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Item 9A. Controls and Procedures

2021-02-24 compared with 2020-03-02 · 82 added, 80 removed, 205 unchanged (44% of the section changed)

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We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 (the "Act") is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Yuval Wasserman, Chief Executive Officer) and Principal Financial Officer (Paul Oldham, Chief Financial Officer & Executive Vice President), as appropriate, to allow timely decisions regarding required disclosures.

These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Yuval Wasserman, Chief Executive Officer) and Principal Financial Officer (Paul Oldham, Chief Financial Officer and Executive Vice President), as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b).

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Our internal control over financial reporting is designed to provide reasonable assurance concerning the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

In September 2019, we acquired Artesyn Embedded Technologies, Inc.’s Embedded Power business (“Artesyn”), as discussed in Note 2.

In September 2019, we acquired Artesyn Embedded Technologies, Inc.’s embedded power business ("Artesyn"), as discussed in Note 2.

Business Acquisitions in Item 8 "Financial Statements and Supplementary Data."

The objectives of Artesyn established internal controls over financial reporting is consistent, in all material

respects, with Advanced Energy’s objectives.

We are in the process of completing a more comprehensive review of Artesyn’s internal control over financial reporting and will be implementing changes to better align their reporting and controls with the rest of Advanced Energy.

As a result of the timing of the acquisition and the changes that are anticipated to be made, and in accordance with the general guidance issued by the SEC regarding exclusion of certain acquired businesses, we have excluded Artesyn from the December 31, 2019 assessment of Advanced Energy’s internal controls over financial reporting.

Artesyn accounted for approximately 45% of Advanced Energy’s total assets at December 31, 2019, and 28% of Advanced Energy’s total net sales for the fiscal year ended December 31, 2019.

The objectives of Artesyn established internal controls over financial reporting is consistent, in all material respects, with Advanced Energy’s objectives.

We have completed a comprehensive review of Artesyn’s internal control over financial reporting and implemented changes to better align and integrate Artesyn’s reporting and controls with the rest of Advanced Energy.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2020, using the criteria described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Artesyn Embedded Technologies, Inc.’s Embedded Power business which was acquired during the year ended December 31, 2019, which are included in the 2019 consolidated financial statements of the Company and constituted 45% of total assets as of December 31, 2019 and 28% of sales for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of this entity.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2019, and the related notes and our report dated March 2, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheets of the Company as of December 31, 2020 and 2019, the related Consolidated Statements of Operations, Comprehensive Income, Stockholders’ Equity, and Cash Flows for each of the two years in the period ended December 31, 2020, and the related notes and our report dated February 23, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company’s internal control over financial reporting

includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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Denver, Colorado

March 2, 2020

February 23, 2021

OTHER INFORMATION

In an effort to address volatility in the markets the Company serves, on March 2, 2020 the Compensation Committee recommended and the Board of Directors approved changes to the Short Term Incentive Plan (“2020 STI Plan”) to (1) provide for two six-month performance periods (January 1 - June 30 and July 1 – December 31) instead of a fiscal year performance period (January 1 – December 31), (2) replace the operational cash flow target to a realized acquisition synergies target, (3) change the weighting of the three performance targets such that revenue, non-GAAP operating income from continuing operations and realized acquisition synergies would be weighted 40%, 40% and 20%, respectively and (4) the funding of the realized acquisition synergies amount is not dependent on meeting any other

financial threshold.

As with prior short-term incentive plans, threshold, target and stretch performance goals have an opportunity for a 50%, 100% and 200% payout.

Eligible participants in the 2020 STI Plan must continue to be employees on the payment date which is expected to be within 90 days after the end of the 2020 fiscal year.

The eligible participants in the 2020 STI Plan include senior management and the named executive officers at their respective bonus percentage targets.

Specifically, for the named executive officers, the President & Chief Executive Officer, the Executive Vice President & Chief Financial Officer, the Executive Vice President & Chief Operating Officer and the Executive Vice President & General Counsel have a target bonus opportunity under the 2020 STI Plan of 100%, 70%, 70% and 60% of their 2020 base salary, respectively.

In accordance with General Instruction G(3) of Form 10-K, certain information required by this Part III is incorporated by reference to the definitive proxy statement relating to our 2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”), as set forth below.

In accordance with General Instruction G(3) of Form 10-K, certain information required by this Part III is incorporated by reference to the definitive proxy statement relating to our 2021 Annual Meeting of Stockholders (the "2021 Proxy Statement"), as set forth below.

The 2021 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information set forth in the 2020 Proxy Statement under the heading “Proposal No.

1/Election of Directors” is incorporated herein by reference.

The information set forth in the 2021 Proxy Statement under the heading "Proposal No.

1/Election of Directors"

is incorporated herein by reference.

The Company has adopted a Code of Ethical Conduct that applies to all of the Company’s employees, including the Company’s Chief Executive Officer and Chief Financial Officer and other persons performing similar functions.

