##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended March 31, 2011.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from  to .
 Commission file number: 000-26966
 ADVANCED ENERGY INDUSTRIES, INC.
  Delaware
    
    84-0846841(State or other jurisdiction of incorporation 
or organization)
    
    (I.R.S. Employer Identification No.)
 1625 Sharp Point Drive, Fort Collins, CO
    
    80525(Address of principal executive offices)
    
    (Zip Code)
 (970) 221-4670
 þ   o
 o   o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o  þ




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##### 



ADVANCED ENERGY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
 PagePART I FINANCIAL STATEMENTS
    
    
    3ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    3Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    18ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    24ITEM 4. CONTROLS AND PROCEDURES
    
    
    25PART II OTHER INFORMATION
    
    
    25ITEM 1. LEGAL PROCEEDINGS
    
    
    25ITEM 1A. RISK FACTORS
    
    
    25ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    26ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    26ITEM 4. REMOVED AND RESERVED
    
    
    26ITEM 5. OTHER INFORMATION
    
    
    26ITEM 6. EXHIBITS
    
    
    26SIGNATURE
    
    
    27EX-10.1EX-10.2EX-10.3EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I FINANCIAL STATEMENTS
 
 ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 ADVANCED ENERGY INDUSTRIES, INC.
 
 Condensed Consolidated Balance Sheets
 (In thousands, except per share amounts)
 March 31,
    
    
    December 31,2011
    
    
    2010ASSETSCURRENT ASSETS:Cash and cash
equivalents
    
    $
    132,418
    
    
    $
    130,914Marketable securities
    
    
    7,620
    
    
    
    9,640Accounts receivable, net of allowances of
$4,159 and $3,440, respectively
    
    
    121,236
    
    
    
    119,893Inventories
    
    
    90,109
    
    
    
    77,593Deferred income tax
assets
    
    
    7,689
    
    
    
    7,510Income taxes
receivable
    
    
    9,435
    
    
    
    6,061Other current assets
    
    
    9,179
    
    
    
    10,156Total current
assets
    
    
    377,686
    
    
    
    361,767PROPERTY AND EQUIPMENT,
net
    
    
    36,210
    
    
    
    34,569OTHER ASSETS:Uncertain tax
positions and
deposits
    
    
    8,874
    
    
    
    8,874Goodwill
    
    
    48,360
    
    
    
    48,360Other intangible
assets, net
    
    
    47,500
    
    
    
    48,421Deferred income tax
assets
    
    
    3,166
    
    
    
    3,166Total assets
    
    $
    521,796
    
    
    $
    505,157LIABILITIES AND
STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    51,974
    
    
    $
    56,185Income taxes payable
    
    
    6,989
    
    
    
    3,602Accrued payroll and
employee benefits
    
    
    13,017
    
    
    
    23,202Accrued warranty
expense
    
    
    7,831
    
    
    
    7,144Other accrued
expenses
    
    
    7,433
    
    
    
    5,389Customer deposits
    
    
    7,735
    
    
    
    6,803Total current
liabilities
    
    
    94,979
    
    
    
    102,325LONG-TERM LIABILITIES:Deferred income tax
liabilities
    
    
    5,119
    
    
    
    5,155Uncertain tax
positions
    
    
    14,176
    
    
    
    14,176Accrued warranty
expense
    
    
    5,597
    
    
    
    5,805Other long-term
liabilities
    
    
    5,067
    
    
    
    3,728Total liabilities
    
    
    124,938
    
    
    
    131,189Commitments and
contingencies (Note 15)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; 43,520 and 43,330
shares issued and
outstanding,
respectively
    
    
    44
    
    
    
    43Additional paid-in
capital
    
    
    262,672
    
    
    
    258,398Retained earnings
    
    
    107,358
    
    
    
    88,453Accumulated other
comprehensive income
    
    
    26,784
    
    
    
    27,074Total
stockholders
equity
    
    
    396,858
    
    
    
    373,968Total
liabilities and
stockholders
equity
    
    $
    521,796
    
    
    $
    505,157
 
 *
    
    Amounts as of March 31, 2011 are unaudited. Amounts as of December 31, 2010 are derived
from the December 31, 2010 audited Consolidated Financial Statements.  3




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ADVANCED ENERGY INDUSTRIES, INC.
 
