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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2020

or

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

A picture containing drawing

Description automatically generated

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-0846841

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1595 Wynkoop Street, Suite 800, Denver, CO

80202

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (970407-6626

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

AEIS

NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

As of November 2, 2020, there were 38,272,715 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

PART I FINANCIAL INFORMATION

3

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

28

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

40

ITEM 4. CONTROLS AND PROCEDURES

41

PART II OTHER INFORMATION

42

ITEM 1. LEGAL PROCEEDINGS

42

ITEM 1A. RISK FACTORS

42

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

59

ITEM 6. EXHIBITS

61

SIGNATURES

62

2

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1.         UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)

September 30, 

December 31, 

    

2020

    

2019

ASSETS

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and cash equivalents

$

428,977

$

346,441

Marketable securities

 

2,601

 

2,614

Accounts and other receivable, net

 

240,147

 

246,564

Inventories

 

257,374

 

230,019

Income taxes receivable

 

13,042

 

4,245

Other current assets

36,335

36,855

Total current assets

 

978,476

 

866,738

Property and equipment, net

 

109,975

 

108,109

Operating lease right-of-use assets

108,810

105,404

Deposits and other assets

 

19,313

 

22,556

Goodwill

 

206,559

 

202,932

Intangible assets, net

 

169,250

 

184,011

Deferred income tax assets

50,136

42,656

TOTAL ASSETS

$

1,642,519

$

1,532,406

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

159,332

$

170,671

Income taxes payable

 

14,074

 

9,687

Accrued payroll and employee benefits

 

67,757

 

51,545

Other accrued expenses

 

46,282

 

41,691

Customer deposits and other

 

14,332

 

10,926

Current portion of long-term debt

17,500

17,500

Current portion of operating lease liabilities

17,243

18,312

Total current liabilities

 

336,520

 

320,332

Long-term debt

308,794

321,527

Operating lease liabilities

97,604

90,538

Pension benefits

70,156

68,169

Deferred income tax liabilities

 

10,128

 

9,952

Uncertain tax positions

 

16,686

 

16,055

Long-term deferred revenue

 

7,357

 

8,011

Other long-term liabilities

26,541

20,562

Total liabilities

 

873,786

 

855,146

Commitments and contingencies (Note 19)

 

 

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; 38,272 and 38,358 issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

38

 

38

Additional paid-in capital

 

101,485

 

104,849

Accumulated other comprehensive loss

 

(3,827)

 

(5,897)

Retained earnings

 

670,456

 

577,724

Advanced Energy stockholders' equity

 

768,152

 

676,714

Noncontrolling interest

 

581

 

546

Total stockholders’ equity

 

768,733

 

677,260

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,642,519

$

1,532,406

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Sales, net:

 

  

 

  

 

  

 

  

 

Product

$

358,257

$

148,138

$

959,388

$

366,443

Services

 

31,264

 

26,989

 

85,469

 

84,237

Total sales, net

 

389,521

 

175,127

 

1,044,857

 

450,680

Cost of sales:

 

 

 

 

Product

 

220,149

 

87,536

 

606,750

 

204,450

Services

 

15,587

 

14,100

 

41,787

 

42,873

Total cost of sales

 

235,736

 

101,636

 

648,537

 

247,323

Gross profit

 

153,785

 

73,491

 

396,320

 

203,357

Operating expenses:

 

 

 

 

Research and development

 

36,807

 

24,546

 

107,432

 

67,675

Selling, general and administrative

 

51,481

 

36,401

 

145,646

 

93,027

Amortization of intangible assets

 

5,049

 

3,002

 

15,064

 

6,849

Restructuring expense

 

1,494

 

152

 

7,940

 

3,620

Total operating expenses

 

94,831

 

64,101

 

276,082

 

171,171

Operating income

 

58,954

 

9,390

 

120,238

 

32,186

Other income (expense), net

 

(6,558)

 

1,361

 

(11,655)

 

17,649

Income from continuing operations, before income taxes

 

52,396

 

10,751

 

108,583

 

49,835

Provision for income taxes

 

6,783

 

3,495

 

15,293

 

3,819

Income from continuing operations

 

45,613

 

7,256

 

93,290

 

46,016

Income (loss) from discontinued operations, net of income taxes

 

50

 

375

 

(421)

 

8,690

Net income

$

45,663

$

7,631

$

92,869

$

54,706

Income from continuing operations attributable to noncontrolling interest

 

36

 

10

 

35

 

29

Net income attributable to Advanced Energy Industries, Inc.

