ADVANCED ENERGY INDUSTRIES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Report of Ernst & Young LLP, Independent Registered Public Accounting Firm 47 Report of Grant Thornton LLP, Independent Registered Public Accounting Firm 49 Consolidated Balance Sheets 50 Consolidated Statements of Operations 51 Consolidated Statements of Comprehensive Income 52 Consolidated Statements of Stockholders’ Equity 53 Consolidated Statements of Cash Flows 54 Notes to Consolidated Financial Statements 55 ​ ​ ​ 46 Table of Contents Report of Ind ependent Registered Public Accounting Firm ​ To the Stockholders and the Board of Directors of Advanced Energy Industries, Inc. ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Advanced Energy Industries, Inc. (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 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2021 expressed an unqualified opinion thereon. ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on 47 Table of Contents the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ ​ Accounting for income taxes Description of the Matter ​ As described in Notes 1 and 5 to the consolidated financial statements, the Company is subject to income taxes in the U.S. and numerous foreign jurisdictions, which affect the Company’s provision for income taxes. Specifically, the Company is entitled to claim US foreign tax credits for taxes paid in international tax paying jurisdictions. The Company is also subject to taxation of global intangible low-taxed income (GILTI) earned by foreign subsidiaries. For the year ended December 31, 2020, the Company’s provision for income taxes was $23.0 million. Auditing the Company's provision for income taxes, particularly the effects of foreign tax credits and GILTI, was especially challenging because interpretation of the relevant foreign tax regulations and the application of these interpretations to the calculation of the foreign tax credits and GILTI is highly complex. How We Addressed the Matter in Our Audit ​ We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s accounting for income taxes. For example, we tested controls over management’s identification and assessment of changes in applicable tax regulations. We also tested controls over the calculation of the foreign tax credits and GILTI, including review of the completeness and accuracy of the inputs and underlying data. To test the Company’s provision for income taxes, we performed audit procedures that included, among others, evaluating the Company's assessment of applicable tax regulations and testing the calculation of the provision, including the completeness and accuracy of the underlying data. We also evaluated the Company’s significant assumptions and the completeness and accuracy of the data used to determine the amount of the foreign tax credits and GILTI, including foreign earnings and profits, and tested the accuracy of such calculations. As part of these procedures, we engaged tax subject matter professionals with knowledge of and experience with international and local income tax laws to evaluate the application of these regulations to the Company’s tax positions. We have also evaluated the Company’s income tax disclosures included in Note 5 of the consolidated financial statements in relation to these matters. ​ /s/ Ernst & Young LLP ​ We have served as the Company’s auditor since 2019. Denver, Colorado February 23, 2021 ​ 48 Table of Contents ​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ Board of Directors and Stockholders Advanced Energy Industries, Inc. ​ Opinion on the financial statements We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows of Advanced Energy Industries Inc. (a Delaware corporation) (and subsidiaries) (the "Company") for the year ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ /s/ GRANT THORNTON LLP We served as the Company’s auditor from 2004 to 2019. Denver, Colorado February 21, 2019 ​ ​ 49 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Balance Sheets (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 2019 ​ ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 480,368 ​ $ 346,441 ​ Marketable securities ​ 2,654 ​ 2,614 ​ Accounts and other receivable, net ​ 235,178 ​ 246,564 ​ Inventories ​ 221,346 ​ 230,019 ​ Income taxes receivable ​ 4,804 ​ 4,245 ​ Other current assets ​ ​ 35,899 ​ ​ 36,855 ​ Total current assets ​ 980,249 ​ 866,738 ​ Property and equipment, net ​ 114,731 ​ 108,109 ​ Operating lease right-of-use assets ​ ​ 103,858 ​ ​ 105,404 ​ Deposits and other assets ​ 19,101 ​ 22,556 ​ Goodwill ​ 209,983 ​ 202,932 ​ Intangible assets, net ​ 168,939 ​ 184,011 ​ Deferred income tax assets ​ ​ 50,801 ​ ​ 42,656 ​ TOTAL ASSETS ​ $ 1,647,662 ​ $ 1,532,406 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ Accounts payable ​ $ 125,224 ​ $ 170,671 ​ Income taxes payable ​ 11,850 ​ 9,687 ​ Accrued payroll and employee benefits ​ 63,487 ​ 51,545 ​ Other accrued expenses ​ 49,565 ​ 41,691 ​ Customer deposits and other ​ 12,179 ​ 10,926 ​ Current portion of long-term debt ​ ​ 17,500 ​ ​ 17,500 ​ Current portion of operating lease liabilities ​ ​ 16,592 ​ ​ 18,312 ​ Total current liabilities ​ 296,397 ​ 320,332 ​ Long-term debt ​ ​ 304,546 ​ ​ 321,527 ​ Operating lease liabilities ​ ​ 95,993 ​ ​ 90,538 ​ Pension benefits ​ ​ 80,447 ​ ​ 68,169 ​ Deferred income tax liabilities ​ 10,088 ​ 9,952 ​ Uncertain tax positions ​ 12,839 ​ 16,055 ​ Long-term deferred revenue ​ 7,352 ​ 8,011 ​ Other long-term liabilities ​ ​ 24,660 ​ ​ 20,562 ​ Total liabilities ​ 832,322 ​ 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; 38,293 and 38,358 issued and outstanding on December 31, 2020 and December 31, 2019, respectively ​ 38 ​ 38 ​ Additional paid-in capital ​ 105,009 ​ 104,849 ​ Accumulated other comprehensive loss ​ ( 2,605 ) ​ ( 5,897 ) ​ Retained earnings ​ 712,297 ​ 577,724 ​ Advanced Energy stockholders' equity ​ 814,739 ​ 676,714 ​ Noncontrolling interest ​ 601 ​ 546 ​ Total stockholders’ equity ​ 815,340 ​ 677,260 ​ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ $ 1,647,662 ​ $ 1,532,406 ​ ​ The accompanying notes are an integral part of these consolidated financial statements ​ 50 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Operations (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Sales, net: ​ ​ ​ Product ​ $ 1,296,867 ​ $ 678,061 ​ $ 610,326 Services ​ 118,959 ​ 110,887 ​ 108,566 Total sales, net ​ 1,415,826 ​ 788,948 ​ 718,892 Cost of sales: ​ ​ ​ ​ Product ​ 816,329 ​ 416,976 ​ 298,597 Services ​ 57,628 ​ 56,320 ​ 54,688 Total cost of sales ​ 873,957 ​ 473,296 ​ 353,285 Gross profit ​ 541,869 ​ 315,652 ​ 365,607 Operating expenses: ​ ​ ​ ​ Research and development ​ 143,961 ​ 101,503 ​ 76,008 Selling, general and administrative ​ 188,590 ​ 142,555 ​ 108,033 Amortization of intangible assets ​ 20,129 ​ 12,168 ​ 5,774 Restructuring expense ​ 13,166 ​ 5,038 ​ 4,239 Total operating expenses ​ 365,846 ​ 261,264 ​ 194,054 Operating income ​ 176,023 ​ 54,388 ​ 171,553 Other income (expense), net ​ ( 17,876 ) ​ 12,806 ​ 823 Income from continuing operations, before income taxes ​ 158,147 ​ 67,194 ​ 172,376 Provision for income taxes ​ 22,996 ​ 10,699 ​ 25,227 Income from continuing operations ​ 135,151 ​ 56,495 ​ 147,149 Income (loss) from discontinued operations, net of income taxes ​ ( 421 ) ​ 8,480 ​ ( 38 ) Net income ​ $ 134,730 ​ $ 64,975 ​ $ 147,111 Income from continuing operations attributable to noncontrolling interest ​ 55 ​ 34 ​ 86 Net income attributable to Advanced Energy Industries, Inc. ​ $ 134,675 ​ $ 64,941 ​ $ 147,025 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted-average common shares outstanding ​ 38,314 ​ 38,281 ​ 39,081 Diluted weighted-average common shares outstanding ​ 38,542 ​ 38,495 ​ 39,352 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ ​ Continuing operations: ​ ​ ​ ​ Basic earnings per share ​ $ 3.53 ​ $ 1.47 ​ $ 3.76 Diluted earnings per share ​ $ 3.51 ​ $ 1.47 ​ $ 3.74 Discontinued operations: ​ ​ ​ ​ Basic earnings (loss) per share ​ $ ( 0.01 ) ​ $ 0.22 ​ $ — Diluted earnings (loss) per share ​ $ ( 0.01 ) ​ $ 0.22 ​ $ — Net income: ​ ​ ​ ​ Basic earnings per share ​ $ 3.52 ​ $ 1.70 ​ $ 3.76 Diluted earnings per share ​ $ 3.50 ​ $ 1.69 ​ $ 3.74 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 51 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Comprehensive Income (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Net income ​ $ 134,730 ​ $ 64,975 ​ $ 147,111 Other comprehensive income (loss), net of income taxes ​ ​ ​ Foreign currency translation ​ 13,095 ​ ( 2,523 ) ​ ( 5,285 ) Change in fair value of cash flow hedges ​ ( 2,139 ) ​ — ​ — Minimum benefit retirement liability ​ ( 7,664 ) ​ 75 ​ ( 697 ) Comprehensive income ​ $ 138,022 ​ $ 62,527 ​ $ 141,129 Comprehensive income attributable to noncontrolling interest ​ 55 ​ 34 ​ 86 Comprehensive income attributable to Advanced Energy Industries, Inc. ​ $ 137,967 ​ $ 62,493 ​ $ 141,043 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 52 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Stockholders’ Equity (In thousands) ​ ​ ​ Advanced Energy Industries, Inc. Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Non- ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Comprehensive ​ Retained ​ controlling ​ Stockholders’ ​ ​ Shares ​ Amount ​ Capital ​ Income ​ Earnings ​ Interest ​ Equity Balances, December 31, 2017 39,604 $ 40 $ 184,843 $ 2,533 $ 333,225 $ — $ 520,641 Adoption of new accounting standards ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 32,533 ​ ​ — ​ ​ 32,533 Non-controlling interest from acquisition ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 426 ​ ​ 426 Stock issued from equity plans ​ 256 ​ ​ — ​ ​ ( 2,005 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,005 ) Stock-based compensation ​ — ​ ​ — ​ ​ 9,703 ​ ​ — ​ ​ — ​ ​ — ​ ​ 9,703 Stock buyback ​ ( 1,696 ) ​ ​ ( 2 ) ​ ​ ( 95,123 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 95,125 ) Other comprehensive income (loss) ​ — ​ ​ — ​ ​ — ​ ​ ( 5,982 ) ​ ​ — ​ ​ — ​ ​ ( 5,982 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 147,025 ​ ​ 86 ​ ​ 147,111 Balances, December 31, 2018 ​ 38,164 ​ $ 38 ​ $ 97,418 ​ $ ( 3,449 ) ​ $ 512,783 ​ $ 512 ​ $ 607,302 Stock issued from equity plans ​ 194 ​ — ​ 104 ​ — ​ — ​ — ​ 104 Stock-based compensation ​ — ​ — ​ 7,327 ​ — ​ — ​ — ​ 7,327 Other comprehensive income (loss) ​ — ​ — ​ — ​ ( 2,448 ) ​ — ​ — ​ ( 2,448 ) Net income ​ — ​ — ​ — ​ — ​ 64,941 ​ 34 ​ 64,975 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 ​ 179 ​ — ​ ( 482 ) ​ — ​ — ​ — ​ ( 482 ) Stock-based compensation ​ — ​ — ​ 12,272 ​ — ​ — ​ — ​ 12,272 Stock buyback ​ ( 244 ) ​ ​ — ​ ​ ( 11,630 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,630 ) Other comprehensive income (loss) ​ — ​ — ​ — ​ 3,292 ​ — ​ — ​ 3,292 Net income ​ — ​ — ​ — ​ — ​ 134,675 ​ 55 ​ 134,730 Balances, December 31, 2020 ​ 38,293 ​ $ 38 ​ $ 105,009 ​ $ ( 2,605 ) ​ $ 712,297 ​ $ 601 ​ $ 815,340 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 53 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Cash Flows (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ Net income ​ $ 134,730 ​ $ 64,975 ​ $ 147,111 Income (loss) from discontinued operations, net of income taxes ​ ( 421 ) ​ 8,480 ​ ( 38 ) Income from continuing operations, net of income taxes ​ 135,151 ​ 56,495 ​ 147,149 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ​ ​ ​ Depreciation and amortization ​ 47,770 ​ 26,147 ​ 13,592 Stock-based compensation expense ​ 12,272 ​ 7,327 ​ 9,703 Provision (benefit) for deferred income taxes ​ ( 622 ) ​ 1,015 ​ 5,618 Gain on sale of central inverter service business ​ ​ — ​ ​ ( 14,795 ) ​ ​ — Discount on notes receivable ​ ​ 721 ​ ​ 1,100 ​ ​ — Net loss on disposal of assets ​ 1,296 ​ 700 ​ 481 Changes in operating assets and liabilities, net of assets acquired: ​ ​ ​ Accounts and other receivable, net ​ 15,412 ​ ( 18,879 ) ​ 3,445 Inventories ​ 11,658 ​ 3,687 ​ ( 11,276 ) Other assets ​ 1,750 ​ 23,544 ​ ( 2,975 ) Accounts payable ​ ( 48,163 ) ​ ( 16,094 ) ​ ( 12,618 ) Other liabilities and accrued expenses ​ 24,520 ​ ( 12,486 ) ​ ( 3,239 ) Income taxes ​ 394 ​ ( 9,862 ) ​ 1,547 Net cash from operating activities from continuing operations ​ 202,159 ​ 47,899 ​ 151,427 Net cash from operating activities from discontinued operations ​ ( 923 ) ​ 493 ​ ( 156 ) Net cash from operating activities ​ 201,236 ​ 48,392 ​ 151,271 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ Proceeds from sale of marketable securities ​ 3 ​ 1,742 ​ 494 Acquisitions, net of cash acquired ​ ​ ( 5,476 ) ​ ​ ( 366,101 ) ​ ​ ( 93,756 ) Issuance of notes receivable ​ ​ ( 1,000 ) ​ ​ ( 4,300 ) ​ ​ — Proceeds from sale of property and equipment ​ ​ 116 ​ ​ — ​ ​ — Purchases of property and equipment ​ ( 36,483 ) ​ ( 25,188 ) ​ ( 20,330 ) Net cash from investing activities from continuing operations ​ ( 42,840 ) ​ ( 393,847 ) ​ ( 113,592 ) Net cash from investing activities from discontinued operations ​ — ​ — ​ — Net cash from investing activities ​ ( 42,840 ) ​ ( 393,847 ) ​ ( 113,592 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ Net proceeds from long-term borrowings ​ ​ — ​ ​ 347,486 ​ ​ — Payments on long-term borrowings ​ ​ ( 17,500 ) ​ ​ ( 8,750 ) ​ ​ — Purchase and retirement of common stock ​ ​ ( 11,630 ) ​ ​ — ​ ​ ( 95,125 ) Net receipts (payments) related to stock-based award activities ​ ( 482 ) ​ 104 ​ ( 2,009 ) Net cash from financing activities from continuing operations ​ ( 29,612 ) ​ 338,840 ​ ( 97,134 ) Net cash from financing activities from discontinued operations ​ — ​ — ​ — Net cash from financing activities ​ ( 29,612 ) ​ 338,840 ​ ( 97,134 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EFFECT OF CURRENCY TRANSLATION ON CASH ​ 5,143 ​ ( 1,496 ) ​ ( 1,030 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET CHANGE IN CASH AND CASH EQUIVALENTS ​ 133,927 ​ ( 8,111 ) ​ ( 60,485 ) CASH AND CASH EQUIVALENTS, beginning of period ​ 346,441 ​ 354,552 ​ 415,037 CASH AND CASH EQUIVALENTS, end of period ​ 480,368 ​ 346,441 ​ 354,552 Less cash and cash equivalents from discontinued operations ​ — ​ — ​ 5,251 CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period ​ $ 480,368 ​ $ 346,441 ​ $ 349,301 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ Cash paid for interest ​ $ 5,278 ​ $ 3,479 ​ $ 228 Cash paid for income taxes ​ 21,032 ​ 18,594 ​ 16,190 Cash received for refunds of income taxes ​ 1,569 ​ 1,762 ​ 1,135 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 54 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) ​ NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES Advanced Energy provides highly-engineered, mission-critical, precision power conversion, measurement and control solutions to our global customers. We 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. We operate in a single segment structure for power electronics conversion products and we operate in four vertical markets or applications to enable tracking of market trends. 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, 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 Artesyn Embedded Technologies, Inc.’s embedded power business ("Artesyn") , which added new power products and technologies used in networking, computing, data center (including hyperscale), 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. Principles of Consolidation — Our consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). 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 at 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, pension obligations, 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. Foreign Currency Translation — The functional currency of certain of our foreign subsidiaries is the local currency. Assets and liabilities of these foreign subsidiaries are translated to the United States dollar at prevailing exchange rates on the balance sheet date; revenues and expenses are translated at the average exchange rates in effect for each period. Translation adjustments resulting from this process are reported as a separate component of Other Comprehensive Income. For certain other subsidiaries, the functional currency is the U.S. Dollar. Foreign currency transactions are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates for foreign currency denominated monetary assets and liabilities result in foreign currency transaction gains and losses which are 55 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) reflected as unrealized (based on period end remeasurement) or realized (upon settlement of the transactions) in Other income (expense), net in our Consolidated Statements of Operations. 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. For derivatives designated as cash flow hedges, changes in fair value are recorded to Accumulated other comprehensive 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 on 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 21. Credit Facility for additional information. The fair value of contingent consideration and other acquired assets and liabilities associated with our acquisitions are based on Level 3 inputs. 56 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Cash, Cash Equivalents, and Marketable Securities — We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less to be cash equivalents, and those with stated maturities of greater than three months as marketable securities. Cash and cash equivalents are highly liquid investments that consist primarily of short-term money market instruments and demand deposits with insignificant interest rate risk and original maturities of three months or less at the time of purchase. Sometimes we invest excess cash in money market funds not insured by the Federal Deposit Insurance Corporation. We believe that the investments in money market funds are on deposit with credit-worthy financial institutions and that the funds are highly liquid. The investments in money market funds are reported at fair value, with interest income recorded in earnings and are included in "Cash and cash equivalents." Concentrations of Credit Risk — Financial instruments, which potentially subject us to credit risk, include cash and cash equivalents, marketable securities, and trade accounts receivable. To preserve capital and maintain liquidity, we invest with financial institutions we deem to be of high quality and sound financial condition. Our investments are in low-risk instruments and we limit our credit exposure in any one institution or type of investment instrument based upon criteria including creditworthiness. We have established a reserve for credit losses based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Accounts Receivable and Reserve for Credit Losses — Accounts receivable are recorded at net realizable value. We maintain a credit approval process and we make significant judgments in connection with assessing our customers’ ability to pay. Despite this assessment, from time to time, our customers are unable to meet their payment obligations. We continuously monitor our customers’ credit worthiness and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, there is no assurance that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results. Our principal customers are original equipment manufacturers ("OEM") 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, we assess credit risks as a single group. We evaluate collection risk and establish 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. Inventories — Inventories include costs of materials, direct labor, manufacturing overhead, in-bound freight, and duty. Inventories are valued at the lower of cost (first-in, first-out method) or net realizable value and are presented net of reserves for excess and obsolete inventory. We regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less than cost, based primarily on historical usage and our estimated forecast of product demand. Demand for our products can fluctuate significantly. A significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand. In addition, our industry is subject to technological change, new product development, and product technological obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results. 