
|
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-10
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Company Operations and Summary of Significant
Accounting Policies
Advanced Energy Industries, Inc., a Delaware corporation, is
primarily engaged in the development and production of
components and subsystems critical to plasma-based manufacturing
processes, which are used by manufacturers of semiconductors and
in industrial thin-film manufacturing processes.
Basis of Presentation The consolidated
financial statements include the accounts of Advanced Energy
Industries, Inc. and its wholly-owned subsidiaries
(collectively, the Company) since their dates of
acquisition (see Note 2). All significant intercompany accounts
and transactions have been eliminated in consolidation. The
consolidated financial statements are stated in U.S. dollars and
are prepared in accordance with accounting principles generally
accepted in the United States.
Segment Reporting The Company operates in one
segment for the manufacture, marketing and servicing of key
subsystems, primarily to the semiconductor capital equipment
industry. In accordance with Statement of Financial Accounting
Standard (SFAS) No. 131, Disclosures
About Segments of an Enterprise and Related Information,
the Companys chief operating decision maker has been
identified as the Chief Executive Officer, who reviews operating
results to make decisions about allocating resources and
assessing performance for the entire Company. SFAS No. 131,
which is based on a management approach to segment reporting,
establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about
products and services, major customers, and the countries in
which the entity holds material assets and reports revenue. All
material operating units qualify for aggregation under SFAS
No. 131 due to their similar customer base and similarities
in: economic characteristics; nature of products and services;
and procurement, manufacturing and distribution processes. To
report revenues from external customers for each product and
service or group of similar products and services would not be
practicable. Since the Company operates in one segment, all
financial information required by SFAS No. 131 can be found
in the consolidated financial statements and notes thereto.
Estimates and Assumptions The preparation of
the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires the Companys management to make
estimates and assumptions 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. Significant estimates are used when establishing
allowances for doubtful accounts, determining useful lives for
depreciation and amortization, assessing the need for impairment
charges, establishing warranty reserves, allocating purchase
price among the fair values of assets acquired and liabilities
assumed, accounting for income taxes, and assessing excess and
obsolete inventory and various others items. The Company
evaluates these estimates and judgments on an ongoing basis and
bases its estimates on historical experience, current conditions
and various other assumptions that are believed to be reasonable
under the circumstances. The results of these estimates form the
basis for making judgments about the carrying values of assets
and liabilities as well as identifying and assessing the
accounting treatment with respect to commitments and
contingencies. Actual results may differ from these estimates
under different assumptions or conditions.
New Accounting Pronouncements In December
2004, the Financial Accounting Standards Board
(FASB) reissued SFAS No. 123, Accounting
for Stock-Based Compensation as SFAS No. 123(R),
Share Based Compensation. This statement replaces
SFAS No. 123, amends SFAS No. 95, Statement of
Cash Flows, and supersedes Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS No. 123(R) requires
companies to apply a fair-value based measurement method in
accounting for share-based payment transactions with employees
and to record compensation expense for all stock awards granted,
and to awards modified, repurchased or cancelled after the
required effective date. Compensation expense for outstanding
awards for which the requisite service had not been rendered as
of the effective date will be recognized over the remaining
service period using the compensation cost calculated for pro
forma disclosure purposes under SFAS No. 123, adjusted for
F-11
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
expected forfeitures. Additionally, SFAS No. 123(R) will
require entities to record compensation expense for employee
stock purchase plans that may not have previously been
considered compensatory under the existing rules. SFAS No.
123(R) will be effective for quarterly periods beginning after
June 15, 2005, which is the Companys third quarter of
2005. The Company will adopt the provisions of SFAS
No. 123(R) using a modified prospective application. This
statement may have a significant impact on the Companys
results of operations as the Company will be required to record
compensation expense in the consolidated statement of operations
rather than disclose the impact on the Companys results of
operations within its notes to the consolidated financial
statements (see Note 18).
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin No. 43, Chapter 4, Inventory
Pricing. SFAS No. 151 clarifies that abnormal amounts
of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period
charges. In addition, it requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities. SFAS No. 151
will be effective for inventory costs incurred during fiscal
years beginning after June 15, 2005 and will be applied on
a prospective basis by the Company for the fiscal year beginning
January 1, 2006. The Company is currently evaluating the
impact that adoption of SFAS No. 151 will have on its
financial position and results of operations.
Revenue Recognition The Companys
standard shipping term is freight on board (FOB)
shipping point, for which revenue is recognized upon shipment of
its products, at which time title passes to the customer, the
price is fixed and collectability is reasonably assured. For
certain customers, the Company has FOB destination terms, for
which revenue is recognized upon receipt of the products by the
customer, at which time title passes to the customer, the price
is fixed and collectability is reasonably assured. Generally,
the Company does not have obligations to its customers after its
products are shipped under FOB shipping point terms or after its
products are received by the customer under FOB destination
terms, other than pursuant to warranty obligations. In limited
instances, the Company provides installation of its products. In
accordance with Emerging Issues Task Force (EITF)
Issue 00-21 Accounting for Revenue Arrangements With
Multiple Deliverables, the Company allocates revenue based
on the fair value of the delivered item, generally the product,
and the undelivered item, installation, based on their
respective fair values. Revenue related to the undelivered item
is deferred until the services have been completed. In certain
limited instances, some of the Companys customers have
negotiated product acceptance provisions relative to specific
orders. Under these circumstances, the Company defers revenue
recognition until the related acceptance provisions have been
satisfied. Revenue deferrals are reported as customer deposits
and deferred revenue in the consolidated balance sheets.
In certain instances, the Company requires its customers to pay
for a portion or all of their purchases prior to the Company
building or shipping these products. Cash payments received
prior to shipment are recorded as customer deposits and deferred
revenue in the consolidated balance sheets, and then recognized
as revenue upon shipment of the products. The Company does not
offer price protections to its customers or allow returns,
unless covered by its normal policy for repair of defective
products.
Shipping and Handling Costs Amounts billed to
customers for shipping and handling are recorded in sales in the
consolidated statements of operations. Shipping and handling
costs incurred by the Company for the delivery of products to
customers are included in cost of sales in the consolidated
statements of operations.
Excess and Obsolete Inventory Inventory is
written down or written off when it becomes obsolete, generally
due to engineering changes to a product or discontinuance of a
product line, or when it is deemed excess. Judgment by
management is necessary in estimating the net realizable value
of inventory based primarily upon forecasts of product demand.
Charges for excess and obsolete inventory are recorded, as
necessary, within cost of sales in the consolidated statements
of operations. For the years ended
F-12
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
December 31, 2004, 2003 and 2002, the Company recorded
charges for excess and obsolete inventory of $11.3 million,
$3.0 million and $5.8 million, respectively.
Warranty Policy The Company offers warranty
coverage for its products for periods typically ranging from 12
to 24 months after shipment. The Company estimates the
anticipated costs of repairing products under warranty based on
the historical cost of the repairs and expected failure rates.
The assumptions used to estimate warranty accruals are
reevaluated periodically in light of actual experience and, when
appropriate, the accruals are adjusted. The Companys
determination of the appropriate level of warranty accrual is
subjective and based on estimates. The industries in which the
Company operates are subject to rapid technological change and,
as a result, the Company periodically introduces newer, more
complex products, which tend to result in increased warranty
costs. Estimated warranty costs are recorded at the time of sale
of the related product, and are recorded within cost of sales in
the consolidated statements of operations. The Company recorded
warranty charges of $10.5 million, $8.1 million and
$13.2 million for the years ended December 31, 2004,
2003 and 2002, respectively. The following summarizes the
activity in the Companys warranty reserves during 2004 and
2003:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Balance at beginning of period
|
|
$ |
6,612 |
|
|
$ |
9,402 |
|
Additions charged to expense
|
|
|
10,466 |
|
|
|
8,105 |
|
Deductions
|
|
|
(10,287 |
) |
|
|
(10,895 |
) |
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
6,791 |
|
|
$ |
6,612 |
|
|
|
|
|
|
|
|
Selling, General and Administrative Selling,
general and administrative expenses in the accompanying
consolidated statements of operations are expensed as incurred,
including legal and advertising costs.
Stock-Based Compensation At December 31,
2004, the Company had three active stock-based compensation
plans, which are more fully described in Note 18. The Company
accounts for employee stock-based compensation using the
intrinsic value method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees and related
interpretations. APB Opinion No. 25 requires the use of the
intrinsic value method, which measures compensation cost as the
excess, if any, of the quoted market price of the stock at the
measurement date over the amount an employee must pay to acquire
the stock. With the exception of certain options granted in 1999
and 2000 by a shareholder of Sekidenko, Inc., prior to its
acquisition by the Company (which was accounted for as a pooling
of interests), all options granted under these plans have an
exercise price equal to the market value of the underlying
common stock on the date of grant, therefore no stock-based
compensation cost is reflected in the Companys net loss.
Had compensation cost for the Companys plans been
determined consistent with the fair value-based
F-13
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
method prescribed by SFAS No. 123, Accounting for
Stock-Based Compensation, the Companys net loss
would have increased to the following adjusted amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(12,747 |
) |
|
$ |
(44,241 |
) |
|
$ |
(41,399 |
) |
|
Adjustment for stock-based compensation determined under fair
value-based method for all awards, net of related tax effects in
2002(a), (b)
|
|
|
(12,133 |
) |
|
|
(12,410 |
) |
|
|
(9,794 |
) |
|
Less: Compensation expense recognized in net loss, net of
related tax effects in 2002(a), (c)
|
|
|
60 |
|
|
|
482 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
(24,820 |
) |
|
$ |
(56,169 |
) |
|
$ |
(50,869 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.39 |
) |
|
$ |
(1.37 |
) |
|
$ |
(1.29 |
) |
|
As adjusted
|
|
$ |
(0.76 |
) |
|
$ |
(1.74 |
) |
|
$ |
(1.59 |
) |
|
|
(a) |
Compensation expense in 2004 and 2003 is presented prior to
income tax effects due to the Company recording valuation
allowances against certain deferred tax assets in 2003 (see Note
12). |
|
(b) |
Cumulative compensation cost recognized with respect to options
that are forfeited prior to vesting is reflected as a reduction
of compensation expense in the period of forfeiture.
Compensation expense related to awards granted under the
Companys employee stock purchase plan is estimated until
the period in which settlement occurs, as the number of shares
of common stock awarded and the purchase price are not known
until settlement. |
|
(c) |
Prior to its acquisition by the Company, a shareholder of
Sekidenko, Inc. granted employees options under a preexisting
arrangement to purchase shares of his common stock already
outstanding at exercise prices below fair value. Under this
agreement, 29,700 and 34,250 of such options were granted in
1999 and 2000, respectively. These options result in the Company
recognizing approximately $2.1 million as compensation
expense over the four-year vesting period of the options. The
options fully vested during the first quarter of 2004. |
For SFAS No. 123 purposes, the fair value of each option
grant and purchase right granted under the ESPP are estimated on
the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
OPTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rates
|
|
|
3.05 |
% |
|
|
2.96 |
% |
|
|
3.89 |
% |
Expected dividend yield rates
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected lives
|
|
|
3.0 years |
|
|
|
2.9 years |
|
|
|
2.9 years |
|
Expected volatility
|
|
|
75.23 |
% |
|
|
85.64 |
% |
|
|
88.05 |
% |
ESPP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rates
|
|
|
1.70 |
% |
|
|
1.34 |
% |
|
|
1.91 |
% |
Expected dividend yield rates
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected lives
|
|
|
0.5 years |
|
|
|
0.5 years |
|
|
|
0.5 years |
|
Expected volatility
|
|
|
65.31 |
% |
|
|
83.82 |
% |
|
|
76.62 |
% |
F-14
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Based on the Black-Scholes option pricing model, the
weighted-average estimated fair value of employee stock option
grants was $8.49, $7.88 and $12.54 for the years ended
December 31, 2004, 2003 and 2002, respectively. The
weighted-average estimated fair value of purchase rights granted
under the ESPP was $3.45, $4.99 and $8.92 for the years ended
December 31, 2004, 2003 and 2002, respectively.
The total fair value of options granted was computed to be
approximately $10.9 million, $14.3 million and
$24.4 million for the years ended December 31, 2004,
2003 and 2002, respectively. These amounts are amortized ratably
over the vesting period of the options for the purpose of
calculating the pro forma disclosure above.
The Company will adopt the provisions of SFAS No. 123(R) as
of the Companys third quarter of fiscal year 2005, as
further discussed the heading New Accounting
Pronouncements above. The adoption of this statement may
have a significant impact on the Companys results of
operations as the Company will be required to record
compensation expense in the consolidated statement of operations
rather than disclose the impact on the Companys results of
operations within its notes to the consolidated financial
statements.
Commitments and Contingencies 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 potential 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
potential loss could have a material adverse effect on our
financial position or reported results of operations in a
particular quarter. 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 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.
Cash and Cash Equivalents The Company
considers all amounts on deposit with financial institutions and
highly liquid investments (valued at cost, which approximates
fair value) with an original maturity of 90 days or less to
be cash and cash equivalents.
Concentrations of Credit Risk Financial
instruments, which potentially subject the Company to credit
risk, include cash and cash equivalents, marketable securities
and trade accounts receivable. The Company maintains cash and
cash equivalents, marketable securities and certain other
financial instruments with various major financial institutions.
The Company performs periodic evaluations of the relative credit
standing of these financial institutions and limits the amount
of credit exposure with any one institution. The Companys
customers generally are concentrated in the semiconductor
capital equipment industry. As a result the Company is generally
exposed to credit risk associated with this industry. Sales by
the Companys foreign subsidiaries are primarily
denominated in currencies other than the U.S. dollar. The
Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Marketable Securities The Companys
investment in marketable securities, includes commercial paper,
municipal bonds and notes and institutional money markets. These
investments are classified as available for sale securities, and
are recorded at fair value with changes in fair market value
recorded as unrealized holding gains or losses in other
comprehensive loss, net of tax. Due to the short-term, highly
liquid nature of the marketable securities held by the Company,
the cost, including accrued interest on such investments,
approximates fair value.
The Company also has investments in marketable equity securities
which have been included in deposits and other in the
accompanying consolidated balance sheets, due to the
Companys expressed intent and demonstrated ability to hold
for greater than one year. These investments are classified as
F-15
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
available-for-sale securities and are reported at fair value
with unrealized holding gains and losses included in other
comprehensive loss, net of tax.
Inventories, Net Inventories include costs of
materials, direct labor and manufacturing overhead. Inventories
are valued at the lower of market or cost, computed on a
first-in, first-out basis and are presented net of reserves for
excess and obsolete inventory.
Property and Equipment Property and equipment
is stated at cost or estimated fair value upon acquisition.
Depreciation is computed using the straight-line method over
thirty-five to forty years for buildings; three to ten years for
machinery, equipment, furniture and fixtures and vehicles; and
three years for computers and communication equipment.
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 the consolidated statement of
operations. Property and other long-lived assets are reviewed
for impairment whenever events or circumstances indicate that
their carrying amount may not be recoverable.
Goodwill and Other Intangible Assets Goodwill
represents the excess of the cost over the fair market value of
net tangible and identifiable intangible assets of acquired
businesses.
Goodwill and certain other intangible assets with indefinite
lives are not amortized. Instead, goodwill and other
indefinite-lived intangible assets are subject to periodic (at
least annual) tests for impairment. For the periods presented,
the Company does not have any indefinite-lived intangible
assets, other than goodwill. Impairment testing is performed in
two steps: (i) the Company assesses goodwill for potential
impairment by comparing the fair value of its reporting unit
with its carrying value, and (ii) if potential impairment
is indicated because the reporting units fair value is
less than its carrying amount, the Company measures the amount
of impairment loss by comparing the implied fair value of
goodwill with the carrying amount of that goodwill.
Finite-lived intangible assets continue to be amortized using
the straight-line method over their estimated useful lives and
are reviewed for impairment whenever events or circumstances
indicate that their carrying amount may not be recoverable.
Demonstration and Customer Service Equipment
Demonstration equipment is a manufactured product that is
utilized for sales demonstration and evaluation purposes.
Customer service equipment is manufactured product that is
utilized as replacement and loaner equipment to existing
customers.
