Business Acquisition and Disposition (Notes) | 9 Months Ended |
Sep. 30, 2013 |
Business Combinations [Abstract] | ' |
BUSINESS ACQUISITION & DISPOSITION | ' |
BUSINESS ACQUISITION & DISPOSITION |
Acquisition |
Solvix SA |
On November 8, 2012, we acquired Solvix SA ("Solvix"), a privately-held Switzerland based company, pursuant to a stock purchase agreement dated November 8, 2012 between AEI International Holdings, CV ("AEI CV"), a wholly-owned subsidiary of Advanced Energy incorporated in the Netherlands, and CPA Group SA ("CPA Group"), a privately held Switzerland company. Pursuant to the stock purchase agreement, AEI CV purchased 100% of the outstanding stock of Solvix. |
We acquired all of the outstanding Solvix common stock for total consideration with a fair value of approximately $21.2 million consisting of cash payments totaling $16.0 million, net of cash acquired, and contingent consideration payable to the former shareholders of Solvix. The additional cash consideration of up to $7.9 million is payable to CPA Group if certain milestone targets are met during the year ending December 31, 2013 and certain financial targets are met in the three years ended December 31, 2015. The estimated fair value of this contingent consideration is approximately $5.3 million as of November 8, 2012, of which the remaining balance of $0.9 million is included in Other accrued expenses and $2.3 million is included in Other long-term liabilities on the Condensed Consolidated Balance Sheet. |
Solvix is a manufacturer of power supplies for the surface treatment and thin films industry. Solvix manufactures products that bring plasma-based sputtering and cathodic arc deposition applications to Advanced Energy's existing product portfolio and is included in our Thin Film business unit. Solvix has approximately 10 employees and had revenues of $5.2 million in its fiscal year ended September 30, 2012. |
During 2013, we initiated the move of the Solvix product line from a contract manufacturer in Switzerland to our Shenzhen facility. The move will be completed by the end of the fourth quarter of 2013. |
The components of the fair value of the total consideration transferred for the Solvix acquisition are as follows (in thousands): |
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Cash paid to owners | $ | 16,673 | | | | | | | | | | | | | |
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Contingent consideration | 5,253 | | | | | | | | | | | | | |
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Cash acquired | (680 | ) | | | | | | | | | | | | |
Total fair value of consideration transferred | $ | 21,246 | | | | | | | | | | | | | |
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The following table summarizes estimated fair values of the assets acquired and liabilities assumed as of November 8, 2012 (in thousands): |
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Cash | $ | 680 | | | | | | | | | | | | | |
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Accounts receivable | 1,074 | | | | | | | | | | | | | |
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Inventories | 57 | | | | | | | | | | | | | |
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Other receivables | 32 | | | | | | | | | | | | | |
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Other current assets | 46 | | | | | | | | | | | | | |
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Property and equipment | 43 | | | | | | | | | | | | | |
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Accounts payable | (390 | ) | | | | | | | | | | | | |
Accrued payroll and employee benefits | (186 | ) | | | | | | | | | | | | |
Other accrued expenses | (159 | ) | | | | | | | | | | | | |
Customer deposits | (38 | ) | | | | | | | | | | | | |
Deferred tax liabilities | (1,628 | ) | | | | | | | | | | | | |
| (469 | ) | | | | | | | | | | | | |
Amortizable intangible assets: | | | | | | | | | | | | | |
Trademarks | 106 | | | | | | | | | | | | | |
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Technology | 2,723 | | | | | | | | | | | | | |
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Customer relationships | 5,398 | | | | | | | | | | | | | |
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Total amortizable intangible assets | 8,227 | | | | | | | | | | | | | |
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Total identifiable net assets | 7,758 | | | | | | | | | | | | | |
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Goodwill | 13,488 | | | | | | | | | | | | | |
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Total fair value of consideration transferred | $ | 21,246 | | | | | | | | | | | | | |
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A summary of the intangible assets acquired, amortization method and estimated useful lives as of November 8, 2012 follows (in thousands, except useful life): |
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| | Amount | | Amortization Method | | Useful Life | | | | | | | |
Trademarks | | $ | 106 | | | Straight-line | | 3 | | | | | | | |
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Technology | | 2,723 | | | Straight-line | | 9 | | | | | | | |
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Customer relationships - other | | 755 | | | Straight-line | | 7 | | | | | | | |
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Customer relationships - design | | 4,643 | | | Straight-line | | 12 | | | | | | | |
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| | $ | 8,227 | | | | | | | | | | | | |
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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 cost of the acquisition may increase or decrease based on the final amount payable to the former owner of Solvix related to the financial targets to be met during the three years ending December 31, 2015. Advanced Energy is in the process of finalizing valuations of other intangibles, estimates of the fair value of liabilities associated with the acquisition and deferred taxes and expects to complete the acquisition accounting and required disclosures prior to December 31, 2013. |
