##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended June 30, 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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
    
    
    19ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    27ITEM 4. CONTROLS AND PROCEDURES
    
    
    27PART II OTHER INFORMATION
    
    
    28ITEM 1. LEGAL PROCEEDINGS
    
    
    28ITEM 1A. RISK FACTORS
    
    
    28ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    29ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    29ITEM 4. REMOVED AND RESERVED
    
    
    29ITEM 5. OTHER INFORMATION
    
    
    29ITEM 6. EXHIBITS
    
    
    29SIGNATURE
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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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)
 June 30,
    
    
    December 31,2011
    
    
    2010ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    135,564
    
    
    $
    130,914Marketable securities
    
    
    10,124
    
    
    
    9,640Accounts receivable, net of allowances of $3,701 and $3,440, respectively
    
    
    128,802
    
    
    
    119,893Inventories
    
    
    100,392
    
    
    
    77,593Deferred income tax assets
    
    
    7,689
    
    
    
    7,510Income taxes receivable
    
    
    2,388
    
    
    
    6,061Other current assets
    
    
    11,689
    
    
    
    10,156Total current assets
    
    
    396,648
    
    
    
    361,767PROPERTY AND EQUIPMENT, net
    
    
    38,408
    
    
    
    34,569OTHER ASSETS:Uncertain tax positions and deposits
    
    
    8,795
    
    
    
    8,874Goodwill
    
    
    46,515
    
    
    
    48,360Other intangible assets, net
    
    
    46,579
    
    
    
    48,421Deferred income tax assets
    
    
    5,059
    
    
    
    3,166Total assets
    
    $
    542,004
    
    
    $
    505,157LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    48,828
    
    
    $
    56,185Income taxes payable
    
    
    2,967
    
    
    
    3,602Accrued payroll and employee benefits
    
    
    13,688
    
    
    
    23,202Accrued warranty expense
    
    
    8,820
    
    
    
    7,144Other accrued expenses
    
    
    10,642
    
    
    
    5,389Customer deposits
    
    
    11,013
    
    
    
    6,803Total current liabilities
    
    
    95,958
    
    
    
    102,325LONG-TERM LIABILITIES:Deferred income tax liabilities
    
    
    5,176
    
    
    
    5,155Uncertain tax positions
    
    
    14,176
    
    
    
    14,176Accrued warranty expense
    
    
    5,476
    
    
    
    5,805Other long-term liabilities
    
    
    5,565
    
    
    
    3,728Total liabilities
    
    
    126,351
    
    
    
    131,189Commitments and contingencies (Note 16)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; 43,619 and 43,330
shares issued and outstanding, respectively
    
    
    44
    
    
    
    43Additional paid-in capital
    
    
    265,835
    
    
    
    258,398Retained earnings
    
    
    120,945
    
    
    
    88,453Accumulated other comprehensive income
    
    
    28,829
    
    
    
    27,074Total stockholders equity
    
    
    415,653
    
    
    
    373,968Total liabilities and stockholders equity
    
    $
    542,004
    
    
    $
    505,157
 *
    
    Amounts as of June 30, 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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010SALES
    
    $
    138,154
    
    
    $
    100,107
    
    
    $
    275,806
    
    
    $
    169,794COST OF SALES
    
    
    82,777
    
    
    
    55,548
    
    
    
    158,384
    
    
    
    96,028GROSS PROFIT
    
    
    55,377
    
    
    
    44,559
    
    
    
    117,422
    
    
    
    73,766OPERATING EXPENSES:Research and development
    
    
    17,137
    
    
    
    13,515
    
    
    
    32,999
    
    
    
    24,657Selling, general and administrative
    
    
    20,001
    
    
    
    17,183
    
    
    
    40,906
    
    
    
    29,412Amortization of intangible assets
    
    
    921
    
    
    
    767
    
    
    
    1,842
    
    
    
    767Total operating expenses
    
    
    38,059
    
    
    
    31,465
    
    
    
    75,747
    
    
    
    54,836OPERATING INCOME
    
    
    17,318
    
    
    
    13,094
    
    
    
    41,675
    
    
    
    18,930OTHER INCOME, NET
    
    
    92
    
    
    
    220
    
    
    
    755
    
    
    