Historically, the Company has amortized demonstration and
customer service equipment over its estimated useful life of two
years. During the fourth quarter of 2004, as a result of the
continuing process of obtaining and analyzing historical data
and the Companys plan for use of the current and future
demonstration equipment, the Company made a change in the
estimated useful life of the demonstration equipment from two
years to zero years. As a result of this change in estimate, the
net book value of demonstration equipment of approximately
$3.2 million, net of tax, or $0.10 per share, was written
off. The Companys current policy is to record selling,
general and administrative expense for the demonstration
equipment as it is given to our customer or potential customer.
Customer service equipment will continue to be amortized over
its estimated useful life of two years.
Foreign Currency Translation The functional
currency of the Companys foreign subsidiaries is their
local currency, with the exception of the Companys
manufacturing facility in Shenzhen, China where the U.S. dollar
is the functional currency. Assets and liabilities of
international subsidiaries are translated to U.S. dollars at
period-end exchange rates, and statement of operations activity
and cash flows
F-16
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
are translated at average exchange rates during the period.
Resulting translation adjustments are recorded as a separate
component of stockholders equity.
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 in income as unrealized (based on period end
translation) or realized (upon settlement of the transactions).
Unrealized transaction gains and losses applicable to permanent
investments by the Company in its foreign subsidiaries are
included as cumulative translation adjustments, and unrealized
translation gains or losses applicable to non-permanent
intercompany receivables from or payables to the Company and its
foreign subsidiaries are included in income.
Reclassifications Certain prior period
amounts have been reclassified to conform to the current period
presentation.
(2) Acquisitions
Litmas During 1998, the Company acquired a
29% ownership interest in Litmas, a privately held, North
Carolina-based early-stage company that designed and
manufactured plasma gas abatement systems and high-density
plasma sources. The purchase price consisted of
$1.0 million in cash. On October 1, 1999, the Company
acquired an additional 27.5% interest in Litmas for an
additional $560,000. The purchase price consisted of $385,000 in
the Companys common stock and $175,000 in cash. The
acquisition was accounted for using the purchase method of
accounting and resulted in $523,000 allocated to intangible
assets as goodwill. The results of operations of Litmas have
been consolidated in the Companys financial statements
from the date the controlling interest of 56.5% was acquired. In
October 2000, the Company acquired an additional 3.0% interest
in Litmas for an additional $250,000, bringing the
Companys ownership interest in Litmas to 59.5%. In April
2002, the Company completed its acquisition of the 40.5% of
Litmas that it did not previously own, by issuing approximately
120,000 shares of the Companys common stock valued at
approximately $4.2 million, and approximately $400,000 of
cash. The acquisition of the remaining minority interest in
Litmas resulted in approximately $5.0 million of additional
goodwill.
Dressler On March 28, 2002, the Company
acquired Dressler HF Technik GmbH (Dressler), a
privately owned Stolberg, Germany-based provider of power
supplies and matching networks, for a purchase price of
approximately $15.0 million in cash and a $1.7 million
escrow. The escrow fund was retained by the Company until
January 2003, at which time the related escrow liability was
settled. The purchase price was also subject to a
$3.0 million earn-out provision if Dressler achieved
certain key business objectives by March 30, 2003. These
business objectives were not met prior to the expiration date.
The Company believes that Dressler expands the Companys
product offerings to customers in the semiconductor, data
storage, and flat panel equipment markets due to its strong
power product portfolio that includes a wide range of power
levels and radio frequencies. In addition, with inroads already
made into the laser and medical markets, Dressler is used to
explore new market opportunities for the Company. Dressler also
strengthens the Companys presence in the European
marketplace. Dressler has well established relationships with
many European customers, who look to Dressler for innovative
technical capability, quality products, and highly responsive
customer service.
The acquisition was accounted for using the purchase method of
accounting in accordance with SFAS No. 141, Business
Combinations (SFAS No. 141), and the
operating results of Dressler are reflected in the accompanying
consolidated financial statements prospectively from the date of
acquisition. The tangible assets acquired and liabilities
assumed were recorded at estimated fair values as determined by
the Companys management. Goodwill and other intangible
assets were recorded at estimated fair values based upon
independent appraisals.
F-17
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The purchase price was allocated to the net assets of Dressler
as summarized below (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
680 |
|
Accounts receivable
|
|
|
1,939 |
|
Inventories
|
|
|
1,111 |
|
Other current assets
|
|
|
83 |
|
Property and equipment
|
|
|
260 |
|
Goodwill
|
|
|
9,405 |
|
Other intangible assets
|
|
|
7,750 |
|
Other assets
|
|
|
19 |
|
Accounts payable
|
|
|
(314 |
) |
Accrued payroll
|
|
|
(39 |
) |
Other accrued expenses
|
|
|
(474 |
) |
Deferred tax liability
|
|
|
(2,945 |
) |
Income taxes payable
|
|
|
(725 |
) |
|
|
|
|
|
|
$ |
16,750 |
|
|
|
|
|
The excess purchase price over the estimated fair value of
tangible net assets acquired was allocated to goodwill and other
intangible assets (see Notes 1 and 8). The Company recognized
approximately $2.3 million, $2.5 million and $769,000
of amortization expense related to these amortizable intangibles
acquired from Dressler for the years ended December 31,
2004, 2003 and 2002, respectively.
Prior to the combination, there were transactions between the
Company and Dressler in the first three months of 2002, during
which time the Company purchased approximately $500,000 of
inventory from Dressler. These purchases were made in the normal
course of the Companys business.
Aera On January 18, 2002, the Company
acquired Aera Japan Limited (Aera), a privately held
Japanese corporation. The Company effected the acquisition
through its wholly owned subsidiary, AE-Japan, which purchased
all of the outstanding stock of Aera. The aggregate purchase
price paid by AE-Japan was 5.7 billion Japanese yen
(approximately $44.0 million, based upon an exchange rate
of 130:1), which the Company funded from its available cash. In
connection with the acquisition, AE-Japan assumed approximately
$34.0 million of Aeras debt. Aera supplies the
semiconductor capital equipment industry with product lines that
include digital mass flow controllers, pressure-based mass flow
controllers, liquid mass flow controllers, ultrasonic liquid
flow meters and liquid vapor delivery systems.
The acquisition was accounted for using the purchase method of
accounting in accordance with SFAS No. 141 and the
operating results of Aera are reflected in the accompanying
consolidated financial statements prospectively from the date of
acquisition. The tangible assets acquired and liabilities
assumed were recorded at estimated fair values as determined by
the Companys management. Goodwill and other intangible
assets were recorded at estimated fair values based upon
independent appraisals.
F-18
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The purchase price was allocated to the net assets of Aera as
summarized below (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
8,276 |
|
Marketable securities
|
|
|
115 |
|
Accounts receivable
|
|
|
8,405 |
|
Inventories
|
|
|
19,243 |
|
Other current assets
|
|
|
530 |
|
Property and equipment
|
|
|
13,388 |
|
Goodwill
|
|
|
24,869 |
|
Other intangible assets
|
|
|
12,500 |
|
Other assets
|
|
|
427 |
|
Accounts payable
|
|
|
(2,329 |
) |
Accrued payroll
|
|
|
(2,924 |
) |
Other liabilities
|
|
|
(2,164 |
) |
Deferred tax liability
|
|
|
(4,765 |
) |
Current portion of long-term debt
|
|
|
(12,008 |
) |
Long-term debt
|
|
|
(19,598 |
) |
|
|
|
|
|
|
$ |
43,965 |
|
|
|
|
|
There were no transactions between the Company and Aera prior to
the combination. The excess purchase price over the estimated
fair value of tangible net assets acquired was allocated to
goodwill and other intangible assets (see Notes 1 and 8).
The Company recognized approximately $1.5 million,
$1.4 million and $3.0 million of amortization expense
related to the amortizable intangibles acquired from Aera for
the years ended December 31, 2004, 2003 and 2002,
respectively.
The pro forma results for the Company, Aera and Dressler for the
year ended December 31, 2002, assuming the acquisitions of
Aera and Dressler occurred on January 1, 2002, are not
presented as the difference between the pro forma results and
actual results are not material.
(3) Restructuring Costs
Restructuring charges include the costs associated with actions
taken by the Company primarily in response to downturns in the
semiconductor capital equipment industry. These charges consist
of costs that are incurred to exit an activity or cancel an
existing contractual obligation, including the closure of
facilities and employee termination related charges.
Effective January 1, 2003, the Company adopted SFAS
No. 146, Accounting for Exit or Disposal
Activities, which nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. SFAS
No. 146 requires costs associated with exit or disposal
activities to be recognized when they are incurred, whereas
under EITF Issue No. 94-3, a liability was recognized at
the date of an entitys commitment to an exit plan. As
related to employee termination benefits, the provisions of SFAS
No. 146 offer guidance on one-time termination
benefits, and exclude from the scope on-going
benefit arrangements, therefore, the Company follows the
guidance within SFAS No. 146 for voluntary severances and
other one-time termination benefits.
The accounting for the standard severance benefits that the
Company pays for involuntarily severed employees, considered an
on-going benefit arrangement, is excluded from the scope of SFAS
No. 146. For these benefits, the Company follows the
guidance under SFAS No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits. Severance
F-19
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
costs accounted for under SFAS No. 88 are accrued and
recorded as restructuring expense when such amount is probable
that employees will be entitled to benefits and the amount can
be reasonably estimated.
The following table summarizes the components of the
restructuring charges, the payments and non-cash charges, and
the remaining accrual as of December 31, 2004, 2003 and
2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee | |
|
|
|
|
|
|
|
|
Severance and | |
|
Facility | |
|
Impairment of | |
|
Total | |
|
|
Termination | |
|
Closure | |
|
Facility-related | |
|
Restructuring | |
|
|
Costs | |
|
Costs | |
|
Assets | |
|
Charges | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Accrual balance December 31, 2001
|
|
$ |
965 |
|
|
$ |
462 |
|
|
$ |
|
|
|
$ |
1,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third quarter 2002 restructuring charge
|
|
|
1,033 |
|
|
|
1,757 |
|
|
|
430 |
|
|
|
3,220 |
|
|
Fourth quarter 2002 restructuring charge
|
|
|
2,021 |
|
|
|
2,201 |
|
|
|
1,618 |
|
|
|
5,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges 2002
|
|
|
3,054 |
|
|
|
3,958 |
|
|
|
2,048 |
|
|
|
9,060 |
|
Payments in 2002
|
|
|
(2,412 |
) |
|
|
(468 |
) |
|
|
|
|
|
|
(2,880 |
) |
Write-off of facility-related assets in 2002
|
|
|
|
|
|
|
|
|
|
|
(1,618 |
) |
|
|
(1,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance December 31, 2002
|
|
|
1,607 |
|
|
|
3,952 |
|
|
|
430 |
|
|
|
5,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2003 restructuring charge
|
|
|
1,509 |
|
|
|
|
|
|
|
|
|
|
|
1,509 |
|
|
Second quarter 2003 restructuring charge
|
|
|
670 |
|
|
|
98 |
|
|
|
|
|
|
|
768 |
|
|
Third quarter 2003 restructuring charge
|
|
|
704 |
|
|
|
|
|
|
|
307 |
|
|
|
1,011 |
|
|
Fourth quarter 2003 restructuring charge
|
|
|
994 |
|
|
|
24 |
|
|
|
|
|
|
|
1,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges 2003
|
|
|
3,877 |
|
|
|
122 |
|
|
|
307 |
|
|
|
4,306 |
|
Payments in 2003
|
|
|
(4,924 |
) |
|
|
(1,459 |
) |
|
|
|
|
|
|
(6,383 |
) |
Write-off of facility-related assets in 2003
|
|
|
|
|
|
|
|
|
|
|
(737 |
) |
|
|
(737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance December 31, 2003
|
|
|
560 |
|
|
|
2,615 |
|
|
|
|
|
|
|
3,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2004 restructuring charge
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
220 |
|
|
Second quarter 2004 restructuring charge
|
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
187 |
|
|
Third quarter 2004 restructuring charge
|
|
|
57 |
|
|
|
31 |
|
|
|
|
|
|
|
88 |
|
|
Third quarter 2004 restructuring reversal
|
|
|
(127 |
) |
|
|
(126 |
) |
|
|
|
|
|
|
(253 |
) |
|
Fourth quarter 2004 restructuring charge
|
|
|
3,639 |
|
|
|
31 |
|
|
|
|
|
|
|
3,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net restructuring charges 2004
|
|
|
3,976 |
|
|
|
(64 |
) |
|
|
|
|
|
|
3,912 |
|
Payments in 2004
|
|
|
(1,243 |
) |
|
|
(1,430 |
) |
|
|
|
|
|
|
(2,673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance December 31, 2004
|
|
$ |
3,293 |
|
|
$ |
1,121 |
|
|
$ |
|
|
|
$ |
4,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded restructuring charges totaling
$9.1 million in 2002, primarily associated with changes in
operations designed to reduce redundancies and better align the
Companys Aera mass flow controller business within its
operating framework. The Companys restructuring plans and
associated costs consisted of $6.0 million to close and
consolidate certain manufacturing facilities, and
$3.1 million for related headcount reductions of
approximately 223 manufacturing and administrative employees in
the Companys U.S. operations.
Included in the 2002 expense are charges for the closure of a
portion of the Companys Voorhees, New Jersey manufacturing
facilities, due to the transfer of the manufacturing of these
products to Fort Collins, Colorado; the closure of a
manufacturing facility in Fort Collins; the closure of a
manufacturing
F-20
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
facilities in Longmont, Colorado, due to the transfer of the
manufacturing of these products to Fort Collins, Colorado and
ultimately to Shenzhen, China; and the closure of Litmas. During
the fourth quarter of 2002, the Company closed its San Jose,
California sales and service location; and the Companys
Austin, Texas manufacturing facility for the Aera-brand mass
flow controller products, due to the transfer of the
manufacturing of these products to Hachioji, Japan, to be
co-located with Aera Japan Limited. These costs consisted
primarily of payments required under operating lease contracts
and costs for writing down related leasehold improvements.
At the end of 2002, the Company announced major changes in its
operations to occur through the end of 2003. These included
establishing a new manufacturing facility in China,
consolidating worldwide sales forces, a move to high-quality,
low-cost suppliers local to our Shenzhen, China facility
(Tier 1 Asian suppliers), and the intention to close
or sell certain facilities.
Associated with the above plan, the Company recognized charges
during 2003 as follows:
|
|
|
|
|
In the first quarter of 2003, the Company recorded charges
totaling approximately $1.5 million primarily associated
with manufacturing and administrative personnel headcount
reductions in the Companys Japanese operations. In
accordance with Japanese labor regulations the Company offered
voluntary termination benefits to all of its Japanese employees.
The voluntary termination benefits were accepted by 36
employees, with termination dates in the second quarter of 2003. |
|
|
|
In the second quarter of 2003, the Company recognized charges
totaling $768,000 that consisted primarily of the involuntary
termination of 55 manufacturing and administrative personnel in
the Companys U.S. operations. |
|
|
|
In the third quarter of 2003, the Company recognized charges of
approximately $1.0 million that consisted of $704,000 of
expense for involuntary employee termination benefits for 20
employees and $307,000 related to asset impairments incurred as
a result of exiting its Longmont, Colorado manufacturing
facilities. |
|
|
|
In the fourth quarter of 2003, the Company recognized
approximately $1.0 million that consisted primarily of the
recognition of expense for involuntary employee termination
benefits associated with the involuntary employee termination
benefits of 34 manufacturing and administrative personnel in the
Companys U.S. operations. |
In the first, second and third quarters of 2004, the Company
recorded restructuring charges of $220,000, $187,000 and
$88,000, respectively, which primarily consisted of the
recognition of expense for involuntary employee termination
benefits associated with headcount reductions of approximately
34, 12 and 4 employees, respectively, in the Companys U.S.
operations. All affected employees were terminated prior to the
respective quarter ends. Additionally, in the third quarter, the
Company reversed $253,000 of previously recorded charges due to
variances from the original estimates used to establish the
Companys reserve due to some voluntary employee
terminations prior to their agreed upon termination date (no
longer meeting the requirements to receive a severance payment)
and negotiated lease termination payments below original
estimates. As a result of such reversal, the Companys
restructuring accrual balance for employee severance and
termination costs was $0 at September 30, 2004.