 Condensed Consolidated Statements of Operations (Unaudited)
 (In thousands, except per share amounts)
 Three Months EndedMarch 31,2011
    
    
    2010SALES
    
    $
    137,652
    
    
    $
    69,687COST OF SALES
    
    
    75,607
    
    
    
    40,480GROSS PROFIT
    
    
    62,045
    
    
    
    29,207OPERATING EXPENSES:Research and development
    
    
    15,862
    
    
    
    11,142Selling, general and administrative
    
    
    20,905
    
    
    
    12,229Amortization of intangible assets
    
    
    921
    
    
    
    Total operating expenses
    
    
    37,688
    
    
    
    23,371OPERATING INCOME
    
    
    24,357
    
    
    
    5,836OTHER INCOME, NET
    
    
    663
    
    
    
    385Income from continuing operations before income taxes
    
    
    25,020
    
    
    
    6,221Provision for income taxes
    
    
    6,254
    
    
    
    1,371INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES
    
    
    18,766
    
    
    
    4,850Results from discontinued operations, net of income taxes
    
    
    140
    
    
    
    1,367NET INCOME
    
    $
    18,906
    
    
    $
    6,217Basic weighted-average common shares outstanding
    
    
    43,440
    
    
    
    42,074Diluted weighted-average common shares outstanding
    
    
    44,133
    
    
    
    42,680EARNINGS PER SHARE:CONTINUING OPERATIONS:BASIC EARNINGS PER SHARE
    
    $
    0.43
    
    
    $
    0.12DILUTED EARNINGS PER SHARE
    
    $
    0.43
    
    
    $
    0.11DISCONTINUED OPERATIONS;BASIC EARNINGS PER SHARE
    
    $
    0.00
    
    
    $
    0.03DILUTED EARNINGS PER SHARE
    
    $
    0.00
    
    
    $
    0.03NET INCOME:BASIC EARNINGS PER SHARE
    
    $
    0.44
    
    
    $
    0.15DILUTED EARNINGS PER SHARE
    
    $
    0.43
    
    
    $
    0.15
  4




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ADVANCED ENERGY INDUSTRIES, INC.
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Three Months EndedMarch 31,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    18,906
    
    
    $
    6,217Adjustments to reconcile net income to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    3,263
    
    
    
    1,843Stock-based compensation expense
    
    
    2,740
    
    
    
    1,875Provision (benefit) for deferred income taxes
    
    
    (180
    )
    
    
    1,925Net loss on disposal of assets
    
    
    556
    
    
    
    Changes in operating assets and liabilities, net of assets acquired:Accounts receivable
    
    
    (904
    )
    
    
    (11,818
    )Inventories
    
    
    (11,927
    )
    
    
    (10,682
    )Other current assets
    
    
    3,490
    
    
    
    (734
    )Accounts payable
    
    
    (4,212
    )
    
    
    4,657Other current liabilities and accrued expenses
    
    
    (9,751
    )
    
    
    2,550Income taxes
    
    
    386
    
    
    
    (5,596
    )Non-current assets
    
    
    
    
    
    
    (1,650
    )Non-current liabilities
    
    
    348
    
    
    
    36Net cash provided by (used in) operating activities
    
    
    2,715
    
    
    
    (11,377
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of marketable securities
    
    
    22
    
    
    
    (64,932
    )Proceeds from sale of marketable securities
    
    
    2,000
    
    
    
    60,537Proceeds from sale of assets
    
    
    16
    
    
    
    Purchase of property and equipment
    
    
    (4,428
    )
    