$

45,627

$

7,621

$

92,834

$

54,677

Basic weighted-average common shares outstanding

 

38,325

 

38,313

 

38,322

 

38,258

Diluted weighted-average common shares outstanding

 

38,528

 

38,489

 

38,531

 

38,457

Earnings per share:

 

  

 

  

 

 

Continuing operations:

 

  

 

  

 

 

Basic earnings per share

$

1.19

$

0.19

$

2.43

$

1.20

Diluted earnings per share

$

1.18

$

0.19

$

2.42

$

1.20

Discontinued operations:

 

 

 

 

Basic earnings (loss) per share

$

$

0.01

$

(0.01)

$

0.23

Diluted earnings (loss) per share

$

$

0.01

$

(0.01)

$

0.23

Net income:

 

 

 

 

Basic earnings per share

$

1.19

$

0.20

$

2.42

$

1.43

Diluted earnings per share

$

1.19

$

0.20

$

2.41

$

1.42

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Net income

$

45,663

$

7,631

$

92,869

$

54,706

Other comprehensive income (loss), net of income taxes

 

  

 

  

 

  

 

  

Foreign currency translation

 

5,267

 

(4,849)

 

4,706

 

(6,281)

Change in fair value of cash flow hedges

 

170

 

 

(2,674)

 

Minimum benefit retirement liability

 

(116)

 

92

 

38

 

102

Comprehensive income

$

50,984

$

2,874

$

94,939

$

48,527

Comprehensive income attributable to noncontrolling interest

 

36

 

10

 

35

 

29

Comprehensive income attributable to Advanced Energy Industries, Inc.

$

50,948

$

2,864

$

94,904

$

48,498

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders’ Equity

(In thousands)

Common Stock

Accumulated

Additional

Other

Non-

Total

Paid-in

Comprehensive

Retained

controlling

Stockholders’ 

Shares

Amount

Capital

Income

Earnings

Interest

Equity

Balances, December 31, 2018

    

38,164

    

$

38

    

$

97,418

    

$

(3,449)

$

512,783

    

$

512

    

$

607,302

Stock issued from equity plans

72

(1,707)

(1,707)

Stock-based compensation

3,199

3,199

Other comprehensive income (loss)

(2,028)

(2,028)

Net income

15,370

8

15,378

Balances, March 31, 2019

38,236

$

38

$

98,910

$

(5,477)

$

528,153

$

520

$

622,144

Stock issued from equity plans

69

 

 

665

 

 

 

 

665

Stock-based compensation

 

 

937

 

 

 

 

937

Other comprehensive income (loss)

 

 

 

606

 

 

 

606

Net income

 

 

 

 

31,686

 

11

 

31,697

Balances, June 30, 2019

38,305

$

38

$

100,512

$

(4,871)

$

559,839

$

531

$

656,049

Stock issued from equity plans

27

328

328

Stock-based compensation

917

917

Other comprehensive income (loss)

(4,757)

(4,757)

Net income

7,621

10

7,631

Balances, September 30, 2019

38,332

$

38

$

101,757

$

(9,628)

$

567,460

$

541

$

660,168

Balances, December 31, 2019

38,358

$

38

$

104,849

$

(5,897)

$

577,724

$

546

$

677,260

Adoption of new accounting standards

(102)

(102)

Stock issued from equity plans

64

(2,171)

(2,171)

Stock-based compensation

3,048

3,048

Stock buyback

(170)

(7,248)

(7,248)

Other comprehensive income (loss)

(2,907)

(2,907)

Net income

18,063

15

18,078

Balances at March 31, 2020

38,252

$

38

$

98,478

$

(8,804)

$

595,685

$

561

$

685,958

Stock issued from equity plans

73

779

779

Stock-based compensation

2,837

2,837

Other comprehensive income (loss)

(344)

(344)

Net income

29,144

(16)

29,128

Balances at June 30, 2020

38,325

$

38

$

102,094

$

(9,148)

$

624,829

$

545

$

718,358

Stock issued from equity plans

20

 

 

(59)

 

 

 

 

(59)

Stock-based compensation

 

 

3,781

 

 

 

 

3,781

Stock buyback

(73)

 

 

(4,331)

 

 

 

 

(4,331)

Other comprehensive income (loss)

 

 

 

5,321

 

 

 

5,321

Net income

 

 

 

 

45,627

 

36

 

45,663

Balances, September 30, 2020

38,272

$

38

$

101,485

$

(3,827)

$

670,456

$

581

$

768,733

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

Nine Months Ended September 30, 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

 