In the fourth quarter of 2004, the Company recorded
restructuring charges of $3.7 million. The
$3.7 million charge primarily consisted of employee
termination and related costs associated with the involuntary
severance of 212 employees, including 60 agency employees, at
the Companys Fort Collins facility. All of such charges
relate to separation costs anticipated to be paid to the
terminated employees, in cash, by the end of the second quarter
of 2005. The need to reduce headcount in Fort Collins resulted
primarily from the transfer of a substantial portion of the
Companys manufacturing operations to Shenzhen, China.
F-21
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(4) Marketable Securities
Marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Commercial paper
|
|
$ |
43,459 |
|
|
$ |
40,792 |
|
Municipal bonds and notes
|
|
|
20,332 |
|
|
|
46,762 |
|
Institutional money markets
|
|
|
5,787 |
|
|
|
5,816 |
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$ |
69,578 |
|
|
$ |
93,370 |
|
|
|
|
|
|
|
|
These marketable securities are considered available-for-sale
and are stated at period end market value. The commercial paper
consists of high-credit quality, short-term money market common
and preferreds, with maturities or reset dates of 120 days
or less.
At December 31, 2004 and 2003, the Company also had
$3.6 million and $4.8 million, respectively, of investments
in marketable equity securities which are included in deposits
and other in the accompanying consolidated balance sheets, due
to the Companys expressed intent and demonstrated ability
to hold for greater than one year. These investments are
classified as available-for-sale securities and are reported at
fair value with unrealized holding gains and losses included in
other comprehensive loss, net of tax.
During the fourth quarter of 2002, the fair value of one of
these securities continued a substantial decline, and the
Company determined the decline was other than temporary. As a
result, the Company recorded an impairment charge of
approximately $1.5 million. In the first quarter of 2003,
this security continued to decline in value, and the Company
recorded an additional impairment charge of $175,000. Since the
first quarter of 2003, the value of this security has
appreciated which has been reflected as a component of other
comprehensive loss, net of tax.
(5) Accounts Receivable Trade
Trade accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
16,612 |
|
|
$ |
17,100 |
|
Foreign
|
|
|
51,047 |
|
|
|
41,359 |
|
Allowance for doubtful accounts
|
|
|
(1,049 |
) |
|
|
(1,303 |
) |
|
|
|
|
|
|
|
Total accounts receivable trade
|
|
$ |
66,610 |
|
|
$ |
57,156 |
|
|
|
|
|
|
|
|
F-22
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(6) Inventories, Net
Net inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Parts and raw materials
|
|
$ |
54,069 |
|
|
$ |
47,120 |
|
Work in process
|
|
|
4,491 |
|
|
|
4,385 |
|
Finished goods
|
|
|
14,664 |
|
|
|
14,198 |
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$ |
73,224 |
|
|
$ |
65,703 |
|
|
|
|
|
|
|
|
Inventories include costs of materials, direct labor and
manufacturing overhead. Inventories are valued at the lower of
market or cost, computed on a first-in, first-out basis.
Inventory is expensed as cost of sales upon recognition of
revenue.
(7) Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Land
|
|
$ |
5,127 |
|
|
$ |
5,663 |
|
Buildings
|
|
|
5,738 |
|
|
|
4,293 |
|
Machinery and equipment
|
|
|
40,196 |
|
|
|
36,039 |
|
Computers and communication equipment
|
|
|
28,954 |
|
|
|
24,324 |
|
Furniture and fixtures
|
|
|
6,221 |
|
|
|
6,268 |
|
Vehicles
|
|
|
290 |
|
|
|
1,368 |
|
Leasehold improvements
|
|
|
17,684 |
|
|
|
17,618 |
|
|
|
|
|
|
|
|
|
|
|
104,210 |
|
|
|
95,573 |
|
Less accumulated depreciation
|
|
|
(59,464 |
) |
|
|
(50,848 |
) |
|
|
|
|
|
|
|
Total property and equipment
|
|
$ |
44,746 |
|
|
$ |
44,725 |
|
|
|
|
|
|
|
|
Aggregate depreciation expense related to property and equipment
for the years ended December 31, 2004, 2003 and 2002, was
$13.7 million, $12.7 million and $13.4 million,
respectively.
In the fourth quarter of 2002, in conjunction with the
restructuring of its operations, the Company determined that
certain facilities would be closed. The Company performed an
analysis of the fair value of certain long-lived assets,
including land and buildings acquired in conjunction with the
Companys acquisition of Engineering Measurements Company
in January 2001. As a result, the Company recorded impairments
of property and equipment of $1.6 million, which has been
reflected as restructuring charges in the consolidated statement
of operations.
F-23
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(8) Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following
as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of | |
|
|
|
|
|
Weighted- | |
|
|
Gross | |
|
Changes in | |
|
|
|
|
|
Average | |
|
|
Carrying | |
|
Exchange | |
|
Accumulated | |
|
Net Carrying | |
|
Useful Life | |
|
|
Amount | |
|
Rates | |
|
Amortization | |
|
Amount | |
|
in Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except weighted-average useful life) | |
Amortizable intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$ |
7,304 |
|
|
$ |
1,741 |
|
|
$ |
(5,290 |
) |
|
$ |
3,755 |
|
|
|
6 |
|
|
Contract-based
|
|
|
1,200 |
|
|
|
222 |
|
|
|
(1,386 |
) |
|
|
36 |
|
|
|
4 |
|
|
Trademarks and other
|
|
|
8,500 |
|
|
|
2,689 |
|
|
|
(2,948 |
) |
|
|
8,241 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangibles
|
|
|
17,004 |
|
|
|
4,652 |
|
|
|
(9,624 |
) |
|
|
12,032 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
55,104 |
|
|
|
13,172 |
|
|
|
|
|
|
|
68,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$ |
72,108 |
|
|
$ |
17,824 |
|
|
$ |
(9,624 |
) |
|
$ |
80,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets consisted of the following
as of December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of | |
|
|
|
|
|
Weighted- | |
|
|
Gross | |
|
Changes in | |
|
|
|
|
|
Average | |
|
|
Carrying | |
|
Exchange | |
|
Accumulated | |
|
Net Carrying | |
|
Useful Life | |
|
|
Amount | |
|
Rates | |
|
Amortization | |
|
Amount | |
|
in Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except weighted-average useful life) | |
Amortizable intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$ |
7,304 |
|
|
$ |
1,544 |
|
|
$ |
(3,906 |
) |
|
$ |
4,942 |
|
|
|
6 |
|
|
Contract-based
|
|
|
9,210 |
|
|
|
1,709 |
|
|
|
(5,882 |
) |
|
|
5,037 |
|
|
|
4 |
|
|
Trademarks and other
|
|
|
8,500 |
|
|
|
2,363 |
|
|
|
(1,409 |
) |
|
|
9,454 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangibles
|
|
|
25,014 |
|
|
|
5,616 |
|
|
|
(11,197 |
) |
|
|
19,433 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
58,629 |
|
|
|
10,881 |
|
|
|
|
|
|
|
69,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$ |
83,643 |
|
|
$ |
16,497 |
|
|
$ |
(11,197 |
) |
|
$ |
88,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys goodwill and other intangible assets have
primarily resulted from purchases of Japanese and German
companies, and accordingly, carrying amounts for these assets
are impacted by changes in foreign currency exchange rates.
Aggregate amortization expense related to amortizable
intangibles for the years ended December 31, 2004, 2003 and
2002, was $3.9 million, $4.6 million and
$5.5 million, respectively. Estimated amortization expense
related to the Companys acquired intangibles fluctuates
with changes in foreign currency exchange rates between the U.S.
dollar and the Japanese yen and the euro. Estimated amortization
F-24
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
expense related to amortizable intangibles for each of the five
years 2005 through 2009 is as follows (in thousands):
|
|
|
|
|
|
|
Estimated | |
|
|
Amortization | |
|
|
Expense | |
|
|
| |
|
|
(In thousands) | |
2005
|
|
$ |
2,173 |
|
2006
|
|
|
2,016 |
|
2007
|
|
|
1,009 |
|
2008
|
|
|
876 |
|
2009
|
|
|
474 |
|
In the fourth quarter of 2004, the Company performed its annual
goodwill impairment test, and concluded that no impairment of
goodwill existed at the measurement date, as the estimated fair
value of the Companys reporting unit exceeded its carrying
amount. For the year ended December 31, 2004, goodwill was
reduced by approximately $3.3 million due to reversals of
deferred tax asset valuation allowances established in purchase
accounting (see Note 12).
During the fourth quarter of 2004, in conjunction with our
financial forecasting for future periods, it was evident that
projected cash flows from certain customers of Dressler were
substantially below amounts projected at the time of acquisition
and in subsequent forecasting periods. The projected cash flows
were considered in determining the fair value of certain
contract-based and other amortizable intangible assets recorded
at acquisition and also in subsequent periods to assess such
assets for potential impairment. Due to the decline in projected
cash flows, we performed assessments of the carrying values of
the related amortizable intangible assets. These assessments
consisted of estimating the intangible assets fair value
and comparing the estimated fair value to the carrying value of
the asset. The Company estimated the intangible assets
fair value through the use of projected cash flows based upon
projected revenue streams over the life of the asset, discounted
at rates consistent with the risk of the related cash flows.
Based on this analysis the Company determined that the fair
values of certain intangible assets were below the respective
carrying values, and recorded impairment charges of
approximately $2.9 million, which has been reported as an
impairment of intangible assets in the accompanying consolidated
statement of operations.
Also during the fourth quarter of 2004, in conjunction with the
Companys restructuring plan, employees who were the
subject of certain contract-based amortizable intangibles were
severed from the Company or their responsibilities were
significantly altered. As a result, the Company performed
assessments of the carrying values of the related amortizable
intangible assets. These assessments consisted of estimating the
intangible assets fair value and comparing the estimated
fair value to the carrying value of the asset. The Company
estimated the intangible assets fair value through the use
of a lost profits method of determining the fair value, arriving
at projected cash flows which were then discounted at rates
consistent with the risk of the related cash flows. Based on
this analysis the Company determined that the fair values of
certain intangible assets were below the respective carrying
values, and recorded impairment charges of approximately
$397,000, which has been reported as an impairment of intangible
assets in the accompanying consolidated statement of operations.
During the third quarter of 2003, the Company determined that
one of its mass flow controller products would not conform to
changing customer technology requirements, and as such would no
longer be accepted by the Companys customers. As a result,
the Company performed an assessment of the carrying value of the
related intangible asset. This assessment consisted of
estimating the intangible assets fair value and comparing
the estimated fair value to the carrying value of the asset. The
Company estimated the intangible assets fair value by
applying a hypothetical royalty rate to the projected revenue
stream and using a cash flow model discounted at rates
consistent with the risk of the related cash flows.
F-25
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Based on this analysis the Company determined that the fair
value of the intangible asset was minimal and recorded an
impairment charge of approximately $1.2 million, which has
also been reported as an impairment of intangible assets in the
accompanying consolidated statement of operations.
In the fourth quarter of 2002, the Companys sales to the
semiconductor capital equipment industry declined substantially
from the third quarter of 2002. As a result, we determined there
would be a significant delay by the semiconductor capital
equipment industry in adopting advanced connectivity technology,
and due to these industry conditions as well as our future
strategic priorities, our relevant intangible assets were likely
impaired. We evaluated the carrying amount of certain intangible
assets by comparing its estimated future cash flows to its
carrying value. This analysis indicated that such assets were
impaired and we recorded a charge of $1.9 million for 2002,
which has been reflected as impairment of intangible assets in
the accompanying consolidated statement of operations.
(9) Senior Borrowings
Senior borrowings consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Revolving line of credit of $25 million, expiring May 2005,
interest at banks prime rate minus 1%, (4.00% at
December 31, 2004)
|
|
$ |
|
|
|
$ |
|
|
Senior borrowings (assumed in the acquisition of Aera), maturing
serially through April 2010, interest from 1.5% to 3.1% at
December 31, 2004
|
|
|
5,953 |
|
|
|
13,933 |
|
Mortgage note payable, maturing July 2007, interest at 3.0% at
December 31, 2004
|
|
|
1,737 |
|
|
|
|
|
Less current portion
|
|
|
(3,432 |
) |
|
|
(8,028 |
) |
|
|
|
|
|
|
|
Senior borrowings, net of current portion
|
|
$ |
4,258 |
|
|
$ |
5,905 |
|
|
|
|
|
|
|
|
The Company is subject to covenants on its line of credit that
provide certain restrictions related to working capital,
leverage, net worth, acquisitions, and payment and declaration
of dividends. The Company was in compliance with these covenants
at December 31, 2004. The senior borrowings assumed in the
acquisition of Aera and the mortgage note payable are
collateralized by the Companys buildings in Japan and
Korea, respectively.
Scheduled maturities of the Companys outstanding
borrowings and convertible subordinated notes payable (see Note
10) are as follows at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible | |
|
|
|
|
Bank Loans | |
|
Subordinated Notes | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
2005
|
|
$ |
3,432 |
|
|
$ |
|
|
|
$ |
3,432 |
|
2006
|
|
|
2,185 |
|
|
|
187,718 |
|
|
|
189,903 |
|
2007
|
|
|
2,073 |
|
|
|
|
|
|
|
2,073 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,690 |
|
|
$ |
187,718 |
|
|
$ |
195,408 |
|
|
|
|
|
|
|
|
|
|
|
(10) Convertible Subordinated Notes Payable
In August 2001, the Company issued $125.0 million of 5.00%
convertible subordinated notes. These notes mature
September 1, 2006, with interest payable on March 1st and
September 1st of each year beginning March 1, 2002. Net
proceeds to the Company were $121.25 million, after
deducting
F-26
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
$3.75 million of offering costs, which have been
capitalized and are being amortized as additional interest
expense over a period of five years. Holders of the notes may
convert the notes at any time before maturity into shares of the
Companys common stock at a conversion rate of 33.5289
shares per each $1,000 principal amount of notes, equivalent to
a conversion price of $29.83 per share. The conversion rate is
subject to adjustment in certain circumstances. The Company may
redeem the notes from September 4, 2004 through
August 31, 2005 at 102% times the principal amount, from
September 1, 2005 through August 31, 2006 at 101%
times the principal amount, and thereafter at 100% of the
principal amount. Upon any provisional redemption, the Company
will make an additional payment in cash with respect to the
notes called for redemption in an amount equal to $150.56 per
$1,000 principal amount of notes, less the amount of any
interest paid on the note. The Company may also make this
additional payment in shares of its common stock, and any such
payment will be valued at 95% of the average of the closing
prices of the Companys common stock for the five
consecutive trading days ending on the day prior to the
redemption date. The Company will be obligated to make an
additional payment on all notes called for provisional
redemption. The notes are subordinated to the Companys
present and potential future senior debt, and are effectively
subordinated in right of payment to all indebtedness and other
liabilities of the Companys subsidiaries. At
December 31, 2004, approximately $2.0 million of
interest expense related to these notes was accrued as a current
liability.
In November 1999, the Company issued $135.0 million of
5.25% convertible subordinated notes. These notes mature
November 15, 2006, with interest payable on May 15th
and November 15th each year beginning May 15, 2000.
Net proceeds to the Company were approximately
$130.5 million, after deducting $4.5 million of
offering costs, which have been capitalized and are being
amortized as additional interest expense over a period of seven
years. Holders of the notes may convert the notes at any time
into shares of the Companys common stock at a conversion
rate of 20.1898 shares per each $1,000 principal amount of
notes, equivalent to a conversion price of $49.53 per share. The
conversion rate is subject to adjustment in certain
circumstances. The Company may redeem the notes on or after
November 19, 2002 at a redemption price of 103% of the
principal amount, and may redeem at successively lesser amounts
thereafter until November 15, 2006, at which time the
Company may redeem at a redemption price equal to the principal
amount. At December 31, 2004, approximately $435,000 of
interest expense related to these notes was accrued as a current
liability.
In October and November 2000, the Company repurchased an
aggregate of approximately $53.4 million principal amount
of its 5.25% convertible subordinated notes in the open market,
for a cost of approximately $40.8 million.