    
    (800
    )Net cash used in investing activities
    
    
    (2,390
    )
    
    
    (5,195
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payments on capital lease obligations
    
    
    (39
    )
    
    
    (11
    )Proceeds from exercise of stock options
    
    
    1,621
    
    
    
    503Excess tax benefit from stock-based compensation deduction
    
    
    (88
    )
    
    
    15Net cash provided by financing activities
    
    
    1,494
    
    
    
    507EFFECT OF CURRENCY TRANSLATION ON CASH
    
    
    (315
    )
    
    
    (2,398
    )INCREASE (DECREASE ) IN CASH AND CASH EQUIVALENTS
    
    
    1,504
    
    
    
    (18,463
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    130,914
    
    
    
    133,106CASH AND CASH EQUIVALENTS, end of period
    
    $
    132,418
    
    
    $
    114,643SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    10
    
    
    $
    27Cash paid for income taxes
    
    
    6,246
    
    
    
    6,006Cash received for refunds of income taxes
    
    
    176
    
    
    
    Cash held in banks outside the United States
    
    
    58,494
    
    
    
    70,727
  5




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ADVANCED ENERGY INDUSTRIES, INC.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 NOTE 1. BASIS OF PRESENTATION
   Thin Films Deposition Power Conversion and Thermal Instrumentation
 Renewable Power Inverters
   ESTIMATES AND ASSUMPTIONS 
 RECLASSIFICATIONS 
 NEW ACCOUNTING PRONOUNCEMENTS
 6




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NOTE 2. BUSINESS ACQUISITION AND DISPOSITION
 Acquisition
     Cash paid to owners
    
    $
    76,301Cash acquired
    
    
    (724
    )Common stock issued - 997,966 shares
    
    
    14,690Total fair value of consideration transferred
    
    $
    90,267
  Accounts receivable
    
    $
    4,777Inventories
    
    
    8,363Other current assets
    
    
    277Deferred tax assets
    
    
    2,746Property and equipment
    
    
    4,065Deposits and other noncurrent assets
    
    
    67Accounts payable
    
    
    (5,480
    )Accrued liabilities
    
    
    (2,744
    )Deferred tax liabilities
    
    
    (18,711
    )Other long-term liabilities
    
    
    (2,739
    )(9,379
    )Amortizable intangible assets:Trademarks
    
    
    5,277Technology
    
    
    28,208In process research and development
    
    
    14,868Customer relationships
    
    
    2,213Backlog
    
    
    720Total amortizable intangible assets
    
    
    51,286Total identifiable net assets
    
    
    41,907Goodwill
    
    
    48,360Total fair value of consideration transferred
    
    $
    90,267
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AmortizationAmount
    
    
    Method
    
    
    Useful LifeTrademarks
    
    $
    5,277
    
    
    Accelerated
    
    10 yearsTechnology
    
    
    28,208
    
    
    Accelerated
    
    7 yearsIn process research and development
    
    
    14,868Customer relationships
    
    
    2,213
    
    
    Accelerated
    
    7 yearsBacklog
    
    
    720
    
    
    Straight-line
    
    6 months$
    51,286
   Sales
    
    $
    27,624Net income
    
    
    4,178
 Pro Forma Results for PV Powered Acquisition
 pro forma
  Sales
    
    $
    79,098Net income
    
    
    5,232Earnings per share:Basic
    
    $
    0.12Diluted
    
    
    0.12
 Disposition
 ®
  8




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Three Months EndedMarch 31,2011
    
    
    2010Sales
    
    $
    6,346
    
    
    $
    11,865Cost of sales
    
    
    6,686
    
    
    
    7,964Gross margin
    
    
    (340
    )
    
    
    3,901Operating expenses:Research and development
    
    
    8
    
    
    
    447Selling, general and administrative
    
    
    50
    
    
    
    1,054Amortization of intangible assets
    
    
    
    
    
    
    122Total operating expenses
    
    
    58
    
    
    
