Business Context and Reporting Period
Company: Advanced Energy Industries, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 18, 2000
Reporting Period: The filing primarily reports on the acquisition of Sekidenko, Inc. on August 18, 2000. It includes audited consolidated financial statements for the years ended December 31, 1999, 1998, and 1997, which have been restated to reflect the pooling of interests for recent acquisitions (Sekidenko, Noah Holdings, and RF Power Products).
Key Financial Metrics (Year Ended Dec 31, 1999)
| Metric | 1999 | 1998 | 1997 |
|---|---|---|---|
| Sales (Revenue) | $202,849,000 | $134,019,000 | $188,339,000 |
| Gross Profit | $92,202,000 | $40,019,000 | $71,656,000 |
| Gross Margin | 45.5% | 29.9% | 38.0% |
| Net Income (Loss) | $19,066,000 | $(11,025,000) | $12,931,000 |
| Diluted EPS | $0.62 | $(0.38) | $0.48 |
| Cash & Equivalents (End of Period) | $21,043,000 | $12,875,000 | $12,376,000 |
| Operating Cash Flow | $10,368,000 | $10,284,000 | $7,741,000 |
| Total Debt (Notes + Convertible) | $138,866,000 | $1,370,000 | N/A |
Note: 1999 debt includes $135 million in convertible subordinated notes issued in November 1999.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 51.4% from 1998 to 1999, driven by organic growth and the restatement of financials to include acquisitions (Noah and Sekidenko) as pooling of interests.
- Profitability Turnaround: The company returned to profitability in 1999 with $19.1 million in net income, reversing an $11.0 million loss in 1998. The 1998 loss included $2.7 million in merger costs and a $1.0 million restructuring charge.
- Debt Structure: Long-term liabilities increased significantly in 1999 due to the issuance of $135 million in 5.25% convertible subordinated notes. Prior to this, long-term debt was negligible ($1.05 million in 1998).
- Investing Activities: Net cash used in investing activities surged to $176.2 million in 1999, primarily due to the purchase of $170.8 million in marketable securities.
Outlook, Risks, and Unusual Items
- Acquisitions:
- Sekidenko, Inc.: Acquired on August 18, 2000, via issuance of 2.1 million shares. Accounted for as a pooling of interests.
- Noah Holdings, Inc.: Merged April 6, 2000. Accounted for as a pooling of interests.
- Engineering Measurements Co. (EMCO): Definitive agreement signed July 6, 2000, for stock exchange acquisition. Expected to be a pooling of interests.
- Stock Offerings: In November 1999, the company sold 1 million shares at $39/share, netting approximately $37.8 million.
- Risk Factors: Significant exposure to the semiconductor capital equipment industry, customer concentration (Customer A represented 34% of 1999 sales), foreign currency fluctuations, and supply constraints.
- Unusual Items: 1998 included a $2.7 million merger cost charge and a $1.0 million restructuring charge. 1997 included a $3.08 million charge for purchased in-process R&D related to the Tower acquisition.
Investor Verification Checklist
- Pooling of Interests Impact: Verify the restatement of 1997-1999 financials to ensure comparability, as the inclusion of Noah and Sekidenko significantly alters historical revenue and profit trends.
- Convertible Note Terms: Review the conversion price ($49.53/share) and redemption terms of the $135 million convertible notes issued in late 1999 to assess potential future dilution.
- Customer Concentration: Assess the risk associated with Customer A, which accounted for 34% of total sales in 1999.
- EMCO Acquisition Status: Confirm the closing of the Engineering Measurements Co. acquisition and the final share count issued.
- Marketable Securities: Note the large increase in trading securities ($186.4 million in 1999 vs $15.8 million in 1998) and the associated unrealized gains/losses included in earnings.