In October and November 2002, the Company repurchased
approximately $15.4 million and $3.5 million principal
amounts of its 5.25% and 5.00% convertible subordinated notes,
respectively. These purchases were made in the open market, for
a cost of approximately $14.5 million, resulting in a
pre-tax gain of $4.2 million. At December 31, 2004 and
2003, approximately $66.2 million and $121.5 million
principal amounts of the 5.25% and 5.00% notes, respectively,
remained outstanding.
(11) Earnings Per Share
Basic earnings per share (EPS) is computed by
dividing income (loss) 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 certain charges which 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 (convertible notes
payable and stock options) had been converted to such common
shares, and if such assumed conversion is dilutive. For the
years ended December 31, 2004, 2003 and 2002, certain stock
F-27
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
options outstanding and the conversion of the Companys
convertible subordinated notes payable were not included in this
calculation because to do so would be anti-dilutive. Due to the
Companys net loss for years ended December 31, 2004,
2003 and 2002, basic and diluted EPS are the same, as the
assumed conversion of all potentially dilutive securities would
be anti-dilutive. Potential shares of common stock issuable
under options for common stock at December 31, 2004, 2003
and 2002 were approximately 4.7 million, 4.0 million
and 3.6 million, respectively. Potential shares of common
stock issuable upon conversion of the Companys convertible
subordinated notes payable were 5.4 million at
December 31, 2004, 2003 and 2002.
(12) Income Taxes
The Company accounts for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. SFAS
No. 109 requires deferred tax assets and liabilities to be
recognized for temporary differences between the tax basis and
financial reporting basis of assets and liabilities, computed at
current tax rates, as well as for the expected tax benefit of
net operating loss and tax credit carryforwards. During 2004 and
2003, the Company recorded valuation allowances against certain
of its United States and foreign net deferred tax assets in
jurisdictions where the Company has incurred significant losses
in recent years. Given such experience, the Companys
management could not conclude that it was more likely than not
that these net deferred tax assets would be realized. While
there were indications that the markets in which the Company
operates may have improved in future periods, the Companys
management, in accordance with SFAS No. 109, in evaluating
the recoverability of these net deferred tax assets, was
required to place greater weight on the Companys
historical results as compared to projections regarding future
taxable income. If the Company generates future taxable income,
or should the Company be able to conclude that sufficient
taxable income is reasonably assured based on profitable
operations, in the appropriate tax jurisdictions, against which
these tax attributes may be applied, some portion or all of the
valuation allowance will be reversed and a corresponding
reduction in income tax expense will be reported in future
periods. Approximately $2.3 million of the valuation
allowance relates to the benefit from stock-based compensation.
Any reversal of valuation allowance from this item will be
reflected as a component of stockholders equity.
When recording acquisitions, the Company has recorded valuation
allowances due to the uncertainty related to the realization of
certain deferred tax assets existing at the acquisition dates.
The amount of deferred tax assets considered realizable is
subject to adjustment in future periods if estimates of future
taxable income are changed. Any reversals of valuation
allowances recorded in purchase accounting will be reflected as
a reduction of goodwill in the period of reversal. For the year
ended December 31, 2004, valuation allowances established
in purchase accounting were reversed with a corresponding
reduction in goodwill of approximately $3.3 million.
The income tax provision of $3.9 million in 2004 represents
an effective tax rate of negative 45% and the income tax
provision of $11.8 million in 2003 represents an effective
tax rate of negative 36%, due to taxable income earned in
certain foreign jurisdictions. The income tax benefit of
$22.3 million for 2002
F-28
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
represents an effective tax rate of 35%. The provision
(benefit) for income taxes for the years ended
December 31, 2004, 2003 and 2002 was, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Federal
|
|
$ |
|
|
|
$ |
8,437 |
|
|
$ |
(18,575 |
) |
State and local
|
|
|
|
|
|
|
784 |
|
|
|
(2,178 |
) |
Foreign taxes
|
|
|
3,947 |
|
|
|
2,580 |
|
|
|
(1,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,947 |
|
|
$ |
11,801 |
|
|
$ |
(22,293 |
) |
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
3,503 |
|
|
$ |
5,372 |
|
|
$ |
(15,405 |
) |
Deferred
|
|
|
444 |
|
|
|
6,429 |
|
|
|
(6,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,947 |
|
|
$ |
11,801 |
|
|
$ |
(22,293 |
) |
|
|
|
|
|
|
|
|
|
|
The following reconciles the Companys effective tax rate
to the federal statutory rate for the years ended
December 31, 2004, 2003 and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Income tax benefit per federal statutory rate
|
|
$ |
(3,080 |
) |
|
$ |
(11,354 |
) |
|
$ |
(22,293 |
) |
State income taxes, net of federal deduction
|
|
|
(810 |
) |
|
|
(1,328 |
) |
|
|
(1,414 |
) |
Extraterritorial income exclusion
|
|
|
(350 |
) |
|
|
(350 |
) |
|
|
(262 |
) |
Nondeductible intangible and goodwill amortization
|
|
|
98 |
|
|
|
98 |
|
|
|
183 |
|
Other permanent items, net
|
|
|
(514 |
) |
|
|
(456 |
) |
|
|
760 |
|
Effect of foreign taxes
|
|
|
(415 |
) |
|
|
(333 |
) |
|
|
(272 |
) |
Change in valuation allowance
|
|
|
7,884 |
|
|
|
29,130 |
|
|
|
1,255 |
|
Tax credits and other items
|
|
|
1,134 |
|
|
|
(3,606 |
) |
|
|
(250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,947 |
|
|
$ |
11,801 |
|
|
$ |
(22,293 |
) |
|
|
|
|
|
|
|
|
|
|
F-29
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The sources of the Companys deferred income tax assets and
liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Current:
|
|
|
|
|
|
|
|
|
|
Employee bonuses and commissions
|
|
$ |
31 |
|
|
$ |
314 |
|
|
Warranty reserve
|
|
|
2,493 |
|
|
|
2,463 |
|
|
Bad debt reserve
|
|
|
201 |
|
|
|
533 |
|
|
Vacation accrual
|
|
|
833 |
|
|
|
806 |
|
|
Restructuring accrual
|
|
|
1,545 |
|
|
|
1,222 |
|
|
Excess and obsolete inventory
|
|
|
3,156 |
|
|
|
4,093 |
|
|
Other
|
|
|
2,604 |
|
|
|
988 |
|
|
Valuation allowance
|
|
|
(10,863 |
) |
|
|
(10,419 |
) |
|
|
|
|
|
|
|
|
|
Net current
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforward
|
|
|
42,284 |
|
|
|
38,246 |
|
|
Accumulated other comprehensive income
|
|
|
(7,099 |
) |
|
|
(5,464 |
) |
|
Depreciation and amortization
|
|
|
(2,454 |
) |
|
|
(7,898 |
) |
|
Other, net
|
|
|
2,963 |
|
|
|
3,340 |
|
|
Valuation allowance
|
|
|
(39,403 |
) |
|
|
(32,896 |
) |
|
|
|
|
|
|
|
|
|
Net long-term
|
|
$ |
(3,709 |
) |
|
$ |
(4,672 |
) |
|
|
|
|
|
|
|
The following reconciles the change in the net deferred income
tax liability from December 31, 2003 to December 31,
2004, to the deferred income tax provision:
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
(In thousands) | |
Net change in deferred income tax liability from the preceding
table
|
|
$ |
(963 |
) |
Net change in deferred tax liability associated with foreign
currency fluctuation
|
|
|
(246 |
) |
Net change in deferred tax liability associated with purchase
accounting reduction in Goodwill
|
|
|
3,288 |
|
Increase in deferred tax liability associated with other
comprehensive income
|
|
|
(1,635 |
) |
|
|
|
|
Deferred income tax provision for the period
|
|
$ |
444 |
|
|
|
|
|
As of December 31, 2004, the Company had a gross federal
net operating loss, alternative minimum tax credit and research
and development credit carryforwards of approximately
$85 million, $2 million and $4 million,
respectively, which may be available to offset future federal
income tax liabilities. The federal net operating loss and
research and development credit carryforwards expire at various
dates through December 31, 2024, the alternative minimum
tax credit carryforward has no expiration date. In addition, as
of December 31, 2004, the Company had a gross foreign net
operating loss carryforward of $4 million, which may be
available to offset future foreign income tax liabilities and
expire at various dates through December 31, 2008.
F-30
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The domestic versus foreign component of the Companys net
loss before income taxes for the years ended December 31,
2004, 2003 and 2002, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
(20,725 |
) |
|
$ |
(35,137 |
) |
|
$ |
(60,070 |
) |
Foreign
|
|
|
11,925 |
|
|
|
2,697 |
|
|
|
(3,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8,800 |
) |
|
$ |
(32,440 |
) |
|
$ |
(63,692 |
) |
|
|
|
|
|
|
|
|
|
|
(13) Retirement Plans
The Company has a 401(k) profit sharing plan which covers most
full-time employees age eighteen or older. Participants may
defer up to the maximum amount allowed as determined by law.
Participants are immediately vested in their contributions.
The Company may make discretionary contributions based on
corporate financial results. In 2002, the Companys
contribution for participants in its 401(k) plan was 10%
matching on contributions by employees up to 6% of the
employees compensation. In 2003, the Company increased its
matching contributions to 25% matching on contributions by
employees up to 6% of the employees compensation; such
contribution level was maintained for 2004. The Companys
total contributions to the plan were approximately $698,000,
$635,000 and $272,000 for the years ended December 31,
2004, 2003 and 2002, respectively. Vesting in the profit sharing
contribution account is based on years of service, with most
participants fully vested after four years of credited service.
(14) Commitments and Contingencies
The Company has committed to purchase approximately
$5.0 million of parts, components and subassemblies in 2005
and $2.5 million in 2006. This inventory purchase
obligation represents a minimum purchase commitment to ensure
the Company has an adequate supply of critical components to
meet the demand of its customers. The Company believes these
inventory purchases will be consumed in its on-going operations
during the respective years of purchase commitment.
The Company has also committed to advance up to $850,000 to a
privately held company in exchange for an exclusive intellectual
property license. The amount and timing of this advance is
dependent upon the privately held company achieving certain
development milestones. As of December 31, 2004,
approximately $50,000 has been advanced under this agreement,
which was recorded within research and development expense in
the consolidated statement of operations.
Disputes and Legal
Actions
The Company is involved in disputes and legal actions arising in
the normal course of its business. Currently and historically,
the Companys most significant legal actions have involved
the application of patent law to complex technologies and
intellectual property. The determination of whether such
technologies infringe upon the Companys or others
patents is highly subjective. This high level of subjectivity
introduces substantial additional risk with regard to the
outcome of the Companys disputes and legal actions related
to intellectual property. While the Company currently believes
that the amount of any ultimate potential loss for
currently-known matters would not be material to the
Companys financial position, the outcome of these actions
is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material
adverse effect on the Companys financial position or
reported results of operations in a particular period. An
unfavorable decision, particularly in patent
F-31
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
litigation, could require material changes in production
processes and products or result in the Companys inability
to ship products or components found to have violated
third-party patent rights. The Company accrues loss
contingencies in connection with its litigation when it is
probable that a loss will occur and the amount of the loss can
be reasonably estimated.
In April 2003, the Company filed a claim in the United States
District Court for the District of Colorado seeking a
declaratory ruling that its new plasma source products
Xstreamtm
With Active Matching
Networktm
(Xstream products) are not in violation of U.S.
Patents held by MKS Instruments, Inc. (MKS). This
case was transferred by the Colorado court to the United States
District Court for the District of Delaware for consolidation
with a patent infringement suit filed in that court by MKS in
May 2003, alleging that the Companys Xstream products
infringe five patents held by MKS. On July 23, 2004, a jury
returned a verdict of infringement of three MKS patents, which
did not stipulate damages. The court has not enjoined the
Company from selling the Xstream products. The Company has filed
four separate motions to have the verdict set aside based upon
defects in the trial. The court has not scheduled any further
activity in the case, including trial of the Companys
patent invalidity and inequitable conduct defenses, while the
post-trial motions are being reviewed. Potential liability, if
any, resulting from the jury verdict is indeterminable at this
time, and therefore no amount has been accrued by the Company in
the accompanying consolidated financial statements.
On June 2, 2004, MKS filed a petition in the District Court
in Munich, Germany, alleging infringement by the Companys
Xstream products of a counterpart German patent owned by MKS. On
August 4, 2004, this court dismissed MKSs petition
and assessed costs of the proceeding against MKS. MKS refiled an
infringement petition in the District Court of Mannheim. At a
hearing held on February 18, 2005, the Mannheim court
indicated that a decision on the infringement allegation would
be rendered on April 8, 2005. A petition for invalidity of
MKSs patent brought by the Company is still pending before
the German Federal Patent Court.
On July 12, 2004, the Company filed a complaint in the
United States District Court for the District of Delaware
against MKS alleging that MKSs Astron reactive gas source
products infringe Advanced Energys U.S. Patent
No. 6,046,546. A stipulation of voluntary dismissal of the
action was filed by the parties on March 9, 2005, which
leaves the Company free to refile its claims upon conclusion of
MKSs lawsuit against the Companys Xstream products.
On September 17, 2001, Sierra Applied Sciences, Inc.
(Sierra) filed for declaratory judgment asking the
U.S. District Court for the District of Colorado to rule that
its products did not infringe the Companys U.S. patent
no. 5,718,813 and that the patent was invalid. On
March 24, 2003, the Court granted the Companys motion
to dismiss the case for lack of subject matter jurisdiction. The
Court of Appeals for the Federal Circuit affirmed the dismissal
on April 13, 2004 as to all of Sierras current
activities, but remanded for findings related to past sales of
older products. The case was settled and dismissed on
September 2, 2004 under terms of a settlement agreement
that provided for no monetary consideration to be paid by either
party.
In May 2002, the Company recognized approximately
$4.2 million of litigation damages pertaining to a judgment
entered by a jury against the Company and in favor of MKS in a
patent-infringement suit in which the Company was the defendant.
The Company has entered into a settlement agreement with MKS
allowing it to sell the infringing product subsequent to the
date of the jury award. The settlement agreement is in effect
until all patents subject to the litigation expire. Under the
settlement agreement, royalties payable to MKS from sales of the
related product were not material in any of the periods
presented.
F-32
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Capital Leases
The Company finances a portion of its property and equipment
under capital lease obligations at interest rates averaging
approximately 3%. The future minimum lease payments under
capital lease obligations as of December 31, 2004 are as
follows:
|
|
|
|
|
|
|
|
(In thousands) | |
2005
|
|
$ |
303 |
|
2006
|
|
|
225 |
|
2007
|
|
|
112 |
|
2008
|
|
|
57 |
|
2009
|
|
|
40 |
|
|
|
|
|
|
Total minimum lease payments
|
|
|
737 |
|
|
Less amount representing interest
|
|
|
(22 |
) |
|
Less current portion
|
|
|
(294 |
) |
|
|
|
|
|
|
$ |
421 |
|
|
|
|
|
Operating Leases
The Company has various operating leases for automobiles,
equipment, and office and production facilities (see
Note 16). Lease expense under operating leases was
approximately $6.2 million, $6.3 million, and
$6.5 million for the years ended December 31, 2004,
2003 and 2002, respectively.