    605Income from continuing operations before income taxes
    
    
    17,410
    
    
    
    13,314
    
    
    
    42,430
    
    
    
    19,535Provision for income taxes
    
    
    3,898
    
    
    
    1,857
    
    
    
    10,152
    
    
    
    3,228INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES
    
    
    13,512
    
    
    
    11,457
    
    
    
    32,278
    
    
    
    16,307Income from discontinued operations, net of income taxes
    
    
    74
    
    
    
    2,162
    
    
    
    214
    
    
    
    3,529NET INCOME
    
    $
    13,586
    
    
    $
    13,619
    
    
    $
    32,492
    
    
    $
    19,836Basic weighted-average common shares outstanding
    
    
    43,571
    
    
    
    42,806
    
    
    
    43,505
    
    
    
    42,440Diluted weighted-average common shares outstanding
    
    
    44,187
    
    
    
    43,327
    
    
    
    44,156
    
    
    
    43,004EARNINGS PER SHARE:CONTINUING OPERATIONS:BASIC EARNINGS PER SHARE
    
    $
    0.31
    
    
    $
    0.27
    
    
    $
    0.74
    
    
    $
    0.38DILUTED EARNINGS PER SHARE
    
    $
    0.31
    
    
    $
    0.26
    
    
    $
    0.73
    
    
    $
    0.38DISCONTINUED OPERATIONS:BASIC EARNINGS PER SHARE
    
    $
    0.00
    
    
    $
    0.05
    
    
    $
    0.00
    
    
    $
    0.08DILUTED EARNINGS PER SHARE
    
    $
    0.00
    
    
    $
    0.05
    
    
    $
    0.00
    
    
    $
    0.08NET INCOME:BASIC EARNINGS PER SHARE
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.75
    
    
    $
    0.47DILUTED EARNINGS PER SHARE
    
    $
    0.31
    
    
    $
    0.31
    
    
    $
    0.74
    
    
    $
    0.46
   4




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ADVANCED ENERGY INDUSTRIES, INC.
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Six Months EndedJune 30,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    32,492
    
    
    $
    19,836Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    6,813
    
    
    
    4,709Stock-based compensation expense
    
    
    6,139
    
    
    
    3,820Provision (benefit) for deferred income taxes
    
    
    (181
    )
    
    
    1,351Net loss on disposal of assets
    
    
    57
    
    
    
    Changes in operating assets and liabilities, net of assets acquired:Accounts receivable
    
    
    (7,056
    )
    
    
    (20,526
    )Inventories
    
    
    (21,944
    )
    
    
    (23,709
    )Other current assets
    
    
    761
    
    
    
    (1,708
    )Accounts payable
    
    
    (7,483
    )
    
    
    6,196Other current liabilities and accrued expenses
    
    
    482
    
    
    
    12,282Income taxes
    
    
    3,333
    
    
    
    (6,788
    )Non-current assets
    
    
    91
    
    
    
    493Non-current liabilities
    
    
    
    
    
    
    133Net cash provided by (used in) operating activities
    
    
    13,504
    
    
    
    (3,911
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of marketable securities
    
    
    (7,449
    )
    
    
    (106,152
    )Proceeds from sale of marketable securities
    
    
    7,001
    
    
    
    138,519Purchase of PV Powered, Inc., net of cash acquired
    
    
    
    
    
    
    (35,977
    )Purchase of property and equipment
    
    
    (8,657
    )
    
    
    (2,932
    )Net cash used in investing activities
    
    
    (9,105
    )
    
    
    (6,542
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payments on capital lease obligations
    
    
    (70
    )
    
    
    (65
    )Proceeds from exercise of stock options
    
    
    1,862
    
    
    
    386Excess tax benefit from stock-based compensation deduction
    
    
    (564
    )
    
    
    15Net cash provided by financing activities
    
    
    1,228
    
    
    
    336EFFECT OF CURRENCY TRANSLATION ON CASH
    
    
    (977
    )
    
    
    (6,194
    )INCREASE (DECREASE ) IN CASH AND CASH EQUIVALENTS
    
    
    4,650
    
    
    
    (16,311
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    130,914
    
    
    
    133,106CASH AND CASH EQUIVALENTS, end of period
    
    $
    135,564
    
    
    $
    116,795SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    47
    
    
    $
    23Cash paid for income taxes
    
    
    14,595
    
    
    