Refusol Holding |
On April 8, 2013, we acquired all the outstanding shares of Refusol Holding GmbH pursuant to a Sale and Purchase Agreement (the "Agreement ") between AEI Holdings, GmbH (formerly Blitz S13-103, GmbH) ("AEI Holdings"), an indirect wholly-owned subsidiary of Advanced Energy Industries, Inc. and Jolaos Verwaltungs GmbH ("Jolaos") and Prettl Beteilgungs Holding GmbH. Refusol Holding GmbH ("Refusol Holding") owns all of the shares of Refusol GmbH and its subsidiaries (collectively and together with Refusol Holding, "Refusol"). Refusol develops, manufactures, distributes and services photovoltaic inverters. |
All of the outstanding shares of Refusol Holding were acquired for total consideration of approximately $87.2 million, consisting of a cash payment of $75.4 million, net of cash acquired and a working capital reduction and assumption of debt totaling $11.9 million. The agreement calls for additional cash consideration if certain stretch financial targets are met by our Solar Energy business unit and Refusol, on a combined basis, at the end of the twelve (12) calendar months following April 1, 2013. The contingent consideration has no estimated fair value as of April 8, 2013 based on management's estimates of operating income for the Solar Energy business unit for the specified period. The preliminary base price is subject to a post-closing adjustment based on confirmation of the financial statements of Refusol effective as of the closing date. |
Refusol develops three-phase string inverters for commercial customers across Europe and Asia. Its three-phase string inverter offerings range in size from 8kW to 24kW broadening the range of solar inverter products offered by Advanced Energy. Refusol is included in our Solar Energy business unit. Refusol had revenues of $170.5 million in its fiscal year ended December 31, 2012. |
The components of the fair value of the total consideration transferred for the Refusol acquisition are as follows (in thousands): |
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Cash paid to owners | $ | 79,550 | | | | | | | | | | | | | |
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Debt assumed | 11,873 | | | | | | | | | | | | | |
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Working capital adjustment | (2,340 | ) | | | | | | | | | | | | |
Cash acquired | (1,836 | ) | | | | | | | | | | | | |
Total fair value of consideration transferred | $ | 87,247 | | | | | | | | | | | | | |
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The following table summarizes estimated fair values of the assets acquired and liabilities assumed as of April 8, 2013 (in thousands): |
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Accounts receivable | 10,705 | | | | | | | | | | | | | |
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Inventories | 17,477 | | | | | | | | | | | | | |
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Other current assets | 7,028 | | | | | | | | | | | | | |
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Property and equipment | 5,165 | | | | | | | | | | | | | |
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Other long-term assets | 130 | | | | | | | | | | | | | |
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Current liabilities | (21,257 | ) | | | | | | | | | | | | |
Long-term liabilities | (23,664 | ) | | | | | | | | | | | | |
Deferred tax liabilities | (2,985 | ) | | | | | | | | | | | | |
| (7,401 | ) | | | | | | | | | | | | |
Amortizable intangible assets: | | | | | | | | | | | | | |
Trademarks | 1,300 | | | | | | | | | | | | | |
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Technology | 5,700 | | | | | | | | | | | | | |
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Customer relationships | 3,500 | | | | | | | | | | | | | |
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Total amortizable intangible assets | 10,500 | | | | | | | | | | | | | |
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Total identifiable net assets | 3,099 | | | | | | | | | | | | | |
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Goodwill | 84,148 | | | | | | | | | | | | | |
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Total fair value of consideration transferred | $ | 87,247 | | | | | | | | | | | | | |
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A summary of the intangible assets acquired, amortization method and estimated useful lives as of April 8, 2013 follows (in thousands, except useful life): |
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| | Amount | | Amortization Method | | Useful Life | | | | | | | |
Trademarks | | $ | 1,300 | | | Straight-line | | 1.5 | | | | | | | |
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Technology | | 5,700 | | | Straight-line | | 5 | | | | | | | |
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Customer relationships | | 3,500 | | | Straight-line | | 5 | | | | | | | |
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| | $ | 10,500 | | | | | | | | | | | | |
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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 associated with the acquisition is the result of expected synergies and expansion of the technology into additional markets that we already serve. |