The future minimum rental payments required under non-cancelable
operating leases as of December 31, 2004 are as follows:
|
|
|
|
|
|
|
(In thousands) | |
2005
|
|
$ |
6,062 |
|
2006
|
|
|
5,492 |
|
2007
|
|
|
4,443 |
|
2008
|
|
|
3,761 |
|
2009
|
|
|
2,957 |
|
Thereafter
|
|
|
9,432 |
|
|
|
|
|
|
|
$ |
32,147 |
|
|
|
|
|
F-33
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(15) Foreign Operations and Major Customers
The Company has operations in the United States, Europe and
Asia. The following is a summary of the Companys
operations by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Sales (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originating in U.S. and sold to domestic customers
|
|
$ |
207,279 |
|
|
$ |
124,128 |
|
|
$ |
141,637 |
|
|
Originating in U.S. and sold to foreign customers
|
|
|
42,407 |
|
|
|
35,509 |
|
|
|
24,607 |
|
|
Originating in Europe and sold to domestic customers
|
|
|
115 |
|
|
|
57 |
|
|
|
2,108 |
|
|
Originating in Europe and sold to foreign customers
|
|
|
36,151 |
|
|
|
24,492 |
|
|
|
18,672 |
|
|
Originating in Asia Pacific and sold to domestic customers
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
Originating in Asia Pacific and sold to foreign customers
|
|
|
108,745 |
|
|
|
78,216 |
|
|
|
51,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
395,305 |
|
|
$ |
262,402 |
|
|
$ |
238,898 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
(13,603 |
) |
|
$ |
(27,639 |
) |
|
$ |
(57,305 |
) |
|
Europe
|
|
|
(1,540 |
) |
|
|
559 |
|
|
|
(725 |
) |
|
Asia
|
|
|
13,508 |
|
|
|
4,811 |
|
|
|
1,865 |
|
|
Intercompany eliminations
|
|
|
91 |
|
|
|
(863 |
) |
|
|
(5,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,544 |
) |
|
$ |
(23,132 |
) |
|
$ |
(61,985 |
) |
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
25,266 |
|
|
$ |
28,305 |
|
|
|
|
|
|
Europe
|
|
|
2,102 |
|
|
|
1,502 |
|
|
|
|
|
|
Asia
|
|
|
21,422 |
|
|
|
20,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,790 |
|
|
$ |
49,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
These sales amounts do not contemplate where our customers may
subsequently transfer our products. |
Intercompany sales among the Companys geographic areas are
recorded on the basis of intercompany prices established by the
Company.
The Company has a major customer (sales in excess of 10% of
total sales) that is a manufacturer of semiconductor capital
equipment. Sales to this customer accounted for the following
percentages of sales for the years ended December 31, 2004,
2003 and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Applied Materials, Inc.
|
|
|
27 |
% |
|
|
20 |
% |
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
There were no other customers that represented greater than 10%
of the Companys total sales for the years ended
December 31, 2004, 2003 and 2002.
Trade accounts receivable from Applied Materials, Inc. were
approximately $7.8 million as of December 31, 2004,
which represented approximately 12% of the Companys total
trade accounts receivable. At December 31, 2004, trade
accounts receivable from ULVAC, Inc. were approximately
$17.4 million, representing approximately 26% of the
Companys total trade accounts receivable. No other
F-34
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
customers had a trade accounts receivable balance in excess of
10% of the total trade accounts receivable at December 31,
2004.
(16) Related Party Transactions
The Company leases its executive offices and manufacturing
facilities in Fort Collins, Colorado from two limited liability
partnerships, in which the Companys Chief Executive
Officer holds an interest. The leases relating to these spaces
expire in 2009, 2011 and 2016, and contain monthly payments of
approximately $87,000, $69,000 and $85,000, respectively.
For each of the years ended December 31, 2004 and 2003
approximately $2.8 million was paid attributable to these
leases. For the year ended December 31, 2002, approximately
$2.7 million was paid attributable to these leases. Rent
and related amounts are expensed as incurred.
The Company also has an agreement whereby monthly payments of
approximately $12,000 are made to one of the above mentioned
limited liability partnerships, which secures future leasing
rights on a parcel of land in Colorado. Such amounts are
expensed as incurred. Approximately $132,000 was paid
attributable to this agreement for the year ended
December 31, 2004, and $156,000 for each of the years ended
December 31, 2003 and 2002.
The Company leased, for business purposes, a condominium owned
by a partnership of certain stockholders, including the
Companys Chief Executive Officer. The Company paid the
partnership $10,000, $60,000 and $67,000 in 2004, 2003 and 2002,
respectively. In February 2004, this lease agreement was
terminated.
The Company charters aircraft from time to time from a company
owned by the Companys Chief Executive Officer. Aggregate
payments for the use of such aircraft were $16,000, $6,000 and
$103,000 in 2004, 2003 and 2002, respectively.
(17) Concentrations of Credit Risk
Forward Contracts The Company, including its
subsidiaries, enters into foreign currency forward contracts
with counterparties to mitigate foreign currency exposure from
foreign currency denominated trade purchases and intercompany
receivables and payables. These derivative instruments are not
held for trading or speculative purposes.
To the extent that changes occur in currency exchange rates, the
Company is exposed to market risk on its open derivative
instruments. This market risk exposure is generally offset by
the gain or loss recognized upon the translation of its trade
purchases and intercompany receivables and payables. Foreign
currency forward contracts are entered into with major
commercial United States, Japanese and German banks that have
high credit ratings, and the Company does not expect the
counterparties to fail to meet their obligations under
outstanding contracts. Foreign currency gains and losses under
these arrangements are not deferred. The Company generally
enters into foreign currency forward contracts with maturities
ranging from one to eight months, with contracts outstanding at
December 31, 2004 maturing through January 2005. The
Company did not seek specific hedge accounting treatment for its
foreign currency forward contracts.
F-35
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
At December 31, 2004, the Company held the following
foreign currency forward contracts to buy U.S. dollars and sell
various foreign currencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market | |
|
|
|
|
Notional | |
|
Settlement | |
|
Unrealized | |
|
|
Amounts | |
|
Amounts | |
|
(Loss)/Gain | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Japanese yen contracts
|
|
$ |
8,200 |
|
|
$ |
8,263 |
|
|
$ |
63 |
|
Taiwanese dollar contracts
|
|
|
4,000 |
|
|
|
4,031 |
|
|
|
31 |
|
South Korean won contract
|
|
|
1,300 |
|
|
|
1,315 |
|
|
|
15 |
|
Chinese yuan contract
|
|
|
400 |
|
|
|
398 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
13,900 |
|
|
$ |
14,007 |
|
|
$ |
107 |
|
|
|
|
|
|
|
|
|
|
|
Other Concentrations of Credit Risk The
Company uses financial instruments that potentially subject it
to concentrations of credit risk. Such instruments include cash
equivalents, short-term investments, accounts receivable, and
foreign currency forward contracts. The Company invests its cash
in cash deposits, money market funds, commercial paper, and
municipal bonds and notes. The Company places its investments
with high-credit quality financial institutions and limits the
credit exposure from any one financial institution or
instrument. To date, the Company has not experienced significant
losses on these investments. The Company performs ongoing credit
evaluations of its customers financial condition and
generally requires no collateral. Because the Companys
receivables are primarily related to companies in the
semiconductor capital equipment industry, the Company is exposed
to credit risk generally related to this cyclical industry.
(18) Stock Plans
As of December 31, 2004, the Company had three active
stock-based compensation plans; the 2003 Stock Option Plan (the
2003 Plan), the 2003 Non-Employee Directors
Stock Option Plan (the 2003 Directors Plan)
and the Employee Stock Purchase Plan (ESPP).
2003 Stock Option Plan The 2003 Plan is a
broad-based plan for employees, executive officers, and
consultants in which directors of the Company are not allowed to
participate. The Board of Directors currently administers this
plan, and makes all decisions concerning which employees,
executive officers and consultants are granted options, how many
to grant to each optionee, when options are granted, how the
plan should be properly interpreted, whether to amend or
terminate the plan, and whether to delegate administration of
the plan to a committee. The 2003 Plan, adopted in 2003,
provides for the issuance of up to 3,250,000 shares of common
stock. Shares may be issued under the 2003 Plan on exercise of
incentive stock options or non-qualified stock options granted
under the 2003 Plan or as restricted stock awards. Stock
appreciation rights may also be granted under the 2003 Plan, and
the shares represented by the stock appreciation rights will be
deducted from shares issuable under the 2003 Plan. The exercise
price of incentive stock options and non-qualified stock options
may not be less than the market value of the Companys
common stock on the date of grant. The Company has the
discretion to determine the vesting period of options granted
under the 2003 Plan, however option grants will generally vest
over four years, contingent upon the optionee continuing to be
an employee, executive officer or consultant of the Company. The
options are exercisable for ten years from the date of grant.
The 2003 Plan will expire in February 2013, unless the
administrator of the plan terminates it earlier. As of
December 31, 2004, approximately 1.3 million shares of
common stock were available for grant under this plan.
On January 31, 2005, the Company amended the 2003 Plan to
provide additional terms for the restricted stock units. The
restricted stock units generally vest as to 10% on the first
anniversary of the grant date, an additional 20% on the second
anniversary of the grant date, an additional 30% on the third
F-36
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
anniversary of the grant date and the remaining 40% on the
fourth anniversary of the grant date. Additional terms are set
forth in the individual grant agreements between the Company and
the award recipient.
2003 Non-Employee Directors Stock Option
Plan The 2003 Directors Plan, adopted in
2003, provides for the issuance of up to 150,000 shares of
common stock upon the exercise of non-qualified stock options
granted under the 2003 Directors Plan. The exercise price
of options granted under the 2003 Directors Plan may not
be less than the market value of the Companys common stock
on the date of grant. Non-employee directors are automatically
granted an option to purchase 15,000 shares on the first date
elected or appointed as a member of the Companys board,
and 5,000 shares on any date re-elected as a member of the
board. Options granted on the date first elected or appointed as
a member of the Companys board immediately vest as to
one-third of the shares subject to the grant, then another
one-third on each of the first two anniversaries of the date
granted, provided the optionee continues to be a director.
Options granted upon re-election are immediately exercisable. As
of December 31, 2004, 40,000 shares of common stock were
available for grant under this plan.
Employee Stock Purchase Plan In September
1995, stockholders approved an ESPP covering an aggregate of
200,000 shares of common stock. On May 7, 2003, the
Companys stockholders approved an amendment to
increase the number of common shares reserved for issuance under
the plan from 200,000 shares to 400,000 shares. Employees are
eligible to participate in the ESPP if employed by the Company
for at least 20 hours per week during at least five months per
calendar year. Participating employees may have the lessor of 5%
their earnings or $1,250 per six-month period withheld pursuant
to the ESPP. The purchase price of common stock purchased under
the ESPP is equal to 85% of the lower of the fair value on the
commencement date of each offering period or the relevant
purchase date. During 2004, 2003 and 2002, employees purchased
an aggregate of approximately 65,000, 73,000 and 54,000 shares
of common stock under the ESPP, respectively. At
December 31, 2004, approximately 90,000 shares remained
available for future issuance.
On April 14, 2004, by resolution of the Companys
Board of Directors, the Company terminated its 2002 and 2001
Employee Stock Option Plans. Existing stock options outstanding
under the 2002 and 2001 Employee Stock Option Plans remain
outstanding according to their original terms. At
December 31, 2004, options to purchase approximately
406,000 and 423,000 shares of common stock remained outstanding
under the 2002 and 2001 Employee Stock Option Plans,
respectively.
On May 7, 2003, the Company terminated the 1995 Employee
Stock Option Plan and the Non-Employee Directors Stock Option
Plan upon stockholder approval of the 2003 Plan and the 2003
Directors Plan; however, existing stock options
outstanding under these terminated plans remain outstanding
according to their original terms. At December 31, 2004,
options to purchase approximately 1.8 million and 67,000 shares
of common stock remained outstanding under the 1995 Employee
Stock Option Plan and the Non-Employee Directors Stock Option
Plan, respectively.
F-37
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following summarizes the activity relating to stock options
for the years ended December 31, 2004, 2003 and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Shares |
|
Price | |
|
Shares |
|
Price | |
|
Shares |
|
Price | |
|
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
(In thousands, except share prices) | |
Stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of period
|
|
3,920 |
|
$ |
19.95 |
|
|
3,475 |
|
$ |
23.18 |
|
|
2,108 |
|
$ |
25.07 |
|
|
|
Granted
|
|
1,196 |
|
|
16.99 |
|
|
1,790 |
|
|
14.66 |
|
|
1,920 |
|
|
21.73 |
|
|
|
Exercised
|
|
(117) |
|
|
9.52 |
|
|
(352) |
|
|
9.89 |
|
|
(118) |
|
|
11.70 |
|
|
|
Terminated
|
|
(472) |
|
|
19.09 |
|
|
(993) |
|
|
25.28 |
|
|
(435) |
|
|
29.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of period
|
|
4,527 |
|
|
19.53 |
|
|
3,920 |
|
|
19.95 |
|
|
3,475 |
|
|
23.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
1,943 |
|
|
22.70 |
|
|
1,230 |
|
|
25.50 |
|
|
1,239 |
|
|
23.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$8.40 |
|
|
|
|
|
$7.88 |
|
|
|
|
|
$12.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range of outstanding options
|
|
$3.11 - $60.75 |
|
|
|
|
|
$0.67 - $60.75 |
|
|
|
|
|
$0.67 - $60.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range of options terminated
|
|
$0.83 - $60.75 |
|
|
|
|
|
$0.83 - $60.75 |
|
|
|
|
|
$0.83 - $60.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee directors stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of period
|
|
104 |
|
$ |
19.00 |
|
|
112 |
|
$ |
22.64 |
|
|
90 |
|
$ |
26.92 |
|
|
|
Granted
|
|
85 |
|
|
13.62 |
|
|
25 |
|
|
10.67 |
|
|
22 |
|
|
15.58 |
|
|
|
Exercised
|
|
(5) |
|
|
10.67 |
|
|
(8) |
|
|
6.75 |
|
|
|
|
|
|
|
|
|
Terminated
|
|
(12) |
|
|
51.10 |
|
|
(25) |
|
|
30.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of period
|
|
172 |
|
|
15.81 |
|
|
104 |
|
|
19.00 |
|
|
112 |
|
|
22.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
122 |
|
|
16.94 |
|
|
80 |
|
|
21.91 |
|
|
62 |
|
|
22.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the period
|
|
$9.67 |
|
|
|
|
|
$7.84 |
|
|
|
|
|
$11.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range of outstanding options
|
|
$6.13 - $46.13 |
|
|
|
|
|
$6.13 - $60.75 |
|
|
|
|
|
$6.13 - $64.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range of options terminated
|
|
$6.15 - $64.94 |
|
|
|
|
|
$6.13 - $64.94 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table summarizes information about the stock
options outstanding at December 31, 2004 (In thousands
except share prices and lives):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
Range of |
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
Exercise Prices |
|
Outstanding | |
|
Life | |
|
Price | |
|
Exercisable | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$3.11 to $7.70
|
|
|
609 |
|
|
|
7.7 years |
|
|
$ |
7.46 |
|
|
|
267 |
|
|
$ |
7.24 |
|
$7.92 to $10.37
|
|
|
682 |
|
|
|
8.0 years |
|
|
|
9.58 |
|
|
|
197 |
|
|
|
8.96 |
|
$10.67 to $16.51
|
|
|
495 |
|
|
|
7.7 years |
|
|
|
13.21 |
|
|
|
206 |
|
|
|
13.43 |
|
$17.32 to $19.24
|
|
|
876 |
|
|
|
7.9 years |
|
|
|
18.56 |
|
|
|
414 |
|
|
|
18.34 |
|
$20.81 to $22.30
|
|
|
634 |
|
|
|
9.1 years |
|
|
|
21.88 |
|
|
|
13 |
|
|
|
21.95 |
|
$22.52 to $24.90
|
|
|
574 |
|
|
|
8.1 years |
|
|
|
23.50 |
|
|
|
252 |
|
|
|
24.09 |
|
$26.13 to $38.55
|
|
|
669 |
|
|
|
6.3 years |
|
|
|
33.17 |
|
|
|
556 |
|
|
|
32.48 |
|
$40.00 to $46.13
|
|
|
117 |
|
|
|
5.0 years |
|
|
|
43.79 |
|
|
|
117 |
|
|
|
43.79 |
|
$56.13 to $60.75
|
|
|
43 |
|
|
|
5.6 years |
|
|
|
59.68 |
|
|
|
43 |
|
|
|
59.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,699 |
|
|
|
7.7 years |
|
|
|
19.39 |
|
|
|
2,065 |
|
|
|
22.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19) |
Fair Value of Financial Instruments |
The Companys financial instruments include cash, trade
receivables, trade payables, marketable securities, short-term
and long-term debt, and foreign currency forward exchange
contracts (see Note 17). The fair values of cash, trade
receivables, trade payables and short-term debt approximate the
carrying values due to the short-term nature of these
instruments. Marketable securities are stated at fair value (see
Notes 1 and 4). At December 31, 2004 and 2003, the carrying
value of long-term debt was $195.4 million and
$201.7 million, respectively. The carrying value of senior
borrowings approximates their fair value due to the variable
interest rates associated with the borrowings. At
December 31, 2004, the estimated fair value of the
Companys 5.25% convertible subordinated notes that are due
November 15, 2006 was approximately $64.6 million, compared
to a book value of $66.2 million. At December 31,
2004, the estimated fair value of the Companys 5.00%
convertible subordinated notes that are due September 1,
2006 was approximately $115.1 million, compared to a book
value of $121.5 million. The fair values of the
Companys convertible subordinated notes are based upon
quoted market prices. The Company believes that the risk of
default on such notes has been inherently factored into such
prices.
|
|
(20) |
Supplemental Cash Flow Disclosures |
In the first quarter of 2004, the Company made a strategic
decision to further focus its marketing and product support
resources on its core competencies and reorient its operating
infrastructure towards sustained profitability. As a result, the
Company sold its Noah chiller business to an unrelated third
party for $797,000 in cash and a $1.9 million note
receivable due March 31, 2009. The note bears interest at
5.0%, payable annually on March 31. The sale included
property and equipment with a book value of approximately
$300,000, inventory of approximately $1.0 million, goodwill
and intangible assets net of accumulated amortization of
approximately $900,000, demonstration and customer service
equipment of approximately $140,000, and estimated warranty
obligations of approximately $140,000. The Company recognized a
gain on the sale of $404,000, which has been recorded as other
income and expense in the accompanying consolidated statement of
operations. In the third quarter of 2004, the Company purchased
equipment of approximately $71,000 from the buyers of the Noah
chiller assets in exchange for an equivalent reduction of the
note receivable due March 31, 2009.