    11,445Cash received for refunds of income taxes
    
    
    7,522
    
    
    
    1,667Cash held in banks outside the United States
    
    
    49,399
    
    
    
    27,788NONCASH TRANSACTIONS:Common stock issued as partial consideration for PV Powered acquisition
    
    $
    
    
    
    $
    14,690Contingent liability accrued as part of PV Powered acquisition
    
    
    
    
    
    
    38,967
   5




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




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##### Table of Contents



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
    
    
    4,591Property 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
    )(7,534
    )Other intangible assets:Trademarks
    
    
    5,277Technology
    
    
    28,208In process research and development
    
    
    14,868Customer relationships
    
    
    2,213Backlog
    
    
    720Total other intangible assets
    
    
    51,286Total identifiable net assets
    
    
    43,752Goodwill
    
    
    46,515Total fair value of consideration transferred
    
    $
    90,267
  7




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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
  Disposition
 ®
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales
    
    $
    4,208
    
    
    $
    15,084
    
    
    $
    10,554
    
    
    $
    26,949Cost of sales
    
    
    3,974
    
    
    
    9,754
    
    
    
    10,660
    
    
    
    17,718Gross profit
    
    
    234
    
    
    
    5,330
    
    
    
    (106
    )
    
    
    9,231Operating expenses:Research and development
    
    
    (3
    )
    
    
    444
    
    
    
    5
    
    
    
    892Selling, general and administrative
    
    
    90
    
    
    
    1,158
    
    
    
    140
    
    
    
    2,212Amortization of intangible assets
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    246Total operating expenses
    
    
    87
    
    
    
    1,726
    
    
    
    145
    
    
    
    3,350Operating income (loss) from discontinued operations
    
    
    147
    
    
    
    3,604
    
    
    
    (251
    )
    
    
    5,881Other income
    
    
    157
    
    
    
    
    
    
    
    768
    
    
    
    Income from discontinued operations before income taxes
    
    
    304
    
    
    
    3,604
    
    
    
    517
    
    
    
    5,881Income taxes on income from discontinued operations
    
    
    230
    
    
    
    1,442
    
    
    
    303
    
    
    
    2,352Income from discontinued operations, net of income taxes
    
    $
    74
    
    
    $
    2,162
    
    
    $
    214
    
    
    $
    3,529
 NOTE 3. INCOME TAXES
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Income from continuing operations before income taxes
    
    $
    17,410
    
    
    $
    13,314
    
    
    $
    42,430
    
    
    $
    19,535Provision for income taxes
    
    
    3,898
    
    
    
    1,857
    
    
    
    10,152
    
    
    
    3,228Effective tax rate
    
    
    22.4
    %
    
    
    13.9
    %
    
    
    23.9
    %
    
    
    16.5
    %
  8




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NOTE 4. EARNINGS PER SHARE
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Income from continuing operations, net of income taxes
    
    $
    13,512
    
    
    $
    11,457
    
    
    $
    32,278
    
    
    $
    16,307Basic weighted-average shares outstanding
    
    
    43,571
    
    
    
    42,806
    
    
    
    43,505
    
    
    
    42,440Assumed exercise of dilutive stock options and restricted stock units
    
    
    616
    
    
    
    521
    
    
    
    651
    
    
    
    564Diluted weighted-average shares outstanding
    
    
    44,187
    
    
    
    43,327
    
    
    
    44,156
    
    
    
    43,004Income from Continuing Operations:Earnings per common share:Basic earnings per share
    
    $
    0.31
    
    
    $
    0.27
    
    
    $
    0.74
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.31
    
    
    $
    0.26
    
    
    $
    0.73
    
    
    $
    0.38
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Stock options
    
    
    3,831
    
    
    
    3,560
    
    
    
    3,690
    
    
    
    3,339Restricted stock units
    
    
    4
    
    
    
    77
    
    
    
    3
    
    
    
    49
  9




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NOTE 5. MARKETABLE SECURITIES
   June 30, 2011
    
    
    December 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueCommercial paper
    
    $
    1,348
    
    
    $
    1,348
    
    
    $
    
    
    
    $
    Treasury bills
    
    
    
    
    
    
    