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Our executive officers, their positions, and their ages as of December 31, 2020 were as follows:

Yuval Wasserman, 65, has served as President & Chief Executive Officer, and as a director of Advanced Energy since October 2014.

Yuval Wasserman, 66, has served as President and Chief Executive Officer, and as a director of Advanced Energy since October 2014.

Wasserman joined us in August 2007 as Senior Vice President, Sales, Marketing and Service.

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In April 2009, he was promoted to Executive Vice President and Chief Operating Officer of the Company, and then in August 2011, he was promoted to President of the Thin Films Business Unit.

Wasserman was on the Board of Directors of Syncroness, Inc., an outsourced engineering and product development company, from 2010 to 2017 when it was sold, and joined the Board of Directors of FARO Technologies, Inc., a publicly traded manufacturer of three-dimensional (3D) measurement, imaging and realization systems, in December 2017.

Wasserman is a National Association of Corporate Directors (NACD) Governance Fellow.

Wasserman was on the Board of Directors of Syncroness, Inc., an outsourced engineering and product development company, from 2010 to 2017 when it was sold, and joined the Board of Directors of FARO Technologies, Inc., a publicly traded manufacturer of three-dimensional ("3D") measurement, imaging and realization systems, in December 2017.

Wasserman is a National

Association of Corporate Directors ("NACD") Governance Fellow.

Wasserman has a BSc degree in chemical engineering from Ben Gurion University in Israel.

Paul Oldham, 56, joined the Company in May 2018 as its Executive Vice President & Chief Financial Officer.

Paul Oldham, 57, joined the Company in May 2018 as its Executive Vice President and Chief Financial Officer.

Previously Mr.

Oldham served as the Senior Vice President of Administration, Chief Financial Officer and Corporate Secretary of Electro Scientific Industries, Inc., a developer and manufacturer of laser-based production equipment (“ESI”), from February 17, 2016 until December 4, 2017, and as the Vice President of Administration, Chief Financial Officer and Corporate Secretary of ESI from January 7, 2008 until February 16, 2016.

Oldham served as the Senior Vice President of Administration, Chief Financial Officer and Corporate Secretary of Electro Scientific Industries, Inc., a developer and manufacturer of laser-based production equipment ("ESI"), from February 17, 2016 until December 4, 2017, and as the Vice President of Administration, Chief Financial Officer and Corporate Secretary of ESI from January 7, 2008 until February 16, 2016.

Prior to joining ESI, Mr.

Oldham was employed at Tektronix, Inc., a test, measurement, and monitoring company, since 1988, where he held several senior leadership positions, including Vice President Finance and Corporate Controller, Vice President - Treasurer and

Investor Relations and European Operations Controller.

Oldham has a bachelor’s degree in Accounting and an MBA in accounting and finance from Brigham Young University.

Neil Brinker, 44, joined the Company in June 2018 as its Executive Vice President & Chief Operating Officer.

Previously, Mr.

Brinker served as the Group President of the IDEX Corporation (“IDEX”), from July 2015, and was Platform President of IDEX’s Material Processing Technologies from May 2014 to July 2015 and General Manager of IDEX’s Fluid Management business from April 2012 to May 2014.

Prior to IDEX, Mr.

Brinker was a Director of Global Operations at Danaher Corporation (“Danaher”) from July 2009 to April 2012 and held several other operations management leadership positions at Danaher from February 2007 to July 2009.

Prior to Danaher, Mr.

Brinker held various management positions at General Motors Company from 2001 to 2007.

Brinker holds a B.S.M.E.

degree from Michigan State University, a Master of Engineering from the University of Michigan and an MBA from Eastern Michigan University.

McGimpsey, 58, joined the Company in April 2009 and serves as its Executive Vice President - General Counsel, Government Affairs & Corporate Secretary.

McGimpsey was the interim Chief Financial Officer from January to May in 2018, the Corporate Development M&A Officer from 2011 to 2015 and he managed the IT Department from 2010 to 2013, all while serving as General Counsel.

McGimpsey, 59, joined the Company in April 2009 and currently serves as its Chief Administration Officer, Executive Vice President of Corporate Development & Corporate Secretary.

McGimpsey was previously the Executive Vice President – General Counsel, Government Affairs & Corporate Secretary.

McGimpsey was also the interim Chief Financial Officer from January to May in 2018, the Corporate Development ("M&A") Officer from 2011 to 2015 and he managed the IT Department from 2010 to 2013, all while serving as General Counsel.

Prior to joining the Company, Mr.

McGimpsey was a Vice President of Operations at First Data Corporation from February 2008 to April 2009.

McGimpsey was Vice President of Operations at First Data Corporation from February 2008 to April 2009.

During 2007, Mr.

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degree in Computer Science from Embry-Riddle Aeronautical University.