    1,623Operating income (loss) from discontinued operations
    
    
    (398
    )
    
    
    2,278Other income
    
    
    611
    
    
    
    Income from discontinued operations before income taxes
    
    
    213
    
    
    
    2,278Income taxes on income from discontinued operations
    
    
    73
    
    
    
    911Income from discontinued operations, net of income taxes
    
    $
    140
    
    
    $
    1,367
 NOTE 3. INCOME TAXES
  Three Months Ended March 31,2011
    
    
    2010Income from continuing operations before income taxes
    
    $
    25,020
    
    
    $
    6,221Income tax expense
    
    
    6,254
    
    
    
    1,371Effective tax rate
    
    
    25.0
    %
    
    
    22.0
    %
   NOTE 4. EARNINGS PER SHARE
  9




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2011
    
    
    2010Net income from continuing operations, net of income taxes
    
    $
    18,766
    
    
    $
    4,850Basic weighted-average shares outstanding
    
    
    43,440
    
    
    
    42,074Assumed exercise of dilutive stock options and restricted stock units
    
    
    693
    
    
    
    606Diluted weighted-average shares outstanding
    
    
    44,133
    
    
    
    42,680Income from Continuing Operations:Earnings per common share:Basic earnings per share
    
    $
    0.43
    
    
    $
    0.12Diluted earnings per share
    
    $
    0.43
    
    
    $
    0.11
  NOTE 5. MARKETABLE SECURITIES
   March 31, 2011
    
    
    December 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueTreasury bills
    
    $
    2,001
    
    
    $
    2,003
    
    
    $
    2,003
    
    
    $
    2,006Certificates of deposit
    
    
    3,115
    
    
    
    3,115
    
    
    
    3,126
    
    
    
    3,126Corporate bonds/notes
    
    
    1,001
    
    
    
    1,002
    
    
    
    1,002
    
    
    
    1,004Agency bonds/notes
    
    
    1,500
    
    
    
    1,500
    
    
    
    3,503
    
    
    
    3,504Total securities
    
    $
    7,617
    
    
    $
    7,620
    
    
    $
    9,634
    
    
    $
    9,640
  Earliest
    
    
    
    
    
    
    LatestTreasury bills
    
    
    5/31/2011
    
    
    to
    
    
    5/31/2011Certificates of deposit
    
    
    4/14/2011
    
    
    to
    
    
    12/10/2011Corporate bonds/notes
    
    
    6/3/2011
    
    
    to
    
    
    6/3/2011Agency bonds
    
    
    4/18/2011
    
    
    to
    
    
    4/18/2011
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NOTE 6. ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
  As of March 31, 2011:
    
    Level 1
    
    
    Level 2
    
    
    TotalTreasury bills
    
    $
    2,003
    
    
    $
    
    
    
    $
    2,003Certificates of deposit
    
    
    
    
    
    
    3,115
    
    
    
    3,115Corporate bonds/notes
    
    
    1,002
    
    
    
    
    
    
    
    1,002Agency bonds/notes
    
    
    1,500
    
    
    
    
    
    
    
    1,500Total
    
    $
    4,505
    
    
    $
    3,115
    
    
    $
    7,620
 As of December 31, 2010:
    
    Level 1
    
    
    Level 2
    
    
    TotalTreasury bills
    
    
    2,006
    
    
    
    
    
    
    
    2,006Certificates of deposit
    
    
    
    
    
    
    3,126
    
    
    
    3,126Corporate bonds/notes
    
    
    1,004
    
    
    
    
    
    
    
    1,004Agency bonds/notes
    
    
    3,504
    
    
    
    
    
    
    
    3,504Total
    
    $
    6,514
    
    
    $
    3,126
    
    
    $
    9,640
  NOTE 7. INVENTORIES
  March 31,
    
    
    December 31,2011
    
    
    2010Parts and raw materials
    
    $
    60,369
    
    
    $
    53,755Work in process
    
    
    7,821
    
    
    