    
    
    
    2,003
    
    
    
    2,006Certificates of deposit
    
    
    3,143
    
    
    
    3,143
    
    
    
    3,126
    
    
    
    3,126Corporate bonds/notes
    
    
    4,342
    
    
    
    4,331
    
    
    
    1,002
    
    
    
    1,004Agency bonds/notes
    
    
    1,302
    
    
    
    1,302
    
    
    
    3,503
    
    
    
    3,504Total marketable securities
    
    $
    10,135
    
    
    $
    10,124
    
    
    $
    9,634
    
    
    $
    9,640
  Earliest
    
    
    
    
    
    
    LatestCommercial paper
    
    
    12/5/2011
    
    
    to
    
    
    12/16/2011Certificates of deposit
    
    
    10/14/2011
    
    
    to
    
    
    12/23/2011Corporate bonds/notes
    
    
    2/24/2012
    
    
    to
    
    
    12/17/2012Agency bonds/notes
    
    
    7/16/2012
    
    
    to
    
    
    9/24/2012
   NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS
     10




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NOTE 7. ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
  As of June 30, 2011:
    
    Level 1
    
    
    Level 2
    
    
    TotalCommercial paper
    
    $
    
    
    
    $
    1,348
    
    
    $
    1,348Certificates of deposit
    
    
    
    
    
    
    3,143
    
    
    
    3,143Corporate bonds/notes
    
    
    4,331
    
    
    
    
    
    
    
    4,331Agency bonds/notes
    
    
    1,302
    
    
    
    
    
    
    
    1,302Total
    
    $
    5,633
    
    
    $
    4,491
    
    
    $
    10,124
 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 8. INVENTORIES
  June 30,
    
    
    December 31,2011
    
    
    2010Parts and raw materials
    
    $
    64,100
    
    
    $
    53,755Work in process
    
    
    9,344
    
    
    
    5,594Finished goods
    
    
    26,948
    
    
    
    18,244$
    100,392
    
    
    $
    77,593
  11




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NOTE 9. PROPERTY AND EQUIPMENT
  June 30,
    
    
    December 31,2011
    
    
    2010Buildings and land
    
    $
    1,788
    
    
    $
    1,701Machinery and equipment
    
    
    50,987
    
    
    
    53,885Computer and communication equipment
    
    
    22,472
    
    
    
    23,296Furniture and fixtures
    
    
    3,047
    
    
    
    5,717Vehicles
    
    
    463
    
    
    
    541Leasehold improvements
    
    
    28,230
    
    
    
    28,003Construction in process
    
    
    4,648
    
    
    
    3,996111,635
    
    
    
    117,139Less: Accumulated depreciation
    
    
    (73,227
    )
    
    
    (82,570
    )$
    38,408
    
    
    $
    34,569
  June 30,2011
    
    
    2010Three months
    
    $
    2,630
    
    
    $
    1,756Six months
    
    
    4,971
    
    
    
    3,292
 NOTE 10. GOODWILL
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Gross carrying amount, beginning of period
    
    $
    48,360
    
    
    $
    
    
    
    $
    48,360
    
    
    $
    Additions
    
    
    
    
    
    
    47,920
    
    
    
    
    
    
    
    47,920Adjustments
    
    
    (1,845
    )
    
    
    
    
    
    
    (1,845
    )
    
    
    Impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net carrying amount, end of period
    
    $
    46,515
    
    
    $
    47,920
    
    
    $
    46,515
    
    
    $
    47,920
  12




---



##### Table of Contents



NOTE 11. OTHER INTANGIBLE ASSETS
   Weighted-Gross
    
    
    
    
    
    
    
    
    
    
    AverageCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Useful LifeAmount
    
    
    Amortization
    
    
    Amount
    
    
    in YearsAmortizable intangibles:Technology-based
    
    $
    33,811
    
    
    $
    (3,972
    )
    
    $
    29,839
    
    
    7Trademarks and other
    
    
    8,210
    
    
    
    (735
    )
    
    
    7,475
    
    
    8Total amortizable intangibles
    
    
    42,021
    
    
    
    (4,707
    )
    
    
    37,314Non-amortizable intangibles
    
    
    9,265
    
    
    
    
    
    
    