57 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Property and Equipment — Property and equipment is stated at cost or estimated fair value if acquired in a business combination. Depreciation is computed over the estimated useful lives using the straight-line method. Estimated useful lives for financial reporting purposes are as follows: buildings, 20 to 40 years ; machinery, equipment, furniture and fixtures and vehicles, 3 to 15 years ; and computer and communication equipment, 3 years . Amortization of leasehold improvements is calculated using the straight-line method over the lease term or the estimated useful life of the assets, whichever period is shorter. Leasehold additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included in Other income (expense), net, in our Consolidated Statements of Operations. Purchase accounting — Business combinations are accounted for using the purchase method of accounting. Under the purchase method, assets and liabilities, including intangible assets, are recorded at their fair values as of the acquisition date. Acquisition costs in excess of amounts assigned to assets acquired and liabilities assumed are recorded as goodwill. Transaction related costs associated with business combinations are expenses as incurred. Intangible Assets, Goodwill and Other Long-Lived Assets — As a result of our acquisitions, we identified and recorded intangible assets and goodwill. Intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful lives. Goodwill is subject to annual impairment testing, as well as testing upon the occurrence of any event that indicates a potential impairment. Intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and goodwill may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows. The estimation of useful lives and expected cash flows requires us to make judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates can result in revisions to our carrying value of these assets and may result in material charges to our results of operations. The annual impairment test for goodwill can be performed using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired. If this assessment indicates that it is more likely than not that goodwill is impaired, the next step of impairment testing compares the fair value of a reporting unit to its carrying value. Goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill. Debt Issuance Costs — The Company has incurred debt issuance costs in connections it its debt facilities. Amounts paid directly to lenders are classified as issuance costs. Commitment fees and other costs directly associated with obtaining credit facilities are deferred financing costs which are recorded in the Consolidated Balance Sheets and amortized over the term of the facility. The Company allocates deferred debt issuance costs incurred for its current credit facility between the revolver and term loan based on their relative borrowing capacity. Deferred debt issuance costs associated with the revolving credit facility are recorded within other assets and those associated with the term loan are recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets. All deferred debt issuance costs are amortized using the effective interest rate method to interest expense within Other income (expense), net on the Company’s Consolidated Statements of Operations. See Note 21. Credit Facility for additional details. 58 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Revenue Recognition — We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services have been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related cost for shipping and handling fees is recognized in cost of sales. We expense incremental costs of obtaining contracts when the amortization period of the costs is less than one year. These costs are included in selling, general, and administrative expenses. We maintain a worldwide support organization in ten countries, including the United States, the Peoples Republic of China ("PRC"), Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and Great Britain. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue. As part of our ongoing service business, we satisfy our service obligations under extended warranties and preventive maintenance contracts. Extended warranties had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred and recognized ratably over the service periods, as defined in the agreements. Research and Development Expenses — Costs incurred to advance, test, or otherwise modify our proprietary technology or develop new technologies are considered research and development costs and are expensed when incurred. These costs are primarily comprised of costs associated with the operation of our laboratories and research facilities, including internal labor, materials, and overhead. Warranty Costs — We provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. We offer warranty coverage for a majority of our precision power products for periods typically ranging from 12 to 24 months after shipment. We warranted our inverter products for five to ten years and provided the option to purchase additional warranty coverage for up to 20 years . The warranty expense accrued related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded as such on our Consolidated Balance Sheets. See Note 4. Disposed and Discontinued Operations for more information. See Note 15. Warranties for more information on our warranties from continuing operations. We estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs. The assumptions we use to estimate warranty accruals are reevaluated periodically, considering actual experience, and when appropriate, the accruals are adjusted. Should product failure rates differ from our estimates, actual costs could vary significantly from our expectations. Stock-Based Compensation — Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors based on estimated fair values. We have estimated the fair value of all stock options and awards on the date of grant using the Black-Scholes-Merton pricing model, which is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk-free interest rates and expected dividends. We also estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. Our expected volatility assumption is based on the historical daily closing price of our stock over a period equivalent to the expected life of the options. 59 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Income Taxes — We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for future tax consequences. A deferred tax asset or liability is computed for both the expected future impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. Tax rate changes are reflected in the period such changes are enacted. We assess the recoverability of our net deferred tax assets and the need for a valuation allowance on a quarterly basis. Our assessment includes several factors including historical results and taxable income projections for each jurisdiction. The ultimate realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, we determine if we will realize the benefits of these deductible differences. Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions. In general, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. The first step is to evaluate the tax position for recognition by determining, if based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. On December 22, 2017, the Tax Act was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21 %, among others. In conjunction with the Tax Act enactment, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which allowed for the recording of provisional amounts related to the Tax Act and subsequent adjustments related to the Tax Act during an up to one-year measurement period. The Company recorded what it believed to be reasonable estimates during the SAB 118 measurement period which lasted from December 2017 to December 2018. During the quarter ended December 31, 2018, the Company finalized the accounting treatment of the income tax effects of the Tax Act. Although the SAB 118 measurement period has ended, there may be some aspects of the Tax Act that remain subject to future regulations and/or notices which may further clarify certain provisions of the Tax Act. Accordingly, the Company may need to adjust its previously recorded amounts to reflect the recognition and measurement of its tax accounting positions in accordance with Accounting Standards Codification Topic-740, "Income Taxes" which could be material. Under U.S. GAAP, an accounting policy election can be made to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-tax income ("GILTI") in future years, or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred. Leases — We lease manufacturing and office space under non-cancelable operating leases. Our lease agreements generally contain lease and non-lease components, and we combine fixed payments for non-lease components with lease payments and account for them together as a single lease component. Certain lease agreements may contain variable payments, which are expensed as incurred and not included in the right-of-use lease assets and operating lease liabilities. 