McGimpsey was a National Association of Corporate Directors (NACD) Board Leadership Fellow and is licensed to practice law in New York, Colorado, Florida and before the U.S.

McGimpsey was a National Association of Corporate Directors ("NACD") Board Leadership Fellow and is licensed to practice law in New York, Colorado, Florida and before the U.S.

Supreme Court.

Dana Huth, 59, is Advanced Energy’s Executive Vice President & Chief Revenue Officer.

Huth served as President of Artesyn Embedded Power from May 2019 until September 2019 when acquired by Advanced Energy in September 2019.

Before leading Embedded Power, Mr.

Huth served as President of consumer business and global sales at Artesyn Embedded Technologies from January 2014 to May 2019, and as President of global sales, key accounts and distribution at Emerson Embedded Power from January 2008 to January 2014.

At Motorola, Mr.

Huth held senior management positions from February 2004 to January 2008, including Vice President of worldwide sales and market development, Vice President of global accounts, and Vice President of sales for the Asia Pacific region and Japan.

Huth also spent more than 19 years with Avnet, Inc., one of the world’s largest value-added distributors and systems integrators of electronic components, computer products, and embedded technology.

He held various positions which included Senior Vice President and leading Avnet’s global partnership with IBM.

EXECUTIVE COMPENSATION

The information set forth in the 2020 Proxy Statement under the headings “Executive Compensation” is incorporated herein by reference.

The information set forth in the 2021 Proxy Statement under the headings "Executive Compensation"

is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information set forth in the 2020 Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” is incorporated herein by reference.

The information set forth in the 2021 Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management"

and "Equity Compensation Plan Information"

is incorporated herein by reference.

Securities Authorized for Issuance under Equity Compensation Plans

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information is set forth in Note 20.

Related Party Transactions in Item 8 "Financial Statements and Supplementary Data,"

and in the 2020 Proxy Statement under the captions "Election of Directors"

and “Certain Relationships and Related Transactions” is incorporated herein by reference.

Not applicable.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information set forth in the 2020 Proxy Statement under the caption “Ratification of the Appointment of Ernst & Young LLP as Advanced Energy’s Independent Registered Public Accounting Firm for 2020” is incorporated herein by reference.

The information set forth in the 2021 Proxy Statement under the caption "Ratification of the Appointment of Ernst & Young LLP as Advanced Energy’s Independent Registered Public Accounting Firm for 2021"

is incorporated herein by reference.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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Financial Statements:

Report of Ernst & Young LLP as of and for the year ended December 31, 2019

Report of Grant Thornton LLP as of December 31, 2018 and for the years ended December 31, 2018 and 2017

Consolidated Balance Sheets at December 31, 2019 and 2018

Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Notes to Consolidated Financial Statements

See Index to Financial Statements at Item 8 herein.

Financial Statement Schedules for the years ended December 31, 2020, 2019 and 2018

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Amended and Restated Certificate of Incorporation of Advanced Energy Industries, Inc.

Amended and Restated By-Laws of Advanced Energy Industries, Inc.

Second Amended and Restated By-Laws of Advanced Energy Industries, Inc.

Form of Specimen Certificate for Common Stock.

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Offer Letter to Paul Oldham, dated March 26, 2018.

Offer Letter to Neil Brinker, dated May 7, 2018.

Form of Executive Change in Control & General Severance Agreement.

Form of Executive Change in Control and General Severance Agreement.

Credit Agreement, dated September 10, 2019, by and among Advanced Energy Industries, Inc., Bank of America N.A.

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as the Joint Lead Arrangers and Joint Book Runners, and Citibank N.A., as the Co-Manager.

ISDA 2002 Master Agreement, by and between Advanced Energy Industries, Inc.

and HSBC Bank USA, National Association, dated as of April 2, 2020 (the "HSBC ISDA Master Agreement").

ISDA 2002 Master Agreement, by and between Advanced Energy Industries, Inc.

and Citibank, N.A., dated as of April 7, 2020 (the "Citibank ISDA Master Agreement").

Schedule to the HSBC ISDA Master Agreement.

Schedule to the Citibank ISDA Master Agreement.

Rate Swap Transaction Confirmation, by and between Advanced Energy Industries, Inc.

and HSBC Bank USA, National Association, dated April 7, 2020.

Rate Swap Transaction Confirmation, by and between Advanced Energy Industries, Inc.

and Citibank, N.A., dated April 9, 2020.

Amendment dated January 11, 2021 to the Schedule to the ISDA 2002 Master Agreement dated April 2, 2020 between HSBC Bank USA, National Association and Advanced Energy Industries, Inc.

Letter from Grant Thornton LLP.

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XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

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XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File

Attached as Exhibit 101 to this report are the following materials from Advanced Energy, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language):

(i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity, and (vi) the Notes to the Consolidated Financial Statements.

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

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