    9,265Total other intangible assets
    
    $
    51,286
    
    
    $
    (4,707
    )
    
    $
    46,579
  Weighted-Gross
    
    
    
    
    
    
    
    
    
    
    AverageCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Useful LifeAmount
    
    
    Amortization
    
    
    Amount
    
    
    in YearsAmortizable intangibles:Technology-based
    
    $
    31,553
    
    
    $
    (2,271
    )
    
    $
    29,282
    
    
    7Trademarks and other
    
    
    8,210
    
    
    
    (594
    )
    
    
    7,616
    
    
    8Total amortizable intangibles
    
    
    39,763
    
    
    
    (2,865
    )
    
    
    36,898Non-amortizable intangibles
    
    
    11,523
    
    
    
    
    
    
    
    11,523Total other intangible assets
    
    $
    51,286
    
    
    $
    (2,865
    )
    
    $
    48,421
  June 30,2011
    
    
    2010Three months
    
    $
    921
    
    
    $
    767Six months
    
    
    1,842
    
    
    
    767
  13




---



##### Table of Contents



Year Ending December 31,2011 (Remaining)
    
    $
    1,8632012
    
    
    5,1782013
    
    
    6,9482014
    
    
    7,5232015
    
    
    6,980Thereafter
    
    
    8,822$
    37,314
 NOTE 12. WARRANTIES
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    13,428
    
    
    $
    7,874
    
    
    $
    12,949
    
    
    $
    7,005Warranty liabilities acquired
    
    
    
    
    
    
    2,625
    
    
    
    
    
    
    
    2,625Increases to accruals related to sales during the period
    
    
    2,493
    
    
    
    2,393
    
    
    
    5,044
    
    
    
    4,648Warranty expenditures
    
    
    (1,625
    )
    
    
    (634
    )
    
    
    (3,697
    )
    
    
    (2,020
    )Balance at end of period
    
    $
    14,296
    
    
    $
    12,258
    
    
    $
    14,296
    
    
    $
    12,258
 NOTE 13. STOCK-BASED COMPENSATION
  June 30,2011
    
    
    2010Three months
    
    $
    3,399
    
    
    $
    1,945Six months
    
    
    6,139
    
    
    
    3,820
 Stock Options
   14




---



##### Table of Contents



SharesOptions outstanding at December 31, 2010
    
    
    5,709Options granted
    
    
    742Options exercised
    
    
    (190
    )Options forfeited
    
    
    (211
    )Options expired
    
    
    (221
    )Options outstanding at June 30, 2011
    
    
    5,829
 Restricted Stock Units
  SharesBalance at December 31, 2010
    
    
    447RSUs granted
    
    
    361RSUs vested
    
    
    (101
    )RSUs forfeited
    
    
    (34
    )Balance at June 30, 2011
    
    
    673
 NOTE 14. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Net income
    
    $
    13,586
    
    
    $
    13,619
    
    
    $
    32,492
    
    
    $
    19,836Adjustments to arrive at comprehensive income, net of taxes:Unrealized holding gain (loss) on available-for-sale securities
    
    
    (10
    )
    
    
    3
    
    
    
    (13
    )
    
    
    7Cumulative translation adjustment
    
    
    2,055
    
    
    
    (3,280
    )
    
    
    1,768
    
    
    
    (6,452
    )Comprehensive income
    
    $
    15,631
    
    
    $
    10,342
    
    
    $
    34,247
    
    
    $
    13,391
 NOTE 15. 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
    
    
    (13
    )Balance at June 30, 2011
    
    
    (7
    )Accumulated foreign currency translation adjustments:Balance at December 31, 2010
    
    
    27,068Translation adjustments
    
    
    1,768Balance at June 30, 2011
    
    
    28,836Total accumulated other comprehensive income
    
    $
    28,829
  15




---



##### Table of Contents



NOTE 16. COMMITMENTS AND CONTINGENCIES
   NOTE 17. RELATED PARTY TRANSACTIONS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales  related parties
    
    $
    1,544
    
    
    $
    1,182
    
    
    $
    2,554
    
    
    $
    1,549Rent expense  related parties
    
    
    545
    
    
    
    742
    
    
    
    1,157
    
    
    