    5,594Finished goods
    
    
    21,919
    
    
    
    18,244$
    90,109
    
    
    $
    77,593
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NOTE 8. PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2011
    
    
    2010Buildings and land
    
    $
    1,744
    
    
    $
    1,701Machinery and equipment
    
    
    49,844
    
    
    
    53,885Computer and communication equipment
    
    
    20,840
    
    
    
    23,296Furniture and fixtures
    
    
    2,968
    
    
    
    5,717Vehicles
    
    
    463
    
    
    
    541Leasehold improvements
    
    
    27,668
    
    
    
    28,003Construction in process
    
    
    3,407
    
    
    
    3,996106,934
    
    
    
    117,139Less: Accumulated depreciation
    
    
    (70,724
    )
    
    
    (82,570
    )$
    36,210
    
    
    $
    34,569
  2011
    
    
    2010Three months
    
    $
    2,342
    
    
    $
    1,521
 NOTE 9. GOODWILL
  2011Gross carrying amount, beginning of period
    
    $
    48,360Additions and adjustments
    
    
    Impairments
    
    
    Net carrying amount, end of period
    
    $
    48,360
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NOTE 10. INTANGIBLE ASSETS
  Weighted-Gross
    
    
    
    
    
    
    
    
    
    
    AverageCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Useful LifeAmount
    
    
    Amortization
    
    
    Amount
    
    
    in YearsAmortizable intangibles:Technology-based
    
    $
    31,552
    
    
    $
    (3,121
    )
    
    $
    28,431
    
    
    
    7Trademarks and other
    
    
    8,210
    
    
    
    (664
    )
    
    
    7,546
    
    
    
    8Total amortizable intangibles
    
    $
    39,762
    
    
    $
    (3,785
    )
    
    $
    35,977
  Weighted-Gross
    
    
    
    
    
    
    
    
    
    
    AverageCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Useful LifeAmount
    
    
    Amortization
    
    
    Amount
    
    
    in YearsAmortizable intangibles:Technology-based
    
    $
    31,552
    
    
    $
    (2,270
    )
    
    $
    29,282
    
    
    
    7Trademarks and other
    
    
    8,210
    
    
    
    (594
    )
    
    
    7,616
    
    
    
    8Total amortizable intangibles
    
    $
    39,762
    
    
    $
    (2,864
    )
    
    $
    36,898
  2011
    
    
    2010Three months
    
    $
    921
    
    
    $
    
  Year Ending December 31,2011 (Remaining)
    
    $
    2,7622012
    
    
    5,0072013
    
    
    6,6112014
    
    
    7,1312015
    
    
    6,569Thereafter
    
    
    7,897$
    35,977
  March 31,
    
    
    December 31,Non-amortizable intangibles:
    
    2011
    
    
    2010In process research and development
    
    $
    11,523
    
    
    $
    11,523
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NOTE 11. WARRANTIES
  2011
    
    
    2010Balance at beginning of period
    
    $
    12,949
    
    
    $
    7,005Increases to accruals related to sales during the period
    
    
    2,551
    
    
    
    2,255Warranty expenditures
    
    
    (2,072
    )
    
    
    (1,386
    )Balance at end of period
    
    $
    13,428
    
    
    $
    7,874
 NOTE 12. STOCK-BASED COMPENSATION
  2011
    
    
    2010Three months
    
    $
    2,740
    
    
    $
    1,875
 Stock Options
   SharesOptions outstanding at December 31, 2010
    
    
    5,709Options granted
    
    
    398Options exercised
    
    
    (165
    )Options forfeited
    
    
    (185
    )Options expired
    
    
    (50
    )Options outstanding at March 31, 2011
    
    
    5,707
 Restricted Stock Units
  SharesBalance at December 31, 2010
    
    
    447RSUs granted
    
    
    182RSUs vested
    
    
    (33
    )RSUs forfeited
    
    
    (17
    )Balance at March 31, 2011
    
    
    579
 NOTE 13. COMPREHENSIVE INCOME
  14




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2011
    
    
    2010Net income
    
    $
    18,906
    
    
    $
    6,217Adjustments to arrive at comprehensive income, net of taxes:Unrealized holding gain (loss) on available-for-sale securities
    
