Business Acquisitions

9 Months Ended

Sep. 30, 2019

Business Acquisitions

BUSINESS ACQUISITIONS

NOTE 2.     BUSINESS ACQUISITIONS

Artesyn’s Embedded Power Business

In September 2019, we completed the acquisition of Artesyn Embedded Technologies, Inc.’s (“Artesyn”) Embedded Power business pursuant to the Stock Purchase Agreement (“Acquisition Agreement”), as amended, dated May 14, 2019. Pursuant to the Acquisition Agreement, we acquired all of Artesyn’s issued and outstanding shares for a purchase price of $367.8 million including the assumption of certain liabilities and subject to an adjustment for net working capital. In connection with the Acquisition Agreement, we entered into a credit agreement that provided us with aggregate financing of $500.0 million which was used to partially fund the Artesyn acquisition. See Note 22. Credit Facility for additional details related to the credit agreement.

Artesyn’s Embedded Power business is one of the world’s largest providers of highly engineered, application-specific power supplies for demanding applications. This acquisition will diversify our product portfolio and give us access to additional growth markets, including hyperscale data centers, telecom infrastructure in next generation 5G networks, embedded industrial power applications and medical power for diagnostic and treatment applications.

The components of the fair value of the total consideration transferred for the acquisition is as follows:

	Artesyn
Cash paid for acquisition	$	389,023
Non-cash consideration		2,000
Total fair value of consideration transferred		391,023
Less cash acquired		(23,225)
Total purchase price	$	367,798

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed from the acquisition:

	Preliminary: September 10, 2019
Accounts and other receivable, net	$	128,221
Inventories		140,678
Property and equipment		65,016
Operating lease right-of-use assets		60,217
Goodwill		143,262
Intangible assets		125,000
Deferred income tax assets		14,767
Other assets		61,511
Total assets acquired		738,672
Accounts payable		144,652
Operating lease liability		59,634
Pension liability		48,494
Deferred income tax liabilities		37,218
Other liabilities		80,876
Total liabilities assumed		370,874
Total fair value of net assets acquired	$	367,798

A summary of the intangible assets acquired, amortization method and estimated useful lives are as follows:

			Amortization
	Artesyn		Method	Useful Life
Technology	$	30,000	Straight-line	5
Customer relationships		75,000	Straight-line	15
Tradename		20,000	Straight-line	10
Total	$	125,000

Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation at each balance sheet date. The goodwill represents expected operating synergies from combining operations with the acquired companies and the estimated value associated with the enhancements to our comprehensive product lines and access to new markets. Advanced Energy is still evaluating the fair value for the assets acquired and liabilities assumed related to the Artesyn acquisition. Accordingly, the purchase price allocation presented above is preliminary.

LumaSense Technologies Holdings, Inc.

In September 2018, we acquired LumaSense Technologies Holdings, Inc. ("LumaSense"), a privately held company with primary operations in Santa Clara, California; Frankfurt, Germany; and Ballerup, Denmark for a net purchase price of $84.7 million in cash.

LumaSense designs, manufactures and sells a line of photonic-based measurement and monitoring solutions that are synergistic with the Company's precision power control technologies in both semiconductor and industrial markets allowing customers the ability to better control critical parameters of thermal and material processes. The acquisition of LumaSense expands our current electrostatic chuck solutions, including high voltage power supply and electrostatic metrology, complements our leading pyrometry solutions with additional fiber optic thermometry for an extended range of semiconductor applications in etch and deposition, provides integrated industrial temperature control and metrology applications for both thin films coating and thermal processing, and adds industrial pyrometry and gas sensing technologies.

The components of the fair value of the total consideration transferred for our acquisition is as follows:

	LumaSense
Cash paid for acquisition	$	94,946
Cash acquired		(10,262)
Total fair value of consideration transferred	$	84,684

The following table summarizes the fair values of the assets acquired and liabilities assumed from our acquisition, including measurement period adjustments:

	Preliminary: September 1, 2018		Measurement Period Adjustments		Adjusted: September 1, 2018
Accounts and other receivable, net	$	7,167	$	-	$	7,167
Inventories		9,372		-		9,372
Property and equipment		1,353		-		1,353
Goodwill		48,032		(11,774)		36,258
Intangible assets		26,000		17,240		43,240
Deferred income tax assets		8,116		(1,785)		6,331
Other assets		5,126		878		6,004
Total assets acquired		105,166		4,559		109,725
Accounts payable		5,734		-		5,734
Deferred income tax liabilities		7,984		3,715		11,699
Other liabilities		6,764		844		7,608
Total liabilities assumed		20,482		4,559		25,041
Total fair value of net assets acquired	$	84,684	$	-	$	84,684