F-39
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In the second quarter of 2003, as part of the Companys
ongoing cost reduction measures, the Company committed to a plan
to sell certain inventory and property and equipment assets to
an unrelated third party at their respective net book values.
These assets were primarily used in the manufacture of a
component for the Companys direct current and radio
frequency products and were sold on June 30, 2003. In
conjunction with the sale, the Company received approximately
$1.6 million in cash and a short-term note receivable for
approximately $1.5 million in exchange for inventory with a
carrying value of approximately $2.1 million and property
and equipment with a carrying value of approximately
$1.0 million.
|
|
(21) |
Quarterly Financial Data Unaudited |
The following table presents unaudited quarterly financial data
for each of the eight quarters in the period ended
December 31, 2004. The Company believes that all necessary
adjustments have been included in the amounts stated below to
present fairly such quarterly information. The operating results
for any quarter are not necessarily indicative of results for
any subsequent period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended | |
|
|
| |
|
|
Mar. 31, | |
|
June 30, | |
|
Sept. 30, | |
|
Dec. 31, | |
|
Mar. 31, | |
|
June 30, | |
|
Sept. 30, | |
|
Dec. 31, | |
|
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Sales
|
|
$ |
56,158 |
|
|
$ |
62,946 |
|
|
$ |
68,567 |
|
|
$ |
74,731 |
|
|
$ |
104,487 |
|
|
$ |
108,869 |
|
|
$ |
93,550 |
|
|
$ |
88,399 |
|
Gross profit
|
|
|
17,950 |
|
|
|
20,273 |
|
|
|
23,093 |
|
|
|
26,631 |
|
|
|
38,414 |
|
|
|
36,962 |
|
|
|
29,740 |
|
|
|
14,563 |
|
(Loss) income from operations
|
|
|
(10,885 |
) |
|
|
(6,825 |
) |
|
|
(5,741 |
) |
|
|
319 |
|
|
|
9,810 |
|
|
|
8,754 |
|
|
|
1,855 |
|
|
|
(21,963 |
) |
Net (loss) income
|
|
$ |
(8,590 |
) |
|
$ |
(5,774 |
) |
|
$ |
(27,438 |
) |
|
$ |
(2,439 |
) |
|
$ |
6,924 |
|
|
$ |
4,470 |
|
|
$ |
(1,136 |
) |
|
$ |
(23,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share
|
|
$ |
(0.27 |
) |
|
$ |
(0.18 |
) |
|
$ |
(0.85 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.21 |
|
|
$ |
0.13 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had a loss in the fourth quarter of 2004 of
$23.0 million. Pretax charges in the fourth quarter
included $9.2 million to cost of sales for increased excess
and obsolete inventory reserves, $3.8 million to selling,
general and administrative for the change in estimate of the
useful life of the demonstration equipment (see Note 1),
$3.7 million to restructuring for employee severance and
termination costs primarily attributable to the Fort Collins
facility (see Note 3), $3.3 million to impairment of
intangible assets related to certain amortizable intangible
assets acquired in conjunction with the Companys purchase
of Dressler and Aera (see Note 8). These items contributed
significantly to the Companys fourth quarter 2004 results.
The Company increased its reserve for excess and obsolete
inventory in the fourth quarter of 2004, as a result of the
fourth quarter strategic management decision to discontinue
certain product offerings, the outlook for future periods demand
and the declining trend in the Companys sales from the
second quarter of 2004 to the fourth quarter of 2004.
The Company had a loss of $27.4 million in the third
quarter of 2003. During this quarter the Company recorded a
valuation allowance against certain of its U.S. and foreign net
deferred tax assets in jurisdictions where significant losses
had been recognized (see Note 12).
F-40
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions | |
|
|
|
|
|
|
Balance at | |
|
Additions | |
|
Charged | |
|
|
|
Balance at | |
|
|
Beginning of | |
|
Due to | |
|
to Expense | |
|
|
|
End of | |
|
|
Period | |
|
Acquisitions | |
|
(Recoveries) | |
|
Deductions | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory obsolescence reserve
|
|
$ |
5,631 |
|
|
$ |
13,704 |
|
|
$ |
5,803 |
|
|
$ |
4,719 |
|
|
$ |
20,419 |
|
|
Allowance for doubtful accounts
|
|
|
1,049 |
|
|
|
416 |
|
|
|
1,870 |
|
|
|
279 |
|
|
|
3,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,680 |
|
|
$ |
14,120 |
|
|
$ |
7,673 |
|
|
$ |
4,998 |
|
|
$ |
23,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory obsolescence reserve
|
|
$ |
20,419 |
|
|
$ |
|
|
|
$ |
3,016 |
|
|
$ |
13,944 |
|
|
$ |
9,491 |
|
|
Allowance for doubtful accounts
|
|
|
3,056 |
|
|
|
|
|
|
|
(429 |
) |
|
|
1,324 |
|
|
|
1,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,475 |
|
|
$ |
|
|
|
$ |
2,587 |
|
|
$ |
15,268 |
|
|
$ |
10,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory obsolescence reserve
|
|
$ |
9,491 |
|
|
$ |
|
|
|
$ |
11,262 |
|
|
$ |
6,102 |
|
|
$ |
14,651 |
|
|
Allowance for doubtful accounts
|
|
|
1,303 |
|
|
|
|
|
|
|
198 |
|
|
|
452 |
|
|
|
1,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,794 |
|
|
$ |
|
|
|
$ |
11,460 |
|
|
$ |
6,554 |
|
|
$ |
15,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
51,366 |
|
|
$ |
38,404 |
|
|
Marketable securities
|
|
|
70,016 |
|
|
|
69,578 |
|
|
Accounts receivable, net
|
|
|
69,852 |
|
|
|
72,053 |
|
|
Inventories, net
|
|
|
66,168 |
|
|
|
73,224 |
|
|
Other current assets
|
|
|
3,546 |
|
|
|
6,140 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
260,948 |
|
|
|
259,399 |
|
PROPERTY AND EQUIPMENT, net
|
|
|
43,802 |
|
|
|
44,746 |
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Deposits and other
|
|
|
6,789 |
|
|
|
6,468 |
|
|
Goodwill
|
|
|
65,299 |
|
|
|
68,276 |
|
|
Other intangible assets, net
|
|
|
10,910 |
|
|
|
12,032 |
|
|
Customer service equipment, net
|
|
|
3,359 |
|
|
|
2,968 |
|
|
Deferred debt issuance costs, net
|
|
|
1,811 |
|
|
|
2,086 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
392,918 |
|
|
$ |
395,975 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$ |
24,368 |
|
|
$ |
17,683 |
|
|
Accrued payroll and employee benefits
|
|
|
7,978 |
|
|
|
7,788 |
|
|
Other accrued expenses
|
|
|
15,537 |
|
|
|
20,165 |
|
|
Customer deposits and deferred revenue
|
|
|
1,239 |
|
|
|
662 |
|
|
Senior borrowings and capital leases, current portion
|
|
|
3,067 |
|
|
|
3,726 |
|
|
Accrued interest payable on convertible subordinated notes
|
|
|
1,810 |
|
|
|
2,460 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
53,999 |
|
|
|
52,484 |
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Senior borrowings and capital leases, net of current portion
|
|
|
3,960 |
|
|
|
4,679 |
|
|
Deferred income tax liabilities, net
|
|
|
1,656 |
|
|
|
3,709 |
|
|
Convertible subordinated notes payable
|
|
|
187,718 |
|
|
|
187,718 |
|
|
Other long-term liabilities
|
|
|
2,250 |
|
|
|
2,407 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
249,583 |
|
|
|
250,997 |
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
143,335 |
|
|
|
144,978 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
392,918 |
|
|
$ |
395,975 |
|
|
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial
statements
are an integral part of these condensed consolidated statements.
F-42
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
SALES
|
|
$ |
86,140 |
|
|
$ |
104,487 |
|
COST OF SALES
|
|
|
57,065 |
|
|
|
66,073 |
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29,075 |
|
|
|
38,414 |
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
11,015 |
|
|
|
13,410 |
|
|
Selling, general and administrative
|
|
|
13,448 |
|
|
|
14,974 |
|
|
Restructuring charges
|
|
|
1,262 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
25,725 |
|
|
|
28,604 |
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
3,350 |
|
|
|
9,810 |
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
641 |
|
|
|
429 |
|
|
Interest expense
|
|
|
(2,790 |
) |
|
|
(2,788 |
) |
|
Foreign currency gain
|
|
|
83 |
|
|
|
101 |
|
|
Other (expense) income, net
|
|
|
(21 |
) |
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
(2,087 |
) |
|
|
(1,155 |
) |
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,263 |
|
|
|
8,655 |
|
PROVISION FOR INCOME TAXES
|
|
|
(529 |
) |
|
|
(1,731 |
) |
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
734 |
|
|
$ |
6,924 |
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
BASIC WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
32,755 |
|
|
|
32,581 |
|
|
|
|
|
|
|
|
DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
|
|
|
32,878 |
|
|
|
33,593 |
|
|
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial
statements
are an integral part of these condensed consolidated statements.
F-43
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
734 |
|
|
$ |
6,924 |
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities -
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,577 |
|
|
|
4,821 |
|
|
|
Amortization of deferred debt issuance costs
|
|
|
275 |
|
|
|
275 |
|
|
|
Amortization of deferred compensation
|
|
|
56 |
|
|
|
60 |
|
|
|
Provision for deferred income taxes
|
|
|
726 |
|
|
|
856 |
|
|
|
Loss on disposal of property and equipment
|
|
|
|
|
|
|
187 |
|
|
|
Gain on sale of Noah chiller assets
|
|
|
|
|
|
|
(404 |
) |
|
|
Gain on sale of marketable security investment
|
|
|
|
|
|
|
(703 |
) |
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
934 |
|
|
|
(16,922 |
) |
|
|
|
Inventories, net
|
|
|
6,233 |
|
|
|
(7,106 |
) |
|
|
|
Other current assets
|
|
|
2,184 |
|
|
|
1,634 |
|
|
|
|
Deposits and other
|
|
|
199 |
|
|
|
412 |
|
|
|
|
Demonstration and customer service equipment, net
|
|
|
(1,104 |
) |
|
|
(863 |
) |
|
|
|
Trade accounts payable
|
|
|
7,057 |
|
|
|
9,679 |
|
|
|
|
Accrued payroll and employee benefits
|
|
|
210 |
|
|
|
1,394 |
|
|
|
|
Customer deposits and other accrued expenses
|
|
|
(3,045 |
) |
|
|
(6,524 |
) |
|
|
|
Income taxes payable/receivable, net
|
|
|
(896 |
) |
|
|
1,936 |
|
|
|
|
|
|
|
|
|
|
|
|
Net changes in operating assets and liabilities
|
|
|
11,772 |
|
|
|
(16,360 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
18,140 |
|
|
|
(4,344 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Marketable securities transactions, net
|
|
|
(438 |
) |
|
|
9,746 |
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
2,088 |
|
|
Purchase of property and equipment
|
|
|
(2,917 |
) |
|
|
(3,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(3,355 |
) |
|
|
8,003 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payments on senior borrowings and capital lease obligations
|
|
|
(1,182 |
) |
|
|
(1,962 |
) |
|
Proceeds from common stock transactions
|
|
|
131 |
|
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,051 |
) |
|
|
(1,588 |
) |
|
|
|
|
|
|
|
EFFECT OF CURRENCY TRANSLATION ON CASH
|
|
|
(772 |
) |
|
|
403 |
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
12,962 |
|
|
|
2,474 |
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
38,404 |
|
|
|
41,522 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$ |
51,366 |
|
|
$ |
43,996 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
3,165 |
|
|
$ |
3,112 |
|
|
|
|
|
|
|
|
|
Cash paid for (received from) income taxes, net
|
|
$ |
853 |
|
|
$ |
(1,169 |
) |
|
|
|
|
|
|
|
|
Assets sold for note receivable
|
|
$ |
|
|
|
$ |
1,912 |
|
|
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial
statements
are an integral part of these condensed consolidated statements.
F-44
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(1) |
Basis of Presentation and Summary of Significant Accounting
Policies |
In the opinion of management, the accompanying unaudited
condensed consolidated balance sheets, statements of operations
and cash flows contain all adjustments, consisting of only
normal, recurring adjustments necessary to present fairly the
financial position of Advanced Energy Industries, Inc., a
Delaware corporation, and its wholly owned subsidiaries (the
Company) at March 31, 2005 and
December 31, 2004, and the results of their operations and
cash flows for the three-month periods ended March 31, 2005
and 2004.
The unaudited condensed consolidated financial statements
presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all the
information and note disclosures required by accounting
principles generally accepted in the United States. The
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements
and notes thereto contained in the Companys Annual Report
on Form 10-K for the year ended December 31, 2004,
filed with the Securities and Exchange Commission on
March 31, 2005.
Estimates and Assumptions The preparation of
the Companys condensed consolidated financial statements
in conformity with accounting principles generally accepted in
the United States requires the Companys management to
make estimates and assumptions 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. Significant estimates are used when establishing
allowances for doubtful accounts, determining useful lives for
depreciation and amortization, assessing the need for impairment
charges, establishing warranty reserves, allocating purchase
price among the fair values of assets acquired and liabilities
assumed, accounting for income taxes, and assessing excess and
obsolete inventory and various others items. The Company
evaluates these estimates and judgments on an ongoing basis and
bases its estimates on historical experience, current conditions
and various other assumptions that are believed to be reasonable
under the circumstances. The results of these estimates form the
basis for making judgments about the carrying values of assets
and liabilities as well as identifying and assessing the
accounting treatment with respect to commitments and
contingencies. Actual results may differ from these estimates
under different assumptions or conditions.
New Accounting Pronouncements In December
2004, the Financial Accounting Standards Board
(FASB) reissued Statement of Financial Accounting
Standard (SFAS) No. 123, Accounting for
Stock-Based Compensation as SFAS No. 123(R),
Share Based Compensation. This statement replaces
SFAS No. 123, amends SFAS No. 95,
Statement of Cash Flows, and supersedes Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees.
SFAS No. 123(R) requires companies to apply a
fair-value based measurement method in accounting for
share-based payment transactions with employees and to record
compensation expense for all share-based awards granted, and to
awards modified, repurchased or cancelled after the required
effective date. Compensation expense for outstanding awards for
which the requisite service had not been rendered as of the
effective date will be recognized over the remaining service
period using the compensation cost calculated for pro forma
disclosure purposes under SFAS No. 123, adjusted for
expected forfeitures. Additionally, SFAS No. 123(R)
will require entities to record compensation expense for
employee stock purchase plans that may not have previously been
considered compensatory under the existing rules.