    1,441
 Sales  Related Parties
  Rent Expense  Related Parties
  NOTE 18. SIGNIFICANT CUSTOMER INFORMATION
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Applied Materials
    
    
    14
    %
    
    
    24
    %
    
    
    15
    %
    
    
    28
    %
  NOTE 19. SEGMENT INFORMATION
   16




---



##### Table of Contents



Thin Films Processing 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
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Thin Films
    
    $
    97,331
    
    
    $
    85,697
    
    
    $
    197,430
    
    
    $
    153,120Renewables
    
    
    40,823
    
    
    
    14,410
    
    
    
    78,376
    
    
    
    16,674Total
    
    $
    138,154
    
    
    $
    100,107
    
    
    $
    275,806
    
    
    $
    169,794
  Three Months Ended
    
    
    Six Months EndedJune 30, 2011
    
    
    June 30, 2011Thin Films
    
    $
    20,042
    
    
    $
    44,866Renewables
    
    
    321
    
    
    
    2,833Total segment operating income
    
    
    20,363
    
    
    
    47,699Corporate expenses
    
    
    (3,045
    )
    
    
    (6,024
    )Other income, net
    
    
    92
    
    
    
    755Income from continuing operations before income taxes
    
    $
    17,410
    
    
    $
    42,430
  17




---



##### Table of Contents



Thin Films
    
    $
    74,724Renewables
    
    
    63,069Total segment assets
    
    
    137,793Unallocated corporate property and equipment
    
    
    1,008Corporate assets
    
    
    403,203Consolidated total assets
    
    $
    542,004
   18




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Special Note on Forward-Looking Statements
   BUSINESS OVERVIEW
  
    
    Our power conversion products refine, modify and control the raw electrical power
from a utility and converts it into power that is predictable, repeatable and
customizable. Our power conversion products 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 businesses that use our products.
 
    
    Our grid-tie power conversion products offer both an advanced transformer-based or
transformerless grid-tie PV solutions for residential, commercial and utility-scale
system installations. Our PV inverters are designed to convert renewable solar power,
drawn from large and small scale solar arrays, into high-quality, reliable electrical
power. These products are used for residential, commercial and utility-scale solar
projects and installations, and are sold primarily to distributors; engineering,
procurement, and construction contractors; developers; and utility companies. These
product revenues have seasonal variations. Installations of inverters are normally
lowest during the first quarter of the year due to less favorable weather conditions
and installation tendencies by our customers.
  ®
   19




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##### Table of Contents



Results of Operations
 OVERALL RESULTS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales
    
    $
    138,154
    
    
    $
    100,107
    
    
    $
    275,806
    
    
    $
    169,794Gross profit
    
    $
    55,377
    
    
    $
    44,559
    
    
    $
    117,422
    
    
    $
    73,766Operating expenses
    
    
    38,059
    
    
    
    31,465
    
    
    
    75,747
    
    
    
    54,836Operating income
    
    
    17,318
    
    
    
    13,094
    
    
    
    41,675
    
    
    
    18,930Other income, net
    
    
    92
    
    
    
    220
    
    
    
    755
    
    
    
    605Income from continuing operations before income taxes
    
    
    17,410
    
    
    
    13,314
    
    
    
    42,430
    
    
    
    19,535Provision for income taxes
    
    
    3,898
    
    
    
    1,857
    
    
    
    10,152
    
    
    
    3,228Net income from continuing operations
    
    $
    13,512
    
    
    $
    11,457
    
    
    $
    32,278
    
    
    $
    16,307
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    40.0
    %
    
    
    44.5
    %
    
    
    42.6
    %
    
    
    43.4
    %Operating expenses
    
    
    27.5
    %
    
    
    31.4
    %
    
    
    27.5
    %
    
    
    32.3
    %Operating income
    
    
    12.5
    %
    
    
    13.1
    %
    
    
    15.1
    %
    
    
    11.1
    %Other income, net
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    0.4
    %Income from continuing operations before income taxes
    
    
    12.6
    %
    
    
    13.3
    %
    
    
    15.4
    %
    
    
    11.5
    %Provision for income taxes
    
    
    2.8
    %
    
    
    1.9
    %
    
    
    3.7
    %
    
    
    1.9
    %Income from continuing operations, net of income taxes
    
    
    9.8
    %
    
    
    11.4
    %
    
    
    11.7
    %
    
    
    9.6
    %
  20




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##### Table of Contents



SALES
  Three Months Ended June 30,% of Total
    
    
    