Net income

$

92,869

$

54,706

Income (loss) from discontinued operations, net of income taxes

 

(421)

 

8,690

Income from continuing operations, net of income taxes

 

93,290

 

46,016

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

  

 

  

Depreciation and amortization

 

35,433

 

15,301

Stock-based compensation expense

 

9,666

 

5,053

Provision (benefit) for deferred income taxes

 

(7,849)

 

2,825

Gain on sale of central inverter service business

(14,804)

Discount on notes receivable

721

Net loss on disposal of assets

 

678

 

104

Changes in operating assets and liabilities, net of assets acquired:

 

 

Accounts and other receivable, net

 

8,670

 

(23,292)

Inventories

 

(26,983)

 

(7,217)

Other assets

 

5,039

 

13,695

Accounts payable

 

(12,971)

 

23,676

Other liabilities and accrued expenses

 

30,964

 

(17,779)

Income taxes

 

(1,626)

 

(14,720)

Net cash from operating activities from continuing operations

 

135,032

 

28,858

Net cash from operating activities from discontinued operations

 

(659)

 

317

Net cash from operating activities

 

134,373

 

29,175

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sale of marketable securities

 

3

 

Proceeds from sale of property and equipment

 

103

 

1,742

Acquisitions, net of cash acquired

(1,127)

(365,798)

Issuance of notes receivable

(1,000)

(2,800)

Purchases of property and equipment

 

(25,232)

 

(15,681)

Net cash from investing activities from continuing operations

 

(27,253)

 

(382,537)

Net cash from investing activities from discontinued operations

 

 

Net cash from investing activities

 

(27,253)

 

(382,537)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Net proceeds from long-term borrowings

347,486

Payments on long-term borrowings

(13,125)

(4,375)

Purchase and retirement of common stock

(11,579)

Net payments related to stock-based award activities

 

(1,451)

 

(714)

Net cash from financing activities from continuing operations

 

(26,155)

 

342,397

Net cash from financing activities from discontinued operations

 

 

Net cash from financing activities

 

(26,155)

 

342,397

EFFECT OF CURRENCY TRANSLATION ON CASH

 

1,571

 

(3,185)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

82,536

 

(14,150)

CASH AND CASH EQUIVALENTS, beginning of period

 

346,441

 

354,552

CASH AND CASH EQUIVALENTS, end of period

 

428,977

 

340,402

Less cash and cash equivalents from discontinued operations

 

 

CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period

$

428,977

$

340,402

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid for interest

$

4,261

$

1,049

Cash paid for income taxes

 

16,079

 

15,372

Cash received for refunds of income taxes

 

821

 

1,537

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1.     BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-owned subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power from the utility and convert it into various types of highly-controllable usable power that is predictable, repeatable and customizable. Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip, chemical and physical deposition, high and low voltage applications such as process control, analytical instrumentation and medical equipment, and in temperature-critical thermal applications such as material and chemical processing. We also supply related instrumentation products for advanced temperature measurement and control, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for several industrial markets. Our network of service support centers provides local repair and field service capability in key regions, provide upgrades and refurbishment services and sell used equipment to businesses that use our products. In September 2019, we acquired the Artesyn Embedded Power business, which added new power products and technologies used in networking and computing, data center including hyperscale, and industrial and medical applications. As of December 31, 2015, we discontinued our engineering, production, and sales of our Inverter product line. As such, all Inverter product revenues, costs, assets, and liabilities are reported in Discontinued Operations for all periods presented herein, and we currently report as a single unit. See Note 4. Disposed and Discontinued Operations for more information. Ongoing inverter repair and service operations are reported as part of our continuing operations.

In the opinion of management, the accompanying Unaudited Consolidated Financial Statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2020, and the results of our operations and cash flows for the three and nine months ended September 30, 2020 and 2019.

The Unaudited Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to such rules and regulations. These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and other financial information filed with the SEC.

Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of our Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We believe the significant estimates, assumptions, and judgments when accounting for items and matters such as allowances for expected credit loss, excess and obsolete inventory, warranty reserves, right-of-use assets and related operating lease liabilities, acquisitions, asset valuations, asset life, depreciation, amortization, recoverability of assets, impairments, deferred revenue, stock option and restricted stock grants, taxes, and other provisions are reasonable, based upon information available at the time they are made. Actual results may differ from these estimates, making it possible that a change in these estimates could occur in the near term.