SFAS No. 123(R) will be effective for the first annual
period beginning after June 15, 2005, which is the
Companys fiscal year beginning January 1, 2006. The
Company anticipates adopting the provisions of
SFAS No. 123(R) using a modified prospective
application. This statement may have a significant impact on the
Companys results of operations as the Company will be
required to record compensation expense in the consolidated
statement of operations rather than disclose the impact within
its notes to the consolidated financial statements.
F-45
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin No. 43, Chapter 4, Inventory
Pricing. SFAS No. 151 clarifies that abnormal
amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as
current-period charges. In addition, it requires that allocation
of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities.
SFAS No. 151 will be effective for inventory costs
incurred during fiscal years beginning after June 15, 2005
and will be applied on a prospective basis by the Company for
the fiscal year beginning January 1, 2006. The Company is
currently evaluating the impact that adoption of
SFAS No. 151 will have on its financial position and
results of operations.
Revenue Recognition The Companys
standard shipping term is freight on board (FOB)
shipping point, for which revenue is recognized upon shipment of
its products, at which time title passes to the customer, the
price is fixed and collectability is reasonably assured. For
certain customers, the Company has FOB destination terms, for
which revenue is recognized upon receipt of the products by the
customer, at which time title passes to the customer, the price
is fixed and collectability is reasonably assured. Generally,
the Company does not have obligations to its customers after its
products are shipped under FOB shipping point terms or after its
products are received by the customer under FOB destination
terms, other than pursuant to warranty obligations. In limited
instances, the Company provides installation of its products. In
accordance with Emerging Issues Task Force (EITF)
Issue 00-21 Accounting for Revenue Arrangements With
Multiple Deliverables, the Company allocates revenue based
on the fair value of the delivered item, generally the product,
and the undelivered item, installation, based on their
respective fair values. Revenue related to the undelivered item
is deferred until the services have been completed. In certain
limited instances, some of the Companys customers have
negotiated product acceptance provisions relative to specific
orders. Under these circumstances, the Company defers revenue
recognition until the related acceptance provisions have been
satisfied. Revenue deferrals are reported as customer deposits
and deferred revenue in the condensed consolidated balance
sheets.
In certain instances, the Company requires its customers to pay
for a portion or all of their purchases prior to the Company
building or shipping these products. Cash payments received
prior to shipment are recorded as customer deposits and deferred
revenue in the condensed consolidated balance sheets, and then
recognized as revenue as appropriate based upon the shipping
terms of the products. The Company does not offer price
protections to its customers or allow returns, unless covered by
its normal policy for repair of defective products.
F-46
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Warranty Policy The Company offers warranty
coverage for its products for periods typically ranging from 12
to 24 months after shipment. The Company estimates the
anticipated costs of repairing products under warranty based on
the historical or expected cost of the repairs and expected
failure rates. The assumptions used to estimate warranty
accruals are reevaluated quarterly, at a minimum, in light of
actual experience and, when appropriate, the accruals are
adjusted. The Companys determination of the appropriate
level of warranty accrual is subjective and based on estimates.
The industries in which the Company operates are subject to
rapid technological change and, as a result, the Company
periodically introduces newer, more complex products, which tend
to result in increased warranty costs. Estimated warranty costs
are recorded at the time of sale of the related product, and are
recorded within cost of sales in the condensed consolidated
statements of operations. The following summarizes the activity
in the Companys warranty reserves during the first three
months of 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Balance at beginning of period
|
|
$ |
6,791 |
|
|
$ |
6,612 |
|
Additions charged to expense
|
|
|
3,047 |
|
|
|
2,320 |
|
Deductions
|
|
|
(3,157 |
) |
|
|
(2,421 |
) |
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
6,681 |
|
|
$ |
6,511 |
|
|
|
|
|
|
|
|
Stock-Based Compensation At March 31,
2005, the Company had three active stock-based compensation
plans, which are more fully described in Note 18 of the
Companys Form 10-K for the year ended
December 31, 2004. The Company accounts for employee
stock-based compensation using the intrinsic value method
prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees and related interpretations. APB
Opinion No. 25 requires the use of the intrinsic value
method, which measures compensation cost as the excess, if any,
of the quoted market price of the stock at the measurement date
over the amount an employee must pay to acquire the stock. With
the exception of certain options granted in 1999 and 2000 by a
shareholder of Sekidenko, Inc., prior to its acquisition by the
Company, all options granted under these plans have an exercise
price equal to the market value of the underlying common stock
on the date of grant, therefore no stock-based compensation cost
is reflected in the Companys net income. The Company
records compensation expense related to the grants of restricted
stock units, over the period the units vest, typically four
years. Had compensation cost for the Companys plans been
determined consistent with the fair value-based method
prescribed by SFAS No. 123,
F-47
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Accounting for Stock-Based Compensation, the
Companys net income would have decreased to the following
adjusted amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data) | |
Net income (loss):
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
734 |
|
|
$ |
6,924 |
|
|
Adjustment for stock-based compensation determined under fair
value-based method for all awards(a), (b)
|
|
|
(1,934 |
) |
|
|
(2,786 |
) |
|
Less: Compensation expense recognized in net income(a)
|
|
|
56 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
(1,144 |
) |
|
$ |
4,198 |
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
As adjusted
|
|
$ |
(0.03 |
) |
|
$ |
0.13 |
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
As adjusted
|
|
$ |
(0.03 |
) |
|
$ |
0.12 |
|
|
|
(a) |
Compensation expense in 2005 and 2004 is presented prior to
income tax effects due to the Company fully reserving against
the related deferred tax asset. |
|
(b) |
Cumulative compensation cost recognized with respect to options
that are forfeited prior to vesting is reflected as a reduction
of compensation expense in the period of forfeiture.
Compensation expense related to awards granted under the
Companys employee stock purchase plan is estimated until
the period in which settlement occurs, as the number of shares
of common stock awarded and the purchase price are not known
until settlement. |
For SFAS No. 123 purposes, the fair value of each
option grant and purchase right granted under the Employee Stock
Purchase Plan (ESPP) are estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
OPTIONS:
|
|
|
|
|
|
|
|
|
Risk-free interest rates
|
|
|
3.43 |
% |
|
|
3.07 |
% |
Expected dividend yield rates
|
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected lives
|
|
|
2.9 years |
|
|
|
2.9 years |
|
Expected volatility
|
|
|
71.57 |
% |
|
|
76.47 |
% |
ESPP:
|
|
|
|
|
|
|
|
|
Risk-free interest rates
|
|
|
2.40 |
% |
|
|
1.01 |
% |
Expected dividend yield rates
|
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected lives
|
|
|
0.5 years |
|
|
|
0.5 years |
|
Expected volatility
|
|
|
62.48 |
% |
|
|
61.57 |
% |
Based on the Black-Scholes option pricing model, the
weighted-average estimated fair value of employee stock option
grants was $3.47 and $11.32 for the three-month periods ended
March 31, 2005 and
F-48
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
2004, respectively. The weighted-average estimated fair value of
purchase rights granted under the ESPP was $2.84 and $9.10 for
the three-month periods ended March 31, 2005 and 2004,
respectively.
The total fair value of options granted was computed to be
approximately $916,000 and $5.4 million for the three-month
periods ended March 31, 2005 and 2004, respectively. These
amounts are amortized ratably over the vesting period of the
options for the purpose of calculating the pro forma disclosure
above. The number of stock options exercised during the
three-month periods ended March 31, 2005 and 2004 was
approximately 15,000 and 26,000, respectively, at a weighted
average exercise price per share of $7.89 and $13.91,
respectively.
The Company granted approximately 227,000 restricted stock units
to certain employees during the three-month period ended
March 31, 2005. The Company did not grant any restricted
stock units in 2004. Upon granting of these units, deferred
compensation representing an estimate of the units expected to
vest at the market value at the date of grant is recorded in
shareholders equity and subsequently amortized over the
periods during which the units vest, generally 4 years.
Amortization of deferred compensation relating to the restricted
stock units of $56,000 was recorded for the three-month period
ended March 31, 2005.
The Company will adopt the provisions of
SFAS No. 123(R) as of January 1, 2006, as further
discussed under the heading New Accounting
Pronouncements above. The adoption of this statement may
have a significant impact on the Companys results of
operations as the Company will be required to record
compensation expense in the consolidated statement of operations
rather than disclose the impact within its notes to the
consolidated financial statements.
Income Taxes The Company accounts for income
taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109
requires deferred tax assets and liabilities to be recognized
for temporary differences between the tax basis and financial
reporting basis of assets and liabilities, computed at current
tax rates, as well as for the expected tax benefit of net
operating loss and tax credit carryforwards. During the third
quarter of 2003, the Company recorded valuation allowances
against certain of its United States and foreign net deferred
tax assets in jurisdictions where the Company has incurred
significant losses. Given such experience, the Companys
management could not conclude that it was more likely than not
that these net deferred tax assets would be realized.
Accordingly, the Companys management, in accordance with
SFAS No. 109, in evaluating the recoverability of
these net deferred tax assets, was required to place greater
weight on the Companys historical results as compared to
projections regarding future taxable income. The Company will
continue to evaluate its valuation allowance on a quarterly
basis, and may in the future reverse some portion or all of its
valuation allowance and recognize a reduction in income tax
expense or increase its valuation allowance for previously
unreserved assets and recognize an increase in income tax
expense. A portion of the valuation allowance relates to the
benefit from stock-based compensation. Any reversal of valuation
allowance from this item will be reflected as an increase in
additional paid in capital. When recording acquisitions, the
Company has recorded valuation allowances due to the uncertainty
related to the realization of certain deferred tax assets
existing at the acquisition dates. Any reversal of valuation
allowances recorded in purchase accounting is reflected as a
reduction of goodwill in the period of reversal.
Commitments and Contingencies 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 potential 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
potential loss could have a material adverse effect on our
financial position or reported results of operations in a
particular quarter. 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
F-49
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
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.
Goodwill and Other Intangible Assets Goodwill
represents the excess of the cost over the fair market value of
net tangible and identifiable intangible assets of acquired
businesses.
Goodwill and certain other intangible assets with indefinite
lives are not amortized. Instead, goodwill and other
indefinite-lived intangible assets are subject to periodic (at
least annual) tests for impairment. The Company performs the
annual test for impairment during the fourth quarter. For the
periods presented, the Company does not have any
indefinite-lived intangible assets, other than goodwill.
Impairment testing is performed in two steps: (i) the
Company assesses goodwill for potential impairment by comparing
the fair value of its reporting unit with its carrying value,
and (ii) if potential impairment is indicated because the
reporting units fair value is less than its carrying
amount, the Company measures the amount of impairment loss by
comparing the implied fair value of goodwill with the carrying
amount of that goodwill.
Finite-lived intangible assets continue to be amortized using
the straight-line method over their estimated useful lives and
are reviewed for impairment whenever events or circumstances
indicate that their carrying amount may not be recoverable.
Reclassifications Certain prior period
amounts have been reclassified to conform to the current period
presentation.
|
|
(2) |
Restructuring Charges |
Restructuring charges include the costs associated with actions
taken by the Company primarily in response to downturns in the
semiconductor capital equipment industry or to reduce costs and
improve operating efficiencies. These charges consist of costs
that are incurred to exit an activity or cancel an existing
contractual obligation, including the closure of facilities and
employee termination related charges.
The following table summarizes the components of the
restructuring charges, the payments and other settlements, and
the remaining accrual as of March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee | |
|
Facility | |
|
Total | |
|
|
Severance and | |
|
Closure | |
|
Restructuring | |
|
|
Termination Costs | |
|
Costs | |
|
Charges | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Accrual balance December 31, 2003
|
|
$ |
560 |
|
|
$ |
2,615 |
|
|
$ |
3,175 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2004 restructuring charge
|
|
|
220 |
|
|
|
|
|
|
|
220 |
|
|
Second quarter 2004 restructuring charge
|
|
|
187 |
|
|
|
|
|
|
|
187 |
|
|
Third quarter 2004 restructuring charge
|
|
|
57 |
|
|
|
31 |
|
|
|
88 |
|
|
Third quarter 2004 restructuring reversal
|
|
|
(127 |
) |
|
|
(126 |
) |
|
|
(253 |
) |
|
Fourth quarter 2004 restructuring charge
|
|
|
3,639 |
|
|
|
31 |
|
|
|
3,670 |
|
|
|
|
|
|
|
|
|
|
|
Total net restructuring charges 2004
|
|
|
3,976 |
|
|
|
(64 |
) |
|
|
3,912 |
|
Payments and other settlements in 2004
|
|
|
(1,243 |
) |
|
|
(1,430 |
) |
|
|
(2,673 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual balance December 31, 2004
|
|
|
3,293 |
|
|
|
1,121 |
|
|
|
4,414 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2005 restructuring charge
|
|
|
1,262 |
|
|
|
|
|
|
|
1,262 |
|
Payments and other settlements in 2005
|
|
|
(2,172 |
) |
|
|
(176 |
) |
|
|
(2,348 |
) |
|
|
|
|
|
|
|
|
|
|
Accrual balance March 31, 2005
|
|
$ |
2,383 |
|
|
$ |
945 |
|
|
$ |
3,328 |
|
|
|
|
|
|
|
|
|
|
|
F-50
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
For the first three quarters of 2004, the Company recorded
restructuring charges totaling $495,000, which primarily
consisted of the recognition of expense for involuntary employee
termination benefits associated with headcount reductions of
approximately 50 employees in the Companys
U.S. operations. All affected employees were terminated
prior to the respective quarter ends. Additionally, in the third
quarter, the Company reversed $253,000 of previously recorded
charges due to variances from the original estimates used to
establish the Companys reserve, consequently, the
Companys restructuring accrual balance for employee
severance and termination costs was $0 at September 30,
2004.
In the fourth quarter of 2004, the Company recorded
restructuring charges of $3.7 million, which primarily
consisted of employee termination and related costs associated
with the involuntary severance of 212 employees, including 60
agency employees, at the Companys Fort Collins
facility. All of such charges relate to separation costs
anticipated to be paid to the terminated employees, in cash, by
the end of the third quarter of 2005. The need to reduce
headcount in Fort Collins resulted primarily from the
transfer of a substantial portion of the Companys
manufacturing operations to Shenzhen, China.
Due to the continuing shift of the Companys volume
manufacturing to Shenzhen, China, the Company recorded
restructuring charges of $1.3 million in the first quarter
of 2005 related to the involuntary severance of the 212
employees at the Companys Fort Collins facility
(discussed above) and 7 employees in the Companys European
locations. All of such charges relate to separation costs
anticipated to be paid to the terminated employees, in cash, by
the end of the third quarter of 2005.
|
|
(3) |
Marketable Securities |
Marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Commercial paper
|
|
$ |
47,538 |
|
|
$ |
43,459 |
|
Municipal bonds and notes
|
|
|
18,962 |
|
|
|
20,332 |
|
Institutional money markets
|
|
|
3,516 |
|
|
|
5,787 |
|
|
|
|
|
|
|
|
Total marketable securities
|
|
$ |
70,016 |
|
|
$ |
69,578 |
|
|
|
|
|
|
|
|
These marketable securities are classified as available-for-sale
and are stated at period end market value. The commercial paper
consists of high credit quality, short-term preferreds with
maturities or reset dates of approximately 120 days.
(4) Accounts Receivable
Accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
21,280 |
|
|
$ |
16,612 |
|
Foreign
|
|
|
43,537 |
|
|
|
51,047 |
|
Allowance for doubtful accounts
|
|
|
(1,007 |
) |
|
|
(1,049 |
) |
|
|
|
|
|
|
|
Trade accounts receivable, net
|
|
|
63,810 |
|
|
|
66,610 |
|
Other
|
|
|
6,042 |
|
|
|
5,443 |
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
|
$ |
69,852 |
|
|
$ |
72,053 |
|
|
|
|
|
|
|
|
F-51
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Net inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Parts and raw materials
|
|
$ |
47,673 |
|
|
$ |
54,069 |
|
Work in process
|
|
|
5,522 |
|
|
|
4,491 |
|
Finished goods
|
|
|
12,973 |
|
|
|
14,664 |
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$ |
66,168 |
|
|
$ |
73,224 |
|
|
|
|
|
|
|
|
Inventories include costs of materials, direct labor and
manufacturing overhead. Inventories are valued at the lower of
cost or market, computed on a first-in, first-out basis and are
presented net of reserves for obsolete and excess inventory.