    
    
    
    % of Total
    
    
    Increase/
    
    
    Percent2011
    
    
    Sales
    
    
    2010
    
    
    Sales
    
    
    (Decrease)
    
    
    ChangeThin Films:Semiconductor capital equipment market
    
    $
    43,694
    
    
    
    31.6
    %
    
    $
    43,894
    
    
    
    43.8
    %
    
    $
    (200
    )
    
    
    (0.5
    %)Non-semiconductor capital equipment
    
    
    40,505
    
    
    
    29.4
    %
    
    
    31,136
    
    
    
    31.1
    %
    
    
    9,369
    
    
    
    30.1
    %Global support
    
    
    13,132
    
    
    
    9.5
    %
    
    
    10,667
    
    
    
    10.7
    %
    
    
    2,465
    
    
    
    23.1
    %Total Thin Films
    
    
    97,331
    
    
    
    70.5
    %
    
    
    85,697
    
    
    
    85.6
    %
    
    
    11,634
    
    
    
    13.6
    %Renewables
    
    
    40,823
    
    
    
    29.5
    %
    
    
    14,410
    
    
    
    14.4
    %
    
    
    26,413
    
    
    
    183.3
    %Total sales
    
    $
    138,154
    
    
    
    100.0
    %
    
    $
    100,107
    
    
    
    100.0
    %
    
    $
    38,047
    
    
    
    38.0
    %
 Six Months Ended June 30,% of Total
    
    
    
    
    
    
    % of Total
    
    
    Increase/
    
    
    Percent2011
    
    
    Sales
    
    
    2010
    
    
    Sales
    
    
    (Decrease)
    
    
    ChangeThin Films:Semiconductor capital equipment market
    
    $
    89,649
    
    
    
    32.5
    %
    
    $
    84,835
    
    
    
    50.0
    %
    
    $
    4,814
    
    
    
    5.7
    %Non-semiconductor capital equipment
    
    
    80,953
    
    
    
    29.4
    %
    
    
    46,705
    
    
    
    27.5
    %
    
    
    34,248
    
    
    
    73.3
    %Global support
    
    
    26,828
    
    
    
    9.7
    %
    
    
    21,580
    
    
    
    12.7
    %
    
    
    5,248
    
    
    
    24.3
    %Total Thin Films
    
    
    197,430
    
    
    
    71.6
    %
    
    
    153,120
    
    
    
    90.2
    %
    
    
    44,310
    
    
    
    28.9
    %Renewables
    
    
    78,376
    
    
    
    28.4
    %
    
    
    16,674
    
    
    
    9.8
    %
    
    
    61,702
    
    
    
    370.0
    %Total sales
    
    $
    275,806
    
    
    
    100.0
    %
    
    $
    169,794
    
    
    
    100.0
    %
    
    $
    106,012
    
    
    
    62.4
    %
   Thin Films
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales
    
    $
    97,331
    
    
    $
    85,697
    
    
    $
    197,430
    
    
    $
    153,120Operating Income
    
    
    20,042
    
    
    
    
    
    
    
    44,866
   21




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##### Table of Contents



Renewables
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2011
    
    
    2010
    
    
    2011
    
    
    2010Sales
    
    $
    40,823
    
    
    $
    14,410
    
    
    $
    78,376
    
    
    $
    16,674Operating Income
    
    
    321
    
    
    
    
    
    
    
    2,833
  22




---



##### Table of Contents



Backlog
  GROSS PROFIT
    23




---



##### Table of Contents



PERATING EXPENSES
  Three Months Ended June 30,
    
    
    Increase/
    
    
    Percent2011
    
    
    2010
    
    
    (Decrease)
    
    
    ChangeResearch and development
    
    $
    17,137
    
    
    
    12.4
    %
    
    $
    13,515
    
    
    
    13.5
    %
    
    $
    3,622
    
    
    
    26.8
    %Selling, general and administrative
    
    
    20,001
    
    
    
    14.5
    %
    
    
    17,183
    
    
    
    17.1
    %
    
    
    2,818
    
    
    