Critical Accounting Policies

Derivatives

The Company uses derivative financial instruments to manage risks associated with foreign currency and interest rate fluctuations. Unless we meet specific hedge accounting criteria, changes in the fair value of derivative financial instruments are recognized in the Consolidated Statements of Operations within Other income (expense), net.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

For derivatives designated as cash flow hedges, changes in fair value are recorded to Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and are reclassified to earnings when the underlying forecasted transaction affects earnings. We reassess the probability of the underlying forecasted transactions occurring on a quarterly basis.

Fair Value

We value our financial assets and liabilities using fair value measurements.

U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels of the hierarchy and the related inputs are as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 — Unobservable inputs for the asset or liability.

The Company categorizes fair value measurements within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine fair value. Our assessment of the significance of a particular input to the fair value measurement requires judgement and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate fair value as recorded due to the short-term nature of these instruments.

The Company’s non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value. See Note 12, Goodwill, and Note 13, Intangible Assets, for further discussion and presentation of these amounts.

The fair value of borrowings approximates the recorded borrowing value based upon market interest rates for similar facilities. See Note 22, Credit Facility, for additional information. The fair value of contingent consideration and other acquired assets and liabilities associated with the acquisition of the Embedded Power business, are based on Level 3 inputs.

New Accounting Standards

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Consolidated Financial Statements upon adoption.

Recently issued accounting pronouncements not yet adopted

In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)" ("ASU 2018-14"). ASU 2018-14 eliminates requirements for certain disclosures and

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

requires additional disclosures under defined benefit pension plans and other post-retirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and shall be applied to all periods presented on a retrospective basis. Early adoption is permitted. We are currently assessing and do not believe ASU 2018-14 will have a significant impact on our defined benefit plan disclosure requirements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. ASU 2020-04 will be in effect through December 31, 2022. We are currently assessing the potential impact of ASU 2020-04 on our Consolidated Financial Statements.

Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326)" Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU 2016-13 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. We adopted ASU 2016-13 in the first quarter of fiscal year 2020 through a cumulative-effect adjustment to beginning retained earnings using the modified retrospective approach. The impact of the adoption of ASU 2016-13 was not material to our Consolidated Financial Statements.

The Company’s principal customers are original equipment manufacturers and end user customers, which operate globally through wholly owned subsidiaries that purchase the Company’s products under substantially the same credit terms, with similar historical credit risks. As a result, the Company assesses credit risks for its customers as a single group. The Company evaluates collection risk and establishes its expected credit loss primarily through a combination of the following: an assessment of customer credit risk ratings utilizing third party credit risk data, analysis of historical aging and credit loss experience, and customer specific information.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)" ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 was effective for fiscal years ending after December 15, 2019 and shall be applied to all periods presented on a retrospective basis. We adopted ASU 2018-13 in the first quarter of fiscal year 2020. The impact of the adoption of ASU 2018-13 was not material to our Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes" ("ASU 2019-12"), which is meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU 2019-12 is being issued in connection with its Simplification Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of generally accepted accounting principles without compromising information provided to users of financial statements. We early adopted ASU 2019-12 in the first quarter of fiscal year 2020. The impact of the adoption of ASU 2019-12 was not material to our Consolidated Financial Statements.

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, dated May 14, 2019 as amended (the “Acquisition Agreement”). Pursuant to the Acquisition Agreement, we acquired all of Artesyn’s issued and outstanding shares for a purchase price of $370.2 million including the assumption of certain liabilities and the finalization of the net working capital adjustment. In connection with the Acquisition Agreement, we entered into a credit agreement that

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

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 diversified our product portfolio and gave us access to additional growth markets, including data centers and hyperscale, 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:

    

Cash paid for acquisition

$

390,453

Contingent consideration

3,008

Total fair value of consideration transferred

393,461

Less cash acquired

 

(23,225)

Total purchase price

$

370,236

The following table summarizes the final fair values of the assets acquired and liabilities assumed from the acquisition, along with the measurement period adjustments that occurred during the quarter:

    

Preliminary
Fair Value

    

Measurement
Period
Adjustments

    

Final Fair
Value

Accounts and other receivable, net

$

132,466

$

$

132,466

Inventories

 

156,407

156,407

Property and equipment

 

63,321

63,321

Operating lease right-of-use assets

54,439

54,439

Goodwill

 

117,762

(2,764)

114,998

Intangible assets

 

124,000

124,000

Other assets

 

63,863

(649)

63,214

Total assets acquired

 

712,258

(3,413)

708,845

Accounts payable

 

152,635

152,635

Operating lease liability

54,515

54,515

Pension liability

48,315

48,315

Deferred income tax liabilities

 

5,870

(