60 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Right-of-use assets and operating lease liabilities are recognized at the present value of the future lease payments on the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Right-of-use assets also include any prepaid lease payments and lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term. Commitments and Contingencies — From time to time we are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations in a particular period. An unfavorable decision, particularly in patent litigation, could require material changes in production processes and products or result in our inability to ship products or components found to have violated third-party patent rights. We accrue loss contingencies when it is probable that a loss has occurred or will occur, and the amount of the loss can be reasonably estimated. Our estimates of probability of losses are subjective, involve significant judgment and uncertainties, and are based on the best information we have at any given point in time. Resolution of these uncertainties in a manner inconsistent with our expectations could have a significant impact on our results of operations and financial condition. NEW ACCOUNTING STANDARDS New Accounting Standards Adopted 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 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 2020. The impact of the adoption of ASU 2019-12 was not material to our consolidated financial statements. ​ 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 interim and annual periods 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 2020. The impact of the adoption of ASU 2018-13 was not material to our consolidated financial statements. 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 interim and annual periods, beginning after December 15, 2019. We adopted ASU 2016-13 in the first quarter of 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. New Accounting Standards Issued But 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 requires additional disclosures under defined benefit pension plans and other post-retirement plans. ASU 2018-14 is 61 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) effective for interim and annual periods 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. ​ ​ NOTE 2. BUSINESS ACQUISITIONS Versatile Power, Inc On December 31, 2020, we acquired 100 % of the issued and outstanding shares of Versatile Power, Inc., which is based in Campbell, California. This acquisition added radio frequency ("RF") and programmable power supplies for medical and industrial applications to our product portfolio and further expands our presence in the medical market by adding proven technologies, deep customer relationships, expertise in medical design, and a medical-certified manufacturing center. The components of the fair value of the total consideration transferred are as follows: ​ ​ ​ ​ ​ Cash paid for acquisition $ 4,594 Holdback ​ ​ 950 Contingent consideration ​ ​ 1,500 Total fair value of consideration transferred ​ ​ 7,044 Less cash acquired ​ ​ ( 245 ) Total purchase price ​ $ 6,799 ​ The following table summarizes the estimated preliminary values of the assets acquired and liabilities assumed: ​ ​ ​ ​ ​ ​ Preliminary Fair Value December 31, 2020 Current asset and liabilities, net ​ $ 1,015 Property and equipment ​ ​ 35 Operating lease right-of-use assets ​ ​ 453 Intangible assets ​ ​ 4,000 Goodwill ​ ​ 1,749 Total assets acquired ​ ​ 7,252 Operating lease liability ​ ​ 453 Total liabilities assumed ​ ​ 453 Total fair value of net assets acquired ​ $ 6,799 ​ Artesyn’s Embedded Power Business In September 2019, we completed the acquisition of Artesyn Embedded Technologies, Inc.’s embedded power business pursuant to the Stock Purchase Agreement dated May 14, 2019 as amended (the "Acquisition Agreement"). 62 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Pursuant to the Acquisition Agreement, we acquired 100 % 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 provided us with aggregate financing of $ 500.0 million which was used to partially fund the Artesyn acquisition. See Note 21. 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, such as data centers (including 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 are 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: ​ ​ ​ ​ ​ ​ Final Fair Value December 31, 2020 Accounts and other receivable, net ​ $ 132,466 Inventories ​ ​ 156,407 Property and equipment ​ ​ 63,321 Operating lease right-of-use assets ​ ​ 54,439 Goodwill ​ ​ 114,998 Intangible assets ​ ​ 124,000 Other assets ​ ​ 63,214 Total assets acquired ​ ​ 708,845 Accounts payable ​ ​ 152,635 Operating lease liability ​ ​ 54,515 Pension liability ​ ​ 48,315 Deferred income tax liabilities ​ ​ 1,695 Other liabilities ​ ​ 81,449 Total liabilities assumed ​ ​ 338,609 Total fair value of net assets acquired ​ $ 370,236 ​ A summary of the intangible assets acquired, amortization method and estimated useful lives are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization ​ ​ ​ ​ ​ ​ ​ Method ​ Useful Life ​ Technology ​ $ 28,000 Straight-line 5 ​ Customer relationships ​ 75,000 Straight-line 15 ​ Tradename ​ 21,000 Straight-line 10 ​ Total ​ $ 124,000 ​ ​ 63 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation on each balance sheet date. The goodwill represents expected operating synergies from combining operations with the acquired company and the estimated value associated with the enhancements to our comprehensive product lines and access to new markets. Advanced Energy settled the adjustment for the net working capital and finalized the fair value for the assets acquired and liabilities assumed related to the Artesyn acquisition. Accordingly, the purchase price allocation presented above is final. Pro forma results for Advanced Energy Inc. giving effect to the Artesyn Transaction The following unaudited pro forma financial information presents the combined results of operations of Advanced Energy and Artesyn as if the acquisition had been completed on January 1, 2019. 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 year ended December 31, 2019 combines Advanced Energy’s results with the pre-acquisition results of Artesyn for that period. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2019 ​ As Reported Pro Forma Total sales $ 788,948 $ 1,202,790 Net income attributable to Advanced Energy Industries, Inc. $ 64,941 $ 83,104 Earnings per share: ​ ​ ​ ​ Basic earnings per share ​ $ 1.70 ​ $ 2.17 Diluted earnings per share ​ $ 1.69 ​ $ 2.16 ​ 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. 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 year ended December 31, 2019, Artesyn contributed total sales of $ 220.3 million and net income of $ 7.1 million, including interest and other expense associated with the financing of the transaction. ​ NOTE 3. REVENUE Revenue Recognition We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services has been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue. 64 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Nature of goods and services Products Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform electrical power into various usable forms. Our power conversion products refine, modify, and control the raw electrical power from a utility and convert it into power that is predictable, repeatable, and customizable. Our products enable thin film manufacturing processes such as plasma enhanced chemical and physical deposition and etch for various semiconductor and industrial products, industrial thermal applications for material and chemical processes, and specialty power for critical industrial technology applications. We also supply thermal instrumentation products for advanced temperature measurement and control in these markets. As a result of the Artesyn acquisition, we now sell precision power conversion products into the Telecom and Networking, Data Center Computing (including hyperscale), and Industrial and Medical markets. Our products are designed to enable new process technologies, improve productivity, and lower the cost of ownership for our customers. We also provide repair and maintenance services for all our products. We principally serve OEMs and end customers in the semiconductor, flat panel display, high voltage, solar panel, Telecom and Networking, Data Center Computing, Industrial and Medical markets. Our advanced power products are used in diverse markets, applications, and processes including the manufacture of capital equipment for semiconductor device manufacturing, thin film applications for thin film renewables and architectural glass, and for other thin film applications including flat panel displays, and industrial coatings. Our embedded power products are used in a wide range of applications, such as 5G, data center (including hyperscale) and other industrial and medical applications. Services Our services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime. They expect that suppliers offer comprehensive local repair service and customer support. To meet these market requirements, we maintain a worldwide support organization in ten countries, including the United States, the PRC, Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and Great Britain. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information which would allow us to project the estimated service usage pattern at this time. In May 2019, we sold our grid-tied central inverter repair and service operation to a third party. In connection with this sale, approximately $ 22.0 million of deferred revenue related to extended warranties and service contracts, were transferred to the buyer. See Note 4. Disposed and Discontinued Operations for additional information in relation to this sale. We have deferred revenue related to our extended warranties and service contract totaling $ 8.7 million as of December 31, 2020 and $ 9.2 million as of December 31, 2019. We are expected to recognize this revenue ratably through year 2031. ​ 65 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Disaggregation of Revenue The following table presents our sales by product line, inclusive of both products and services, which includes certain reclassification to prior comparative periods to conform to our current year presentation: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2020 2019 2018 ​ Semiconductor Equipment ​ $ 611,864 ​ $ 403,018 ​ $ 533,770 ​ Industrial and Medical ​ 313,646 ​ 245,992 ​ 185,122 ​ Data Center Computing ​ ​ 322,539 ​ ​ 91,438 ​ ​ — ​ Telecom and Networking ​ ​ 167,777 ​ ​ 48,500 ​ ​ — Total ​ $ 1,415,826 ​ $ 788,948 ​ $ 718,892 ​ ​ The following table presents our sales by geographic region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 North America ​ $ 687,814 48.6 % $ 373,634 47.4 % $ 372,834 51.8 % Asia ​ 606,893 42.9 ​ 295,155 37.4 ​ 250,574 34.9 ​ Europe ​ 117,990 8.3 ​ 119,427 15.1 ​ 94,793 13.2 ​ Other ​ 3,129 0.2 ​ 732 0.1 ​ 691 0.1 ​ Total ​ $ 1,415,826 100.0 % $ 788,948 100.0 % $ 718,892 100.0 % ​ The following table presents our net sales by extended warranty and service contracts recognized over time and our product and service revenue recognized at a point in time: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Product and service revenue recognized at point in time ​ $ 1,414,982 ​ $ 786,918 ​ $ 715,055 Extended warranty and service contracts recognized over time ​ 844 ​ 2,030 ​ 3,837 Total ​ $ 1,415,826 ​ $ 788,948 ​ $ 718,892 ​ ​ NOTE 4. DISPOSED AND DISCONTINUED OPERATIONS Disposed Operations In May 2019, we sold our grid-tied central solar inverter services business to Bold Renewables Holdings, LLC ("Bold") for $ 1.00 dollar and the assumption by Bold of our initial product warranty and our extended warranty service obligations. In connection with this transaction, we entered into a Loan and Security Agreement with Bold (the "Loan and Security Agreement"). Under the Loan and Security Agreement, we loaned Bold an aggregate $ 5.3 million between May 2019 and the first quarter of 2020. Under the terms of the Loan and Security Agreement and for the next ten years , we have made an additional $ 2.75 million available for borrowing, subject to the satisfaction of certain operating and liquidity covenants by Bold. The borrowings under the Loan and Security Agreement bear interest at 0 % for the first seven years and 5 % thereafter. Additionally, the Loan and Security Agreement provides for early payment discounts of 50 % during the first three years, 45 % for years four and five and 40 % thereafter up to 30 days prior to the maturity of the Loan and Security Agreement. A discount of $ 2.3 million has been recognized as a reduction to our gain recognized on the sale. As a result of the transaction, we reduced our discontinued operations liabilities by approximately $ 10.9 million that were related to initial product warranty and reduced our other liabilities by approximately $ 22.0 million that were related to extended warranty service obligations as well as reduced other assets and liabilities associated with the continuing grid-tied central solar inverter service and repair business. Accordingly, a $ 14.8 million non-cash gain was 66 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) recognized in Other income (expense) from continuing operations and an $ 8.6 million non-cash gain, net of tax expense of $ 2.4 million, was recognized in “Income (loss) from discontinued operations." Discontinued Operations In December 2015, we completed the wind down of engineering, manufacturing, and sales of our solar inverter product line (the "inverter business"). Accordingly, the results of our inverter business have been reflected as "Income (loss) from discontinued operations, net of income taxes" on our Consolidated Statements of Operations for all periods presented herein. The effect of our sales of extended inverter warranties to our customers continues to be reflected in deferred revenue in our Consolidated Balance Sheets. Deferred revenue for extended inverter warranties and the associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing operations in future periods in our Consolidated Statement of Operations, as the deferred revenue, is earned and the associated services are rendered. Extended warranties related to the inverter product line are no longer offered. The significant items included in "Income (loss) from discontinued operations, net of income taxes" are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 Sales ​ $ — ​ $ — Cost of sales ​ — ​ ( 901 ) Total operating expense ​ 620 ​ 1,022 Operating income (loss) from discontinued operations ​ ( 620 ) ​ ( 121 ) Other income (expense) ​ 65 ​ 10,895 Income (loss) from discontinued operations before income taxes ​ ( 555 ) ​ 10,774 Provision (benefit) for income taxes ​ ( 134 ) ​ 2,294 Income (loss) from discontinued operations, net of income taxes ​ $ ( 421 ) ​ $ 8,480 ​ Assets and Liabilities of discontinued operations are not significant. ​ ​ NOTE 5. INCOME TAXES The geographic distribution of pretax income from continuing operations is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Domestic ​ $ 17,526 ​ $ ( 20,597 ) ​ $ 22,325 Foreign ​ 140,621 ​ 87,791 ​ 150,051 ​ ​ $ 158,147 ​ $ 67,194 ​ $ 172,376 ​ 67 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The provision for income taxes from continuing operations is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Current: ​ ​ ​ Federal ​ $ 5,475 ​ $ ( 9,627 ) ​ $ 1,423 State ​ 1,927 ​ 882 ​ 12 Foreign ​ 16,216 ​ 18,429 ​ 13,772 Total current provision ​ $ 23,618 ​ $ 9,684 ​ $ 15,207 Deferred: ​ ​ ​ Federal ​ $ ( 312 ) ​ $ 3,822 ​ $ 4,021 State ​ 1,270 ​ ( 178 ) ​ 2,363 Foreign ​ ( 1,580 ) ​ ( 2,629 ) ​ 3,636 Total deferred provision (benefit) ​ ( 622 ) ​ 1,015 ​ 10,020 Total provision for income taxes ​ $ 22,996 ​ $ 10,699 ​ $ 25,227 ​ The Company’s effective tax rates differ from the U.S. federal statutory rate of 21 % for the three years ended December 31, 2020 primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, offset by net U.S. tax on foreign operations and withholding taxes. The principal causes of the difference between the federal statutory rate and the effective income tax rate for each of the years below are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Income taxes per federal statutory rate ​ $ 33,211 ​ $ 14,111 ​ $ 36,199 State income taxes, net of federal deduction ​ ​ 2,793 ​ ​ 10 ​ ​ 2,372 U.S. tax on foreign operations ​ ​ 9,666 ​ ​ 5,805 ​ ​ 6,943 Foreign derived intangible income deduction ​ ​ ( 4,070 ) ​ ​ – ​ ​ ( 261 ) Tax effect of foreign operations ​ ​ ( 20,527 ) ​ ​ ( 13,086 ) ​ ​ ( 19,162 ) Uncertain tax position ​ ​ ( 3,215 ) ​ ​ ( 4,487 ) ​ ​ ( 3,088 ) Unremitted earnings ​ ​ ( 567 ) ​ ​ 1,624 ​ ​ 2,564 Tax credits ​ ​ ( 2,292 ) ​ ​ ( 2,088 ) ​ ​ ( 1,484 ) Change in valuation allowance ​ ​ ( 1,175 ) ​ ​ 7,222 ​ ​ ( 1,306 ) Withholding taxes ​ ​ 4,265 ​ ​ 6,500 ​ ​ 1,371 Other permanent items, net ​ ​ 4,907 ​ ​ ( 4,912 ) ​ ​ 1,079 Total provision for income taxes ​ $ 22,996 ​ $ 10,699 ​ $ 25,227 ​ 68 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant deferred tax assets and liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 Deferred tax assets ​ ​ Stock-based compensation ​ $ 2,130 ​ $ 1,757 Net operating loss and tax credit carryforwards ​ 57,590 ​ 86,879 Interest expense limitation ​ ​ 7,344 ​ ​ 7,620 Pension obligation ​ 14,297 ​ 13,473 Excess and obsolete inventory ​ 3,722 ​ 3,217 Accrued restructuring ​ ​ 2,468 ​ ​ — Deferred revenue ​ 3,048 ​ 3,305 Employee bonuses and commissions ​ 5,388 ​ 2,537 Depreciation and amortization ​ 28,786 ​ 29,015 Operating lease liabilities ​ ​ 20,267 ​ ​ 23,451 Other ​ 8,925 ​ 9,685 Deferred tax assets ​ 153,965 ​ 180,939 Less: Valuation allowance ​ ( 46,702 ) ​ ( 76,206 ) Net deferred tax assets ​ 107,263 ​ 104,733 Deferred tax liabilities ​ ​ Depreciation and amortization ​ 40,266 ​ 41,549 Unremitted earnings ​ 4,173 ​ 4,740 Operating lease right-of-use assets ​ ​ 18,731 ​ ​ 22,774 Other ​ 3,380 ​ 2,966 Deferred tax liabilities ​ 66,550 ​ 72,029 Net deferred tax assets ​ $ 40,713 ​ $ 32,704 ​ Of the $ 40.7 million and $ 32.7 million net deferred tax asset on December 31, 2020 and 2019, respectively, $ 50.8 million and $ 42.7 million is reflected as a net non-current deferred tax asset and $ 10.1 million and $ 10.0 million is reflected as a long-term liability on December 31, 2020 and 2019, respectively. As of December 31, 2020, the Company has recorded a valuation allowance on $ 4.2 million of its U.S. domestic deferred tax assets, largely attributable to state carryforward attributes that are expected to expire before sufficient income can be realized in those jurisdictions. The remaining valuation allowance on deferred tax assets approximates $ 42.5 million and is associated primarily with operations in Germany, Hong Kong, and Switzerland. As of December 31, 2020, there is not sufficient positive evidence to conclude that such deferred tax assets, presently reduced by a valuation allowance, will be recognized. The December 31, 2020 valuation allowance balance reflects a decrease of $ 29.5 million during the year. The change in the valuation allowance is primarily due to the dissolution of an Austrian entity, refinements in the determination of Artesyn attributes acquired in 2019, and the netting of Section 382 limited attributes that will never be available for utilization with their valuation allowance, partially offset by increases due to foreign exchange movements. As of December 31, 2020, the Company had U.S., foreign and state tax loss carryforwards of $ 70.3 million, $ 129.6 million, and $ 117.7 million, respectively. Additionally, the Company had $ 0.2 million and $ 30.5 million of capital loss and interest expense limitation carryforwards, respectively. Finally, the Company had U.S. and state tax credit carryforwards of $ 1.3 million and $ 1.7 million, respectively. The U.S. and state net operating losses, tax credits, and interest expense limitation are subject to various utilization limitations under Section 382 of the Internal Revenue Code and applicable state laws. These Section 382 limited attributes have various expiration periods through 2036 or, in 69 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) the case of the interest expense limitation amount, no expiration period. Much of the foreign jurisdiction, and $ 8.0 million of the federal net operating loss carry forwards, have no expiration period. We operate under a tax holiday in Singapore and China. These tax holidays are in effect through June 30, 2027 and December 31, 2022, respectively. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of the tax holidays decreased foreign taxes by $ 13.0 million and $ 4.0 million for 2020 and 2019, respectively. The benefit of the tax holiday on earnings per diluted share was $ 0.34 and $ 0.12 for 2020 and 2019, respectively. As of December 31, 2020, we have undistributed earnings of certain foreign subsidiaries of approximately $ 58.9 million that we have indefinitely invested, and on which we have not recognized deferred taxes. Estimating the amount of potential tax is not practicable because of the complexity and variety of assumptions necessary to compute the tax. We account for uncertain tax positions by applying a minimum recognition threshold to tax positions before recognizing these positions in the financial statements. The reconciliation of our total gross unrecognized tax benefits is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Balance at beginning of period ​ $ 13,009 ​ $ 13,162 ​ $ 15,990 Additions based on tax positions taken during a prior period ​ 219 ​ 484 ​ 94 Additions based on tax positions taken during a prior period – acquisitions ​ — ​ 4,479 ​ 757 Additions based on tax positions taken during the current period ​ — ​ — ​ — Reductions based on tax positions taken during a prior period ​ — ​ ( 4,295 ) ​ ( 153 ) Reductions related to a lapse of applicable statute of limitations ​ ( 3,555 ) ​ ( 821 ) ​ ( 3,144 ) Reductions related to a settlement with taxing authorities ​ — ​ — ​ ( 382 ) Balance at end of period ​ $ 9,673 ​ $ 13,009 ​ $ 13,162 ​ The unrecognized tax benefits of $ 9.7 million, if recognized, will impact the Company’s effective tax rate. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We had $ 3.2 million and $ 3.0 million of accrued interest and penalties on December 31, 2020 and 2019, respectively. We expect the total amount of tax contingencies will decrease by approximately $ 3.5 million in 2021 based on statute of limitation expiration. With few exceptions, the Company is no longer subject to federal, state, or foreign income tax examinations by tax authorities for years before 2017. ​ NOTE 6. EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of our diluted EPS is similar to the computation of our basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods), if our outstanding stock options and restricted stock units had been converted to common shares, and if such assumed conversion is dilutive. 70 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Income from continuing operations ​ $ 135,151 ​ $ 56,495 ​ $ 147,149 Income from continuing operations attributable to noncontrolling interest ​ 55 ​ 34 ​ 86 Income from continuing operations attributable to Advanced Energy Industries, Inc. ​ $ 135,096 ​ $ 56,461 ​ $ 147,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted-average common shares outstanding ​ 38,314 ​ 38,281 ​ 39,081 Assumed exercise of dilutive stock options and restricted stock units ​ 228 ​ 214 ​ 271 Diluted weighted-average common shares outstanding ​ 38,542 ​ 38,495 ​ 39,352 Continuing operations: ​ ​ ​ Basic earnings per share ​ $ 3.53 ​ $ 1.47 ​ $ 3.76 Diluted earnings per share ​ $ 3.51 ​ $ 1.47 ​ $ 3.74 ​ The following stock options and restricted units were excluded in the computation of diluted earnings per share because they were anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Restricted stock units — — 2 ​ Share Repurchase In September 2015, our Board of Directors authorized a program to repurchase up to $ 150.0 million of our common stock over a thirty-month period. In November 2017, our Board of Directors approved an extension of the share repurchase program to December 2019 from its original maturity of March 2018. In May 2018, our Board of Directors approved a $ 50 million increase in its authorization to repurchase shares of our common stock under this same program. On December 18, 2019, our Board of Directors authorized the removal of the expiration date to the Company’s share repurchase program and increased the authorized amount by $ 25.1 million. As of December 31, 2020, the Company is authorized for the future repurchase of shares of our common stock of up to a total of $ 38.4 million. In order to execute the repurchase of shares of our common stock, the Company periodically enters into stock repurchase agreements. The Company has repurchased the following shares of common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands, except per share amounts) 2020 2019 2018 Amount paid to repurchase shares ​ $ 11,630 ​ $ — ​ $ 95,125 Number of shares repurchased ​ 244 ​ — ​ 1,696 Average repurchase price per share ​ $ 47.75 ​ $ — ​ $ 56.07 ​ ​ ​ ​ ​ There were no shares repurchased from related parties. All shares repurchased were recognized as a reduction to Additional paid-in capital. Repurchased shares were retired and assumed the status of authorized and unissued shares. ​ 71 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 7. FAIR VALUE MEASUREMENTS The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 Description ​ Balance Sheet Classification ​ Level 1 ​ Level 2 ​ Level 3 ​ Total Fair Value Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ Marketable securities ​ $ — ​ $ 2,654 ​ $ — ​ $ 2,654 Total assets measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ 2,654 ​ $ — ​ $ 2,654 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ Other current liabilities ​ $ — ​ $ — ​ $ 2,009 ​ $ 2,009 Contingent consideration ​ Other long-term liabilities ​ ​ — ​ ​ — ​ ​ 2,940 ​ ​ 2,940 Interest rate swaps ​ Other long-term liabilities ​ ​ — ​ ​ 2,811 ​ ​ — ​ ​ 2,811 Total liabilities measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ 2,811 ​ $ 4,949 ​ $ 7,760 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 Description ​ Balance Sheet Classification ​ Level 1 Level 2 Level 3 Total Fair Value Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ Marketable securities ​ $ ​ ​ $ 2,614 ​ $ — ​ $ 2,614 Total assets measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ 2,614 ​ $ — ​ $ 2,614 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ Other long-term liabilities ​ $ — ​ $ — ​ $ 1,377 ​ $ 1,377 Total liabilities measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ — ​ $ 1,377 ​ $ 1,377 ​ We determine the fair value of interest rate swaps by estimating the net present value of the expected cash flows based on market rates and associated yield curves, adjusted for non-performance credit risk, as applicable. See Note 8. Derivative Financial Instruments for additional information. The fair value of contingent consideration is determined by estimating the net present value of the expected cash flows based on the probability of expected payment. For all periods presented, there were no transfers into or out of Level 3 . ​ NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS We are impacted by changes in foreign currency exchange rates. We may manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies. These derivative instruments are not designated as hedges; however, they do offset the fluctuations of our assets and liabilities due to foreign exchange rate changes. These forward contracts are typically for one-month periods. As of December 31, 2020, and 2019, we did not have any currency exchange rate contracts outstanding. 72 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Gains and losses related to foreign currency exchange contracts were offset by corresponding gains and losses on the revaluation of the underlying assets and liabilities. Both are included as a component of Other income (expense), net, in our Consolidated Statements of Operations. In April 2020, the Company executed interest rate swap contracts with independent financial institutions to partially reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under the Company’s existing Credit Agreement dated as of September 10, 2019). These transactions are accounted for as cash flow hedging instruments. The interest rate swap contracts fixed 85 % of the outstanding principal balance on our term loan to a total interest rate of 1.271 %. This is comprised of 0.521 % average fixed rate per annum in exchange for a variable interest rate based on one-month USD-LIBOR-BBA plus the credit spread in the Company’s existing Credit Agreement, which is 75 basis points at current leverage ratios. The following table summarizes the notional amount of the Company’s qualified hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 Interest rate swap contracts ​ $ 273,219 ​ $ — ​ On December 31, 2020, Accumulated other comprehensive loss on the Consolidated Balance Sheets includes $ 2.1 million, net of tax, related to changes in fair value on the interest rate swap contracts. See Note 7. Fair Value Measurements for information regarding fair value of derivative instruments. As a result of the use of derivative financial instruments, the Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations. The Company manages counterparty credit risk in derivative contracts by reviewing counterparty creditworthiness on a regular basis and limiting exposure to any single counterparty. ​ NOTE 9. ACCOUNTS AND OTHER RECEIVABLE, NET Accounts and other receivable are recorded at net realizable value. Components of accounts and other receivable, net of reserves, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 Amounts billed, net ​ $ 213,560 ​ $ 227,528 Unbilled receivables ​ ​ 21,618 ​ 19,036 Total receivables, net ​ $ 235,178 ​ $ 246,564 ​ Amounts billed, net consist of amounts that have been invoiced to our customers in accordance with terms and conditions and are shown net of an allowance for credit losses. These receivables are all short term in nature and do not include any financing components. Unbilled receivables consist of amounts where we have satisfied our contractual obligations related to inventory stocking contracts with customers. Such amounts typically become billable to the customer upon their consumption of the inventory managed under the stocking contracts. We anticipate that substantially all unbilled receivables will be invoiced and collected over the next twelve months. These contracts do not include any financing components. 