    16.4
    %Amortization of intangible assets
    
    
    921
    
    
    
    0.6
    %
    
    
    767
    
    
    
    0.8
    %
    
    
    154
    
    
    
    20.1
    %Total operating expenses
    
    $
    38,059
    
    
    
    27.5
    %
    
    $
    31,465
    
    
    
    31.4
    %
    
    $
    6,594
    
    
    
    21.0
    %
 Six Months Ended June 30,
    
    
    Increase/
    
    
    Percent2011
    
    
    2010
    
    
    (Decrease)
    
    
    ChangeResearch and development
    
    $
    32,999
    
    
    
    12.0
    %
    
    $
    24,657
    
    
    
    14.5
    %
    
    $
    8,342
    
    
    
    33.8
    %Selling, general and administrative
    
    
    40,906
    
    
    
    14.8
    %
    
    
    29,412
    
    
    
    17.3
    %
    
    
    11,494
    
    
    
    39.1
    %Amortization of intangible assets
    
    
    1,842
    
    
    
    0.7
    %
    
    
    767
    
    
    
    0.5
    %
    
    
    1,075
    
    
    
    140.1
    %Total operating expenses
    
    $
    75,747
    
    
    
    27.5
    %
    
    $
    54,836
    
    
    
    32.3
    %
    
    $
    20,911
    
    
    
    38.1
    %
 Research and Development
    Selling, General and Administrative
     24




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##### Table of Contents



Amortization of Intangible Assets
  OTHER INCOME, NET
  PROVISION FOR INCOME TAXES
  DISCONTINUED OPERATIONS
 ®
 Liquidity and Capital Resources
  CASH FLOWS
  Six
Months Ended June 30,2011
    
    
    2010Net cash provided by (used in) operating activities
    
    $
    13,504
    
    
    $
    (3,911
    )Net cash used in investing activities
    
    
    (9,105
    )
    
    
    (6,542
    )Net cash provided by financing activities
    
    
    1,228
    
    
    
    336Effect of currency translation on cash
    
    
    (977
    )
    
    
    (6,194
    )Net change in cash and cash equivalents
    
    
    4,650
    
    
    
    (16,311
    )Cash and
cash equivalents, beginning of the period
    
    
    130,914
    
    
    
    133,106Cash and cash equivalents, end of the period
    
    $
    135,564
    
    
    $
    116,795
  25




---



##### Table of Contents



Net cash provided by operating activities
 Net cash used in investing activities
  Net cash provided by financing activities
 Effect of currency translation on cash
 From
    
    To
    
    
    2011
    
    
    2010CNY
    
    USD
    
    
    2.2
    %
    
    
    0.7
    %EUR
    
    USD
    
    
    8.2
    %
    
    
    (14.8
    %)JPY
    
    USD
    
    
    1.1
    %
    
    
    4.3
    %KWN
    
    USD
    
    
    5.2
    %
    
    
    (5.1
    %)TWD
    
    USD
    
    
    1.3
    %
    
    
    (0.9
    %)GBP
    
    USD
    
    
    3.2
    %
    
    
    (7.5
    %)
  Off-Balance-Sheet Arrangements
  Critical Accounting Policies and Estimates
   26




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Currency Exchange Rate Risk
      
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    27




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  Acquisition and Disposition,
 
 PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
   
 ITEM 1A.
    
    RISK FACTORS
  Natural disasters, health pandemics and other catastrophic events can disrupt our business.
  We are exposed to risks as a result of ongoing changes specific to the solar industry.
 The
industries in which we compete are subject to volatile and unpredictable cycles,
  28




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##### Table of Contents



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 Leadership Corporate Incentive Plan. (1)*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.
 (1)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2011 (File No. 000-26966), filed May 6, 2011.*
    
    Compensation Plan  29




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##### Table of Contents



SIGNATURE
  ADVANCED ENERGY INDUSTRIES, INC.Dated: August 2, 2011
    /s/ Danny C. HerronDanny C. HerronExecutive Vice President & Chief Financial Officer  30




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##### Table of Contents



INDEX TO EXHIBITS
 10.1
    
    
    Amendment to Leadership Corporate Incentive Plan. (1)*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.
 (1)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2011 (File No. 000-26966), filed May 6, 2011.*
    
    Compensation Plan  31