The cost of the acquisition may increase or decrease based on the final amount payable to the former owner of Refusol related to the financial targets to be met during the twelve month period subsequent to April 1, 2013 and a post-closing working capital adjustment based on confirmation of the financial statements of Refusol effective as of the closing date. Advanced Energy is in the process of finalizing valuations of accounts receivable, inventory, other intangibles, property, plant and equipment, estimates of the fair value of liabilities associated with the acquisition and deferred taxes. |
The results of Refusol operations are included in our Condensed Consolidated Statements of Operations beginning April 8, 2013. For the period ended September 30, 2013, net sales of approximately $43.8 million and operating loss of $3.1 million attributable to Refusol were included in the Condensed Consolidated Statements of Operations. Refusol's results of operations included restructuring charges of $3.7 million and amortization of purchased intangible assets of $1.4 million. |
Pro Forma Results for Refusol Acquisition |
The following unaudited pro forma financial information presents the combined results of operations of Advanced Energy and Refusol as if the acquisition had occurred as of January 1, 2012. The 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 acquisition had taken place at January 1, 2012. The unaudited pro forma financial information for the three and nine months ended September 30, 2012 includes the historical results of Advanced Energy for the three and nine months ended September 30, 2012 and the historical results of Refusol for the same periods. |
The unaudited pro forma results for all periods presented include amortization charges for acquired intangible assets and related tax effects. These pro forma results consider the sale of the gas flow control business and related product lines as discontinued operations. The unaudited pro forma results follow (in thousands, except per share data): |
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| (Unaudited) |
| Three Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Sales | $ | 142,899 | | | $ | 175,874 | | | $ | 414,507 | | | $ | 295,015 | |
|
Net income (loss) | 687 | | | 5,679 | | | (6,975 | ) | | 9,433 | |
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Earnings (loss) per share: | | | | | | | |
Basic | $0.02 | | $ | 0.15 | | | $ | (0.18 | ) | | $ | 0.24 | |
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Diluted | $0.02 | | $ | 0.14 | | | $ | (0.17 | ) | | $ | 0.24 | |
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Disposition |
On October 15, 2010, we completed the sale of our gas flow control business, which included the Aera® mass flow control and related product lines to Hitachi Metals, Ltd. ("Hitachi"), for approximately $43.3 million. Assets and liabilities sold included, without limitation, inventories, real property in Hachioji, Japan, equipment, certain contracts, intellectual property rights related to the gas flow control business and certain warranty liability obligations. |
In connection with the closing of this asset disposition, we entered into a Master Services Agreement and a Supplemental Transition Services Agreement pursuant to which we provided certain transition services until October 2011 and we became an authorized service provider for Hitachi in all countries other than Japan. In March 2012, we entered into an agreement to sell certain fixed assets to Hitachi and cease providing contract manufacturing services. As of May 31, 2012, we ceased providing contract manufacturing services to Hitachi and completed the sale of certain fixed assets related to that manufacturing. The sale of these assets resulted in a $1.9 million gain, which is recorded in Other income (expense), net in our Condensed Consolidated Statements of Operations. As of June 30, 2012, all manufacturing activities and relationships with Hitachi related to the previously owned gas flow control business have ended. We do not anticipate any additional activity with Hitachi in respect of these assets that would materially impact our financial statements in the future. |
In accordance with authoritative accounting guidance for reporting discontinued operations, for the periods reported in this Form 10-Q, the results of continuing operations were reduced by the revenue and costs associated with the gas flow control business, which are included in the Income from discontinued operations, net of income taxes, in our Condensed Consolidated Statements of Operations. |
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Operating results of discontinued operations are as follows (in thousands): |
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| | Nine Months Ended September 30, | | | | | | | | | | | |
| | 2012 | | | | | | | | | | | |
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Sales | | $ | 8,959 | | | | | | | | | | | | |
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Cost of sales | | 9,189 | | | | | | | | | | | | |
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Gross profit (loss) | | (230 | ) | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | | — | | | | | | | | | | | | |
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Selling, general, and administrative | | 88 | | | | | | | | | | | | |
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Total operating expenses | | 88 | | | | | | | | | | | | |
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Operating income (loss) from discontinued operations | | (318 | ) | | | | | | | | | | | |
Other income | | 881 | | | | | | | | | | | | |
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Income from discontinued operations before income taxes | | 563 | | | | | | | | | | | | |
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Provision for income taxes | | 133 | | | | | | | | | | | | |
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Income from discontinued operations, net of income taxes | | $ | 430 | | | | | | | | | | | | |
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