73 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The following table summarizes the changes in expected credit losses: ​ ​ ​ ​ ​ Balance as of December 31, 2019 $ 7,745 Additions ​ 368 Deductions - write-offs, net of recoveries ​ ( 511 ) Balance as of December 31, 2020 ​ $ 7,602 ​ ​ NOTE 10. INVENTORIES Our inventories are valued at the lower of cost or net realizable value and computed on a first-in, first-out ("FIFO") basis. Components of inventories are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 Parts and raw materials ​ $ 141,337 ​ $ 134,816 Work in process ​ 13,702 ​ 10,269 Finished goods ​ 66,307 ​ 84,934 Total ​ $ 221,346 ​ $ 230,019 ​ ​ NOTE 11. PROPERTY AND EQUIPMENT, NET Property and equipment, net is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 Buildings and land ​ $ 1,776 ​ $ 1,693 Machinery and equipment ​ 115,404 ​ 108,945 Computer and communication equipment ​ 26,623 ​ 29,106 Furniture and fixtures ​ 4,352 ​ 4,119 Vehicles ​ 262 ​ 262 Leasehold improvements ​ 42,984 ​ 33,041 Construction in process ​ 3,693 ​ 9,089 ​ ​ 195,094 ​ 186,255 Less: Accumulated depreciation ​ ( 80,363 ) ​ ( 78,146 ) Property and equipment, net ​ $ 114,731 ​ $ 108,109 ​ The following table summarizes depreciation expense. All depreciation expense is recorded in income from continuing operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Depreciation expense ​ $ 27,641 ​ $ 13,979 ​ $ 7,818 ​ ​ 74 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 12. GOODWILL The following table summarizes the changes in goodwill: ​ ​ ​ ​ ​ Balance as of December 31, 2018 ​ $ 101,900 Measurement period adjustments to purchase price allocation ​ ​ ( 41,996 ) Additions from acquisition ​ ​ 143,262 Foreign currency translation ​ ​ ( 234 ) Balance as of December 31, 2019 $ 202,932 Measurement period adjustments to purchase price allocation ​ ​ 1,957 Additions from acquisition ​ ​ 1,749 Foreign currency translation ​ ​ 3,345 Balance as of December 31, 2020 ​ $ 209,983 ​ Additions and adjustments are the result of finalizing the Artesyn acquisition and other allocations. Refer to Note 2. Business Acquisitions. ​ NOTE 13. INTANGIBLE ASSETS Intangible assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Carrying Accumulated Net Carrying December 31, 2020 ​ Amount ​ Amortization ​ Amount Technology ​ $ 85,075 ​ $ ( 24,999 ) ​ $ 60,076 Customer relationships ​ 114,171 ​ ( 26,880 ) ​ 87,291 Trademarks and other ​ 27,021 ​ ( 5,449 ) ​ 21,572 Total ​ $ 226,267 ​ $ ( 57,328 ) ​ $ 168,939 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Carrying Accumulated Net Carrying December 31, 2019 ​ Amount ​ Amortization ​ Amount Technology ​ $ 83,368 ​ $ ( 14,250 ) ​ $ 69,118 Customer relationships ​ 108,995 ​ ( 18,197 ) ​ 90,798 Trademarks and other ​ 26,888 ​ ( 2,793 ) ​ 24,095 Total ​ $ 219,251 ​ $ ( 35,240 ) ​ $ 184,011 ​ At December 31, 2020, the weighted average remaining useful life of intangibles subject to amortization was approximately 10.5 years. Amortization expense related to intangible assets is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Amortization expense ​ $ 20,129 ​ $ 12,168 ​ $ 5,774 ​ 75 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Estimated amortization expense related to intangibles is as follows: ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2021 ​ $ 20,565 2022 ​ 20,276 2023 ​ 20,257 2024 ​ 17,334 2025 ​ 12,822 Thereafter ​ 77,685 Total ​ $ 168,939 ​ ​ NOTE 14. RESTRUCTURING COSTS During 2018, we committed to a restructuring plan to optimize our manufacturing footprint and to improve our operating efficiencies and synergies related to our recent acquisitions. For the year ended December 31, 2020, we incurred severance costs primarily related to the transition and exit of our facility in Shenzhen, PRC, and actions associated with synergies related to the Artesyn acquisition. The table below summarizes the restructuring charges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative Cost ​ ​ Years Ended December 31, ​ Through December 31, ​ ​ 2020 2019 2018 2020 Severance and related charges $ 9,632 ​ $ 3,042 ​ $ 4,239 ​ $ 16,913 Facility relocation and closure charges ​ 3,534 ​ 1,996 ​ — ​ 5,530 Total restructuring charges ​ $ 13,166 ​ $ 5,038 ​ $ 4,239 ​ $ 22,443 ​ The following table summarizes our restructuring liabilities on December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Incurred ​ Cost Paid ​ Effect of ​ ​ ​ ​ ​ Balance at ​ and ​ or ​ Changes in ​ Balance at ​ ​ December 31, ​ Charged to ​ Otherwise ​ Exchange ​ December 31, ​ ​ 2019 ​ Expense ​ Settled ​ Rates ​ 2020 Total restructuring liabilities ​ $ 2,172 ​ $ 13,166 ​ $ ( 4,714 ) ​ $ 17 ​ $ 10,641 ​ ​ ​ ​ ​ As of December 31, 2020, and 2019, the accrued restructuring liabilities related primarily to severance and related charges. ​ ​ ​ NOTE 15. WARRANTIES Provisions of our sales agreements include customary product warranties, ranging from 12 months to 24 months after shipment. The estimated cost of our warranty obligation is recorded when revenue is recognized and is based upon our historical experience by product, and configuration. 76 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Our estimated warranty obligation is included in Other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Balances at beginning of period ​ $ 6,413 ​ $ 2,084 ​ $ 2,312 Warranty acquired in business combinations ​ 15 ​ 4,818 ​ 305 Increases to accruals ​ 2,996 ​ 1,752 ​ 1,606 Warranty expenditures ​ ( 4,688 ) ​ ( 2,249 ) ​ ( 2,127 ) Effect of changes in exchange rates ​ 44 ​ 8 ​ ( 12 ) Balances at end of period ​ $ 4,780 ​ $ 6,413 ​ $ 2,084 ​ ​ NOTE 16. LEASES The Company leases manufacturing and office space under non-cancelable operating leases. Some of these leases contain provisions for landlord funded leasehold improvements, which are recorded as a reduction to right-of-use ("ROU") assets and the related operating lease liabilities. For leases containing an option to renew, we regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease terms, along with the ROU assets and operating lease liabilities. In many cases, we have lease terms that are less than one year, and therefore, we have elected the practical expedient to exclude these short-term leases from our ROU assets and operating lease liabilities. New leases are negotiated and executed to meet business objectives on an on-going basis. Our leases do not provide an implicit rate. Accordingly, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. We have a centrally managed treasury function; therefore, we apply a portfolio approach for determining the incremental borrowing rate applicable to the lease term. Components of operating lease cost were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 Operating lease cost ​ $ 22,920 ​ $ 11,052 Short-term and variable lease cost ​ ​ 1,895 ​ ​ 4,726 Total operating lease cost ​ $ 24,815 ​ $ 15,778 ​ Maturities of our operating lease liabilities on December 31, 2020 are as follows: ​ ​ ​ ​ ​ Year Ending December 31, ​ 2021 ​ $ 21,126 2022 ​ 16,177 2023 ​ 12,979 2024 ​ 11,593 2025 ​ ​ 10,133 Thereafter ​ ​ 74,635 Total lease payments ​ ​ 146,643 Less: Interest ​ ​ ( 34,058 ) Present value of lease liabilities ​ $ 112,585 ​ 77 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) We have one lease agreement that commences in March 2021 with total payments of $ 3.5 million over five years . Other information related to leases, including supplemental cash flow information, consists of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 2019 ​ Weighted average remaining lease term (in years) ​ ​ 10.65 ​ ​ 7.50 ​ Weighted average discount rate ​ ​ 4.63 % ​ 4.05 % Cash paid for operating lease liabilities ​ $ 21,877 ​ $ 12,101 ​ Right-of-use assets obtained in exchange for operating lease liabilities (1) ​ $ 33,741 ​ $ 84,551 ​ (1) Included in 2019 are the right-of-use assets of $ 60.1 million obtained in connection with the acquisition of Artesyn in September 2019. Subsequent measurement period adjustments that occurred in the year ended December 31, 2020 reduced this amount to $ 54.4 million. See Note 2. Business Acquisitions for more details. ​ NOTE 17. EMPLOYEE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS Defined Contribution Plans We have a 401(k) profit-sharing and retirement savings plan covering substantially all full-time U.S. employees. Participants may defer up to the maximum amount allowed as determined by law. Participants are immediately vested in their contributions. Profit-sharing contributions to the plan, which are discretionary, are approved by the Board of Directors. Vesting in the profit-sharing contribution account is based on years of service, with most participants fully vested after four years of credited service. For the years ended December 31, 2020, 2019, and 2018 our contribution for participants in our 401(k) plan was based on matching 50 % of contributions made by employees up to 6 % of the employee’s compensation. During the years ended December 31, 2020, 2019, and 2018 we recognized total defined contribution plan costs of $ 2.6 million, $ 1.6 million, and $ 1.4 million, respectively. Defined Benefit Plan We maintain defined benefit pension plans for certain of our non-U.S. employees in the U.K., Germany, and Philippines. Each plan is managed locally and in accordance with respective local laws and regulations. To measure the expense and related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. The information provided below includes one pension plan which is part of discontinued operations. As such, all related liabilities and expenses are reported in discontinued operations in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations for all periods presented. 