    
    (3
    )
    
    
    3Cumulative translation adjustment
    
    
    (287
    )
    
    
    (3,171
    )Comprehensive income
    
    $
    18,616
    
    
    $
    3,049
 NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME
  Unrealized holding gain (loss) on available-for-sale securities:Balance at December 31, 2010
    
    $
    6Unrealized holding loss, net of realized amounts reclassified to net income
    
    
    (3
    )Balance at March 31, 2011
    
    
    3Accumulated foreign currency translation adjustments:Balance at December 31, 2010
    
    
    27,068Translation adjustments
    
    
    (287
    )Balance at March 31, 2011
    
    
    26,781Total accumulated other comprehensive income
    
    $
    26,784
 NOTE 15. COMMITMENTS AND CONTINGENCIES
   NOTE 16. RELATED PARTY TRANSACTIONS
    NOTE 17. SIGNIFICANT CUSTOMER INFORMATION
   15




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NOTE 18. SEGMENT INFORMATION
    Thin Films Deposition Power Conversion and Thermal Instrumentation
 
    
    Our power conversion systems refine, modify and control the raw electrical power
from a utility and convert it into power that may be customized and is predictable
and repeatable. Our power conversion systems are primarily used by semiconductor,
solar panel and similar thin-film manufacturers including flat panel display, data
storage and architectural glass manufacturers.
    
    Our thermal instrumentation products provide temperature measurement solutions
for applications in which time-temperature cycles affect material properties,
productivity and yield. These products are used in rapid thermal processing,
chemical vapor deposition, and other semiconductor and solar applications requiring
non-contact temperature measurement.
    
    Our network of global service support centers offer repair services,
conversions, upgrades and refurbishments to companies using our products.
 Renewable Power Inverters
 16




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Increase
    
    
    Percent2011
    
    
    2010
    
    
    (Decrease)
    
    
    ChangeThin Films
    
    $
    100,099
    
    
    
    72.7
    %
    
    $
    67,423
    
    
    
    96.8
    %
    
    $
    32,676
    
    
    
    48.5
    %Renewables
    
    
    37,553
    
    
    
    27.3
    %
    
    
    2,264
    
    
    
    3.2
    %
    
    
    35,289
    
    
    
    1558.7
    %Total
    
    $
    137,652
    
    
    
    100.0
    %
    
    $
    69,687
    
    
    
    100.0
    %
    
    $
    67,965
    
    
    
    97.5
    %
  Thin Films
    
    $
    24,824
    
    
    
    99.2
    %Renewables
    
    
    2,512
    
    
    
    10.0
    %Total segment operating income
    
    
    27,336
    
    
    
    109.2
    %Corporate expenses
    
    
    (2,979
    )
    
    
    -11.9
    %Other income, net
    
    
    663
    
    
    
    2.7
    %Income from continuing operations before income taxes
    
    $
    25,020
    
    
    
    100.0
    %
  Thin Films
    
    $
    75,067Renewables
    
    
    50,318Total segment assets
    
    
    125,385Unallocated corporate property and equipment
    
    
    831Corporate assets
    
    
    395,580Consolidated total assets
    
    $
    521,796
  17




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Special Note on Forward-Looking Statements
   BUSINESS OVERVIEW
   ®
   Thin Films Deposition Power Conversion and Thermal Instrumentation (Thin Films)
 
    
    Our power conversion systems refine, modify and control the raw electrical power
from a utility and convert it into power that may be customized and is predictable and
repeatable. Our power conversion systems are primarily used by semiconductor, solar
panel and similar thin-film manufacturers including flat panel display, data storage
and architectural glass manufacturers.
    