Inventory is written down or written off when it becomes
obsolete, generally because of engineering changes to a product
or discontinuance of a product line, or when it is deemed
excess. These determinations involve the exercise of significant
judgment by management, and as demonstrated in recent periods,
demand for the Companys products is volatile and changes
in expectations regarding the level of future sales can result
in substantial charges against earnings for obsolete and excess
inventory.
|
|
(6) |
Goodwill and Other Intangible Assets |
Goodwill and other intangible assets consisted of the following
as of March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
Effect of | |
|
|
|
|
|
Weighted- | |
|
|
Gross | |
|
Changes in | |
|
|
|
Net | |
|
Average | |
|
|
Carrying | |
|
Exchange | |
|
Accumulated | |
|
Carrying | |
|
Useful Life | |
|
|
Amount | |
|
Rates | |
|
Amortization | |
|
Amount | |
|
(Years) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except weighted-average useful life) | |
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$ |
7,304 |
|
|
$ |
1,598 |
|
|
$ |
(5,640 |
) |
|
$ |
3,262 |
|
|
|
6 |
|
|
Contract-based
|
|
|
1,200 |
|
|
|
221 |
|
|
|
(1,398 |
) |
|
|
23 |
|
|
|
4 |
|
|
Trademarks and other
|
|
|
8,500 |
|
|
|
2,249 |
|
|
|
(3,124 |
) |
|
|
7,625 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
|
17,004 |
|
|
|
4,068 |
|
|
|
(10,162 |
) |
|
|
10,910 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
54,040 |
|
|
|
11,259 |
|
|
|
|
|
|
|
65,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$ |
71,044 |
|
|
$ |
15,327 |
|
|
$ |
(10,162 |
) |
|
$ |
76,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Goodwill and other intangible assets consisted of the following
as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative | |
|
|
|
|
|
|
|
|
|
|
Effect of | |
|
|
|
|
|
Weighted- | |
|
|
Gross | |
|
Changes in | |
|
|
|
|
|
Average | |
|
|
Carrying | |
|
Exchange | |
|
Accumulated | |
|
Net Carrying | |
|
Useful Life | |
|
|
Amount | |
|
Rates | |
|
Amortization | |
|
Amount | |
|
(Years) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except weighted-average useful life) | |
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
$ |
7,304 |
|
|
$ |
1,741 |
|
|
$ |
(5,290 |
) |
|
$ |
3,755 |
|
|
|
6 |
|
|
Contract-based
|
|
|
1,200 |
|
|
|
222 |
|
|
|
(1,386 |
) |
|
|
36 |
|
|
|
4 |
|
|
Trademarks and other
|
|
|
8,500 |
|
|
|
2,689 |
|
|
|
(2,948 |
) |
|
|
8,241 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
|
17,004 |
|
|
|
4,652 |
|
|
|
(9,624 |
) |
|
|
12,032 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
55,104 |
|
|
|
13,172 |
|
|
|
|
|
|
|
68,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets
|
|
$ |
72,108 |
|
|
$ |
17,824 |
|
|
$ |
(9,624 |
) |
|
$ |
80,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When recording acquisitions, we have recorded income tax
valuation allowances due to the uncertainty related to the
realization of certain deferred tax assets existing at the
acquisition dates. During the first quarter of 2005,
approximately $1.1 million of valuation allowance
established in purchase accounting was reversed, with a
corresponding reduction in goodwill.
Aggregate amortization expense related to other intangibles for
the three-month periods ended March 31, 2005 and 2004 was
$547,000 and $1.2 million, respectively. Estimated
amortization expense related to the Companys acquired
intangibles fluctuates with changes in foreign currency exchange
rates between the U.S. dollar and the Japanese yen and the
euro. Estimated amortization expense related to acquired
intangibles for each of the five years 2005 through 2009 is as
follows:
|
|
|
|
|
|
|
Estimated | |
|
|
Amortization | |
|
|
Expense | |
|
|
| |
|
|
(In thousands) | |
2005
|
|
$ |
2,173 |
|
2006
|
|
|
2,016 |
|
2007
|
|
|
1,009 |
|
2008
|
|
|
876 |
|
2009
|
|
|
474 |
|
F-53
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(7) Stockholders Equity
Stockholders equity consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, | |
|
|
except par value) | |
Common stock, $0.001 par value, 70,000 shares
authorized, 32,775 and 32,760 shares issued and
outstanding, respectively
|
|
$ |
33 |
|
|
$ |
33 |
|
Additional paid-in capital
|
|
|
145,971 |
|
|
|
144,500 |
|
Retained deficit
|
|
|
(12,061 |
) |
|
|
(12,795 |
) |
Deferred compensation
|
|
|
(1,284 |
) |
|
|
|
|
Unrealized holding gains on available-for-sale securities, net
of tax
|
|
|
1,425 |
|
|
|
1,051 |
|
Cumulative translation adjustments, net of tax
|
|
|
9,251 |
|
|
|
12,189 |
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$ |
143,335 |
|
|
$ |
144,978 |
|
|
|
|
|
|
|
|
|
|
(8) |
Comprehensive (Loss) Income |
Comprehensive (loss) income for the Company consists of net
income, foreign currency translation adjustments and net
unrealized holding gains on available-for-sale marketable
securities as presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Net income, as reported
|
|
$ |
734 |
|
|
$ |
6,924 |
|
Adjustment to arrive at comprehensive (loss) income, net of
taxes:
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain on available-for-sale marketable
securities
|
|
|
374 |
|
|
|
98 |
|
|
Reclassification adjustment for amounts included in net income
related to sales of securities
|
|
|
|
|
|
|
(294 |
) |
|
Cumulative translation adjustments
|
|
|
(2,938 |
) |
|
|
935 |
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$ |
(1,830 |
) |
|
$ |
7,663 |
|
|
|
|
|
|
|
|
|
|
(9) |
Convertible Subordinated Notes Payable |
The Company has two convertible subordinated notes totaling
$187.7 million as follows:
|
|
|
|
|
Approximately $121.5 million of 5.0% convertible
subordinated notes outstanding (5.0% Notes).
These notes mature September 1, 2006, with interest payable
on March 1st and September 1st of each year.
At March 31, 2005, approximately $506,000 of interest
expense related to the 5.0% Notes was accrued as a current
liability. |
|
|
|
Approximately $66.2 million of 5.25% convertible
subordinated notes outstanding (5.25% Notes).
These notes mature November 15, 2006, with interest payable
on May 15th and November 15th each year. At
March 31, 2005, approximately $1.3 million of interest
expense related to the 5.25% Notes was accrued as a current
liability. |
F-54
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
(10) |
Commitments and Contingencies |
The Company has inventory purchase commitments of approximately
$3.8 million for the remainder of 2005 and
$2.5 million for 2006 of parts, components and
subassemblies from various suppliers. These inventory purchase
obligations consist of minimum purchase commitments to ensure
the Company has an adequate supply of critical components to
meet the demand of its customers. The Company believes that
these purchase commitments will be consumed in its on-going
operations in the respective periods.
The Company has also committed to advance up to $850,000 to a
privately held company in exchange for an exclusive intellectual
property license. The amount and timing of this advance is
dependent upon the privately held company achieving certain
development milestones. As of March 31, 2005, approximately
$200,000 has been advanced under this agreement, which was
recorded within research and development expense in the
condensed consolidated statement of operations.
|
|
|
Disputes and Legal Actions |
The Company is involved in disputes and legal actions arising in
the normal course of its business. Currently and historically,
the Companys most significant legal actions have involved
the application of patent law to complex technologies and
intellectual property. The determination of whether such
technologies infringe upon the Companys or others
patents is highly subjective. This high level of subjectivity
introduces substantial additional risk with regard to the
outcome of the Companys disputes and legal actions related
to intellectual property. While the Company currently believes
that the amount of any ultimate potential loss for
currently-known matters would not be material to the
Companys financial position, the outcome of these actions
is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material
adverse effect on the Companys 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 the Companys inability to ship products or
components found to have violated third-party patent rights. The
Company accrues loss contingencies in connection with its
litigation when it is probable that a loss will occur and the
amount of the loss can be reasonably estimated.
In April 2003, the Company filed a claim in the United States
District Court for the District of Colorado seeking a
declaratory ruling that its new plasma source products
Xstreamtm
With Active Matching
Networktm
(Xstream products) are not in violation of
U.S. Patents held by MKS Instruments, Inc.
(MKS). This case was transferred by the Colorado
court to the United States District Court for the District of
Delaware for consolidation with a patent infringement suit filed
in that court by MKS in May 2003, alleging that the
Companys Xstream products infringe five patents held by
MKS. On July 23, 2004, a jury returned a verdict of
infringement of three MKS patents, which did not stipulate
damages. The court has not enjoined the Company from selling the
Xstream products. The Company has filed four separate motions to
have the verdict set aside based upon defects in the trial. On
March 31, 2005, the court ordered the case referred to a
Special Master for investigation of the Companys claims
and review of the verdict. Potential liability, if any,
resulting from the jury verdict is indeterminable at this time,
and therefore no amount has been accrued by the Company in the
accompanying condensed consolidated financial statements.
On June 2, 2004, MKS filed a petition in the District Court
in Munich, Germany, alleging infringement by the Companys
Xstream products of a counterpart German patent owned by MKS. On
August 4, 2004, this court dismissed MKSs petition
and assessed costs of the proceeding against MKS. MKS refiled an
infringement petition in the District Court of Mannheim. On
April 8, 2005, the Mannheim court issued a judgment of
infringement of MKSs patent. The judgment did not specify
damages, but no liability is anticipated because the accused
product has not been made or sold in
F-55
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Germany. A petition for invalidity of MKSs patent brought
by the Company is still pending before the German Federal Patent
Court.
On July 12, 2004, the Company filed a complaint in the
United States District Court for the District of Delaware
against MKS alleging that MKSs Astron reactive gas source
products infringe Advanced Energys U.S. Patent
No. 6,046,546. The case was voluntarily dismissed on
March 11, 2005 under an agreement that leaves the Company
free to refile its claims upon conclusion of MKSs lawsuit
against the Companys Xstream products.
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 certain charges which 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 (convertible notes
payable, stock options and restricted stock units) had been
converted to such common shares, and if such assumed conversion
is dilutive. As of March 31, 2005 and 2004, stock options
and restricted stock units totaling approximately
4.5 million and 4.2 million, respectively, were
outstanding. Of these amounts, 3.4 million and
1.5 million stock options for the three months ended
March 31, 2005 and 2004, respectively, are not included in
the computation of diluted earnings per share because the effect
of including such options in the computation would be
antidilutive. Potential shares of common stock issuable upon
conversion of the Companys convertible subordinated notes
payable were 5.4 million at both March 31, 2005 and
2004. For the three months ended March 31, 2005 and 2004,
the affect of potential conversion of the Companys
convertible subordinated notes payable was not included in this
computation because to do so would be anti-dilutive.
The following is a reconciliation of the numerators and
denominators used in the calculation of basic and diluted EPS
for the three months ended March 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data) | |
Earnings per common share
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
734 |
|
|
$ |
6,924 |
|
|
Weighted average common shares outstanding
|
|
|
32,755 |
|
|
|
32,581 |
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
Earnings per common share assuming dilution
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
734 |
|
|
$ |
6,924 |
|
|
Weighted average common shares outstanding
|
|
|
32,755 |
|
|
|
32,581 |
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
|
123 |
|
|
|
1,012 |
|
|
|
Convertible subordinated debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive common shares
|
|
|
123 |
|
|
|
1,012 |
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding
|
|
|
32,878 |
|
|
|
33,593 |
|
|
|
|
|
|
|
|
|
Earnings per common share assuming dilution
|
|
$ |
0.02 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
F-56
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
(12) |
Foreign Operations and Major Customers |
The Company has operations in the U.S., Europe and Asia Pacific.
The following is a summary of the Companys operations by
region:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Sales:
|
|
|
|
|
|
|
|
|
|
Originated and sold in the U.S.
|
|
$ |
44,732 |
|
|
$ |
58,802 |
|
|
Originated in U.S. and sold outside the U.S.
|
|
|
5,802 |
|
|
|
13,500 |
|
|
Originated in Europe and sold in the U.S.
|
|
|
|
|
|
|
112 |
|
|
Originated in Europe and sold outside the U.S.
|
|
|
7,186 |
|
|
|
8,512 |
|
|
Originated in Asia Pacific and sold outside the U.S.
|
|
|
28,420 |
|
|
|
23,561 |
|
|
|
|
|
|
|
|
|
|
$ |
86,140 |
|
|
$ |
104,487 |
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
(2,115 |
) |
|
$ |
3,182 |
|
|
Europe
|
|
|
203 |
|
|
|
612 |
|
|
Asia Pacific
|
|
|
5,192 |
|
|
|
7,386 |
|
|
Intercompany eliminations
|
|
|
70 |
|
|
|
(1,370 |
) |
|
|
|
|
|
|
|
|
|
$ |
3,350 |
|
|
$ |
9,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
392,612 |
|
|
$ |
411,324 |
|
|
Europe
|
|
|
41,235 |
|
|
|
43,011 |
|
|
Asia Pacific
|
|
|
279,780 |
|
|
|
280,351 |
|
|
Intercompany eliminations
|
|
|
(320,709 |
) |
|
|
(338,711 |
) |
|
|
|
|
|
|
|
|
|
$ |
392,918 |
|
|
$ |
395,975 |
|
|
|
|
|
|
|
|
Intercompany sales among the Companys geographic areas are
recorded on the basis of intercompany prices established by the
Company.
Applied Materials, Inc. is the Companys largest customer
and accounted for 24% and 28% of the Companys sales for
the three months ended March 31, 2005 and 2004,
respectively. Ulvac, Inc. accounted for 11% of the
Companys sales for the three months ended March 31,
2005. No other customer accounted for more than 10% of the
Companys sales during these periods.
|
|
(13) |
Supplemental Cash Flow Disclosures |
In the first quarter of 2004, the Company sold its Noah chiller
business to an unrelated third party for $797,000 in cash and a
$1.9 million note receivable due March 31, 2009. The
note bears interest at 5.0%, payable annually on March 31.
The sale included property and equipment with a book value of
approximately $300,000, inventory of approximately
$1.0 million, goodwill and intangible assets net of
accumulated amortization of approximately $900,000,
demonstration and customer service equipment of approximately
$140,000, and estimated warranty obligations of approximately
$140,000. The Company recognized a gain on the sale of $404,000,
which has been recorded as other income and expense in the
accompanying condensed consolidated financial statements.
F-57
PROSPECTUS
Advanced Energy Industries, Inc.
$250,000,000
Common Stock
Debt Securities
This prospectus relates to common stock and debt securities that
we may sell from time to time, in one or more offerings, for
aggregate proceeds of up to $250,000,000. We may offer the
securities in one or more series, in amounts, at prices and on
terms determined at the time of offering. We will provide
specific terms of the securities we actually offer for sale in
supplements to this prospectus.
You should read this prospectus, the documents incorporated by
reference and the applicable prospectus supplement carefully
before you invest. This prospectus may not be used to offer and
sell securities unless accompanied by a prospectus supplement.
Our common stock is listed on the Nasdaq National Market under
the symbol AEIS. The closing price of our common
stock on the Nasdaq National Market was $29.74 per share on
November 12, 2003. The debt securities are not currently
publicly traded.
We may sell the securities directly to you, through agents we
select, through underwriters we select or through a combination
of these methods. If we use agents, underwriters or dealers to
sell the securities, we will name them and describe their
compensation in a prospectus supplement. The net proceeds we
expect to receive from these sales will also be included in a
prospectus supplement.
&nb