A summary of the intangible assets acquired, amortization method and estimated useful lives are as follows:

			Amortization
	LumaSense		Method	Useful Life
Technology	$	35,530	Straight-line	15
Customer relationships		4,360	Straight-line	10
Tradename		3,350	Straight-line	10
Total	$	43,240

Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation at each balance sheet date. The goodwill represents expected operating synergies from combining operations with the acquired companies and the estimated value associated with the enhancements to our comprehensive product lines. During the nine months ended September 30, 2019, we adjusted the estimated values of the assets acquired and liabilities assumed based upon the valuation report. These adjustments included additional liabilities, changes to deferred taxes and changes in the allocation of excess purchase price between goodwill and intangibles.

Pro forma results for Advanced Energy Inc. giving effect to the LumaSense Technologies Holdings, Inc. and the Artesyn Embedded Power Business Transactions

The following unaudited pro forma financial information presents the combined results of operations of Advanced Energy, LumaSense and Artesyn as if each of the acquisitions had been completed at the beginning of the fiscal year prior to their acquisition. The unaudited pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of the year prior to the acquisition dates, nor are they indicative of future results.

The unaudited pro forma financial information for the three and nine months ended September 30, 2019 includes Advanced Energy’s results, including the post-acquisition results of LumaSense, since September 1, 2018 and the post-acquisition results of Artesyn, since September 10, 2019. The unaudited pro forma financial information for the three and nine months ended September 30, 2018 combines Advanced Energy’s results with the pre-acquisition results of LumaSense and Artesyn for that period.

The following tables present our unaudited pro forma results for the acquisitions of LumaSense and Artesyn:

	Three Months Ended September 30,
	2019				2018
	As Reported		Pro Forma		As Reported		Pro Forma
Total sales	$	175,127	$	292,669	$	173,082	$	333,050
Net income attributable to Advanced Energy Industries, Inc.	$	7,621	$	11,095	$	34,779	$	36,887
Earnings per share:
Basic earnings per share	$	0.20	$	0.29	$	0.89	$	0.95
Diluted earnings per share	$	0.20	$	0.29	$	0.89	$	0.94

	Nine Months Ended September 30,
	2019				2018
	As Reported		Pro Forma		As Reported		Pro Forma
Total sales	$	450,680	$	863,190	$	564,731	$	1,037,113
Net income attributable to Advanced Energy Industries, Inc.	$	54,677	$	58,615	$	127,619	$	135,994
Earnings per share:
Basic earnings per share	$	1.43	$	1.53	$	3.25	$	3.46
Diluted earnings per share	$	1.42	$	1.52	$	3.23	$	3.44

The unaudited pro forma results for all periods presented include adjustments made to account for certain costs and transactions that would have been incurred had the acquisitions been completed at the beginning of the year prior to the year of acquisition. These include adjustments to amortization charges for acquired intangible assets, interest and financing expenses, transaction costs, amortization of purchased gross profit and the alignment of various accounting policies. These adjustments are net of any applicable tax impact and were included to arrive at the pro forma results above.

LumaSense’s operating results have been included in the Advanced Energy’s operating results for the periods subsequent to the completion of the acquisition on September 1, 2018. During the three months ended September 30, 2019, LumaSense contributed total sales of $12.0 million and net income of $1.0 million. During the nine months ended September 30, 2019, LumaSense contributed total sales of $35.8 million and net income of $3.6 million.

Artesyn’s operating results have been included in the Advanced Energy’s operating results for the periods subsequent to the completion of the acquisition on September 10, 2019. During the three and nine months ended September 30, 2019, Artesyn contributed total sales of $40.9 million and net income of $1.2 million, including interest and other expense associated with the financing of the transaction. Cost of goods sold includes $1.5 million of acquisition related costs during the three and nine months ended September 30, 2019. Selling, general and administrative expenses includes $6.4 million and $7.9 million of acquisition related costs during the three and nine months ended September 30, 2019, respectively.