    Our thermal instrumentation products provide temperature measurement solutions for
applications in which time-temperature cycles affect material properties, productivity
and yield. These products are used in rapid thermal
 18




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##### Table of Contents



processing, chemical vapor deposition, and other semiconductor and solar applications
requiring non-contact temperature measurement.
 
    
    Our network of global service support centers offer repair services, conversions,
upgrades and refurbishments to companies using our products.
 Renewable Power Inverters (Renewables)
  Continuing Operations
 OVERALL RESULTS
  2011
    
    
    2010Sales
    
    $
    137,652
    
    
    $
    69,687Gross profit
    
    $
    62,045
    
    
    $
    29,207Operating expenses
    
    
    37,688
    
    
    
    23,371Operating income
    
    
    24,357
    
    
    
    5,836Other income, net
    
    
    663
    
    
    
    385Income from continuing operations before income taxes
    
    
    25,020
    
    
    
    6,221Provision for income taxes
    
    
    6,254
    
    
    
    1,371Net income from continuing operations
    
    $
    18,766
    
    
    $
    4,850
  2011
    
    
    2010Sales
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    45.1
    %
    
    
    41.9
    %Operating expenses
    
    
    27.4
    %
    
    
    33.5
    %Operating income
    
    
    17.7
    %
    
    
    8.4
    %Other income, net
    
    
    0.5
    %
    
    
    0.6
    %Income from continuing operations before income taxes
    
    
    18.2
    %
    
    
    9.0
    %Provision for income taxes
    
    
    4.6
    %
    
    
    2.0
    %Net income from continuing operations
    
    
    13.6
    %
    
    
    7.0
    %
 19




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SALES
  Increase/
    
    
    Percent2011
    
    
    2010
    
    
    (Decrease)
    
    
    ChangeThin Films:Semiconductor capital equipment market
    
    $
    45,955
    
    
    $
    40,941
    
    
    $
    5,014
    
    
    
    12.2
    %Non-semiconductor capital equipment
    
    
    40,448
    
    
    
    15,569
    
    
    
    24,879
    
    
    
    159.8
    %Global support
    
    
    13,696
    
    
    
    10,913
    
    
    
    2,783
    
    
    
    25.5
    %Total Thin Films
    
    
    100,099
    
    
    
    67,423
    
    
    
    32,676
    
    
    
    48.5
    %Renewables
    
    
    37,553
    
    
    
    2,264
    
    
    
    35,289
    
    
    
    1558.7
    %Total sales
    
    $
    137,652
    
    
    $
    69,687
    
    
    $
    67,965
    
    
    
    97.5
    %
 Thin Films:
    
    2011
    
    
    2010Semiconductor capital equipment market
    
    
    33.4
    %
    
    
    58.7
    %Non-semiconductor capital equipment
    
    
    29.3
    %
    
    
    22.3
    %Global support
    
    
    10.0
    %
    
    
    15.7
    %Total Thin Films
    
    
    72.7
    %
    
    
    96.7
    %Renewables
    
    
    27.3
    %
    
    
    3.3
    %Total sales
    
    
    100.0
    %
    
    
    100.0
    %
  Thin Films
  2011
    
    
    2010Sales
    
    $
    100,099
    
    
    $
    67,423Operating Income
    
    
    24,824
    20




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##### Table of Contents



Renewables
  2011
    
    
    2010Sales
    
    $
    37,553
    
    
    $
    2,264Operating Income
    
    
    2,512
   GROSS PROFIT
  21




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PERATING EXPENSES
  Increase/
    
    
    Percent2011
    
    
    2010
    
    
    (Decrease)
    
    
    ChangeResearch and development
    
    $
    15,862
    
    
    
    11.5
    %
    
    $
    11,142
    
    
    
    16.0
    %
    
    $
    4,720
    
    
    
    42.4
    %Selling, general and administrative
    
    
    20,905
    
    
    
    15.2
    %
    
    
    12,229
    
    
    
    17.5
    %
    
    
    8,676
    
    
    
    70.9
    %Amortization of intangible assets
    
    
    921
    
    
    
    0.7
    %
    
    
    
    
    
    
    0.0
    %
    
    
    921Total operating expenses
    
    $
    37,688
    
    
    
    27.4
    %
    
    $
    23,371
    
    
    
    33.5
    %
    
    $
    14,317
    
    
    
    61.3
    %
 Research and Development
    Selling, General and Administrative
    Amortization of Intangible Assets
  OTHER INCOME, NET
  PROVISION FOR INCOME TAXES
 22




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##### Table of Contents



DISCONTINUED OPERATIONS
 ®
 Liquidity and Capital Resources
  CASH FLOWS
  2011
    
    
    2010Net cash provided by (used in) operating activities
    
    $
    2,715
    
    
    $
    (11,377
    )Net cash used in investing activities
    
    
    (2,390
    )
    
    
    (5,195
    )Net cash provided by financing activities
    
    
    1,494
    
    
    
    507Effect of currency translation on cash
    
    
    (315
    )
    
    
    (2,398
    )Net change in cash and cash equivalents
    
    
    1,504
    
    
    
    (18,463
    )Cash and cash equivalents, beginning of the year
    
    
    130,914
    
    
    
    133,106Cash and cash equivalents, end of the period
    
    $
    132,418
    
    
    $
    114,643
 Net cash flows provided by operating activities
 Net cash flows used in investing activities
   Net cash flows provided by financing activities
 Effect of currency translation on cash
 23




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##### Table of Contents



From
    
    To
    
    
    2011
    
    
    2010CNY
    
    USD
    
    
    0.8
    %
    
    
    0.0
    %EUR
    
    USD
    
    
    6.3
    %
    
    
    (6.4
    %)JPY
    
    USD
    
    
    (1.8
    %)
    
    
    (1.1
    %)KWN
    
    USD
    
    
    2.7
    %
    
    
    2.3
    %NTD
    
    USD
    
    
    (0.8
    %)
    
    
    0.8
    %GBP
    
    USD
    
    
    3.6
    %
    
    
    (6.6%)
  Critical Accounting Policies and Estimates
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Currency Exchange Rate Risk
    24




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  Acquisition and Disposition,
 
 PART II OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  25




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Natural disasters, health pandemics and other catastrophic events can disrupt our business.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. REMOVED AND RESERVED
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 10.1
    
    Amendment to the Global Supply Agreement, dated as of
January 28,2011, by and between Applied Materials,
Inc. and Advanced Energy Industries, Inc.+10.2
    
    Amendment to Leadership Corporate Incentive Plan.*10.3
    
    Executive Change in Control Agreement, dated as of
January 1, 2011, by and between Advanced Energy
Industries, Inc. and Gregg Patterson.31.1
    
    Certification of the Chief Executive Officer Pursuant
to Rule 13a-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Principal Financial Officer
Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Compensation Plan+
    
    Confidential treatment has been granted for portions of this agreement. 26




---



##### Table of Contents



SIGNATURE
  ADVANCED ENERGY INDUSTRIES, INC.Dated: May 6, 2011
    /s/ Danny C. HerronDanny C. HerronExecutive Vice President & Chief Financial Officer 27




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##### Table of Contents



INDEX TO EXHIBITS
 10.1
    
    Amendment to the Global Supply Agreement, dated as of
January 28,2011, by and between Applied Materials,
Inc. and Advanced Energy Industries, Inc.+10.2
    
    Amendment to Leadership Corporate Incentive Plan.*10.3
    
    Executive Change in Control Agreement, dated as of
January 1, 2011, by and between Advanced Energy
Industries, Inc. and Gregg Patterson.31.1
    
    Certification of the Chief Executive Officer Pursuant
to Rule 13a-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Principal Financial Officer
Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Compensation Plan+
    
    Confidential treatment has been granted for portions of this agreement. 28