78 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The Company’s projected benefit obligation and plan assets for defined benefit pension plans and the related assumptions used to determine the related liabilities are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 Projected benefit obligation, beginning of year ​ $ 83,262 ​ $ 33,178 Acquisition ​ — ​ 48,350 Service cost ​ 1,068 ​ 272 Interest cost ​ 1,716 ​ 1,211 Actuarial (gain) loss ​ 7,591 ​ ( 193 ) Benefits paid ​ ( 1,199 ) ​ ( 1,779 ) Translation adjustment ​ 5,302 ​ 2,223 Projected benefit obligation, end of year ​ ​ 97,740 ​ ​ 83,262 ​ ​ ​ ​ ​ ​ ​ Fair value of plan assets, beginning of year ​ ​ 14,903 ​ ​ 13,433 Acquisitions ​ — ​ 102 Actual return on plan assets ​ 682 ​ 380 Contributions ​ 1,827 ​ 644 Benefits paid ​ ( 993 ) ​ ( 1,176 ) Actuarial gain ​ 180 ​ 1,064 Translation adjustment ​ 694 ​ 456 Fair value of plan assets, end of year ​ ​ 17,293 ​ ​ 14,903 Funded status of plan ​ $ ( 80,447 ) ​ $ ( 68,359 ) ​ The components of net periodic pension benefit cost recognized in our Consolidated Statements of Operations for the periods presented are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Service cost ​ $ 1,068 ​ $ 272 ​ $ 841 Interest cost ​ ​ 1,716 ​ ​ 1,211 ​ ​ 802 Expected return on plan assets ​ ( 683 ) ​ ( 615 ) ​ ( 665 ) Amortization of actuarial gains and losses ​ 459 ​ 411 ​ 478 Net periodic pension cost ​ $ 2,560 ​ $ 1,279 ​ $ 1,456 ​ Assumptions used in the determination of the net periodic pension cost are: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Discount rate 1.8 % 2.7 % 2.8 % Expected long-term return on plan assets 3.7 % 4.6 % 4.8 % ​ 79 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The fair value of the Company’s qualified pension plan assets by category are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Level 1 Level 2 Level 3 Total Multi-Asset Fund ​ $ — ​ $ 5,149 ​ $ — ​ $ 5,149 Diversified Growth Fund ​ — ​ 5,134 ​ — ​ 5,134 Corporate Bonds ​ — ​ 4,906 ​ — ​ 4,906 Insurance Contracts ​ ​ — ​ — ​ 1,109 ​ 1,109 Cash ​ 995 ​ — ​ — ​ 995 Total ​ $ 995 ​ $ 15,189 ​ $ 1,109 ​ $ 17,293 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ Level 1 Level 2 Level 3 Total Multi-Asset Fund ​ $ — ​ $ 4,825 ​ $ — ​ $ 4,825 Diversified Growth Fund ​ — ​ 4,855 ​ — ​ 4,855 Index-Linked Gilts ​ — ​ 1,934 ​ — ​ 1,934 Corporate Bonds ​ — ​ 2,090 ​ — ​ 2,090 Insurance Contracts ​ ​ — ​ ​ — ​ ​ 1,045 ​ ​ 1,045 Cash ​ 154 ​ — ​ — ​ 154 Total ​ $ 154 ​ $ 13,704 ​ $ 1,045 ​ $ 14,903 ​ On December 31, 2020, our plan’s assets of $ 17.3 million were invested in five separate funds including a multi-asset fund ( 29.8 %), a diversified growth fund ( 29.7 %), corporate bonds ( 28.4 %), and insurance contracts ( 6.4 %). The asset and growth funds aim to generate an ‘equity-like’ return over an economic cycle with significantly reduced volatility relative to equity markets and have scope to use a diverse range of asset classes, including equities, bonds, cash, and alternatives, e.g., property, infrastructure, high yield bonds, floating rate debt, private, equity, hedge funds and currency. These investments are intended to provide a degree of protection against changes in the value of our plan’s liabilities related to changes in long-term expectations for interest rates and inflation expectations. Expected future payments under defined benefit pension plans, based on foreign exchange rates as of December 31, 2020, are as follows: ​ ​ ​ ​ ​ Expected Future Benefit Payments ​ ​ ​ 2021 $ 2,255 2022 ​ ​ 1,972 2023 ​ ​ 2,184 2024 ​ ​ 2,891 2025 ​ ​ 2,301 2026 - 2030 ​ ​ 49,098 ​ NOTE 18. STOCK-BASED COMPENSATION As of December 31, 2020, we had two active stock-based incentive compensation plan: the 2017 Omnibus Incentive Plan and the Employee Stock Purchase Plan ("ESPP"). All new equity compensation grants are issued under these two plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans. Our stock plans are administered by the Board of Directors Compensation Committee. On December 31, 2020, there were 3.0 million shares reserved and 2.3 million shares available for future grant under our stock-based incentive plans. 80 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) On May 4, 2017, the stockholders approved the Company’s 2017 Omnibus Incentive Plan ("the 2017 Plan") and all shares that were then available for issuance under the 2008 Omnibus Incentive Plan are now available for issuance under the 2017 Plan. The 2017 Plan and 2008 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of the awards issued may be issued as performance-based awards to align stock compensation awards to the attainment of annual or long-term performance goals. As of December 31, 2020, there were 2.1 million shares available for grant under the 2017 Plan. The Company grants restricted stock units and performance stock units. The grant date fair values of restricted stock units and performance stock units are based on the closing market price of our common stock on the grant date. Our restricted stock units vest based on continued service. Our performance stock units vest based on achievement of certain performance goals and certification of performance achievement by the Compensation Committee of the Board of Directors. Stock-based compensation expense, net of forfeitures, is recognized on a straight-line basis over the requisite service period. For performance stock units, compensation expense is updated for the Company’s expected performance level against performance goals at the end of each reporting period, which involves judgment as to achievement of certain performance metrics. ​ Stock-based Compensation Expense We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. Stock-based compensation was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Stock-based compensation expense ​ $ 12,272 ​ $ 7,327 ​ $ 9,703 ​ Our stock-based compensation expense is based on the value of the portion of share-based payment awards that are ultimately expected to vest, assuming estimated forfeitures at the time of grant. Estimated forfeiture rates for our stock-based compensation expense applicable to stock options and restricted stock units ("RSU’s") were approximately 5 %, 10 % and 10 % for the years ended December 31, 2020, 2019 and 2018, respectively. Restricted Stock Units The fair value of our RSUs is determined based upon the closing fair market value of our common stock on the grant date. Changes in the unvested RSUs were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ ​ ​ Grant ​ Shares ​ Value RSUs outstanding at beginning of period 534 ​ $ 56.56 RSUs granted 342 ​ 59.51 RSUs vested ( 152 ) ​ 57.14 RSUs forfeited ( 116 ) ​ 58.10 RSUs outstanding at end of period 608 ​ $ 58.15 ​ The total intrinsic value of RSUs converted to shares for the years ended December 31, 2020, 2019 and 2018 were $ 9.2 million, $ 8.3 million, and $ 13.6 million, respectively. As of December 31, 2020, there was $ 7.8 million of total unrecognized compensation cost, net of expected forfeitures related to non-vested RSUs granted, which is expected to be recognized through November 2023, with a weighted-average remaining vesting period of 1.0 years. 81 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Stock Options Stock option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance-based vesting as determined at the time of grant. Stock option awards generally have a term of ten years . Changes in our outstanding stock options were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ ​ ​ Exercise ​ Shares ​ Price Options outstanding at beginning of period 185 ​ $ 21.56 Options exercised ( 33 ) ​ 13.43 Options forfeited — ​ — Options expired ( 5 ) ​ 15.43 Options outstanding at end of period 147 ​ $ 23.63 ​ The total intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 was $ 1.9 million, $ 1.6 million and $ 4.1 million, respectively. All options outstanding on December 31, 2020 are vested and have aggregate intrinsic value of $ 10.8 million and weighted-average remaining contractual life of 3.9 years. The following table summarizes information about the stock options outstanding on December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options Outstanding and Exercisable ​ ​ ​ ​ Weighted-Average ​ Weighted- ​ ​ Number ​ Remaining ​ Average Range of Exercise Prices Outstanding Contractual Life Exercise Price $ 9.51 to $ 12.44 5 0.67 years ​ $ 11.18 $ 18.77 43 3.75 years ​ 18.77 $ 26.32 99 4.10 years ​ 26.32 $ 9.51 to $ 26.32 147 3.89 years ​ $ 23.63 ​ Employee Stock Purchase Plan The ESPP, a stockholder-approved plan, provides for the issuance of rights to purchase up to 1,000,000 shares of common stock. In May 2010, stockholders approved an increase from 500,000 to 1,000,000 shares authorized for sale under our ESPP. Employees below the Vice President level are eligible to participate in the ESPP if employed by us for at least 20 hours per week during at least five months per calendar year. Participating employees may contribute up to the lesser of 15 % of their eligible earnings or $ 5,000 during each plan period. Currently, the plan period is six months. The purchase price of common stock purchased under the ESPP is currently equal to the lower of 1) 85 % of the fair market value of our common stock on the commencement date of each plan period or 2) 85 % of the fair market value of our common shares on each plan period purchase date. On December 31, 2020, 0.2 million shares remained available for future issuance under the ESPP. Purchase rights granted under the ESPP are valued using the Black-Scholes-Merton model. As of December 31, 2020, there was $ 0.4 million of total unrecognized compensation cost related to the ESPP that is expected to be recognized over a remaining period of five months . Total compensation expense was $ 0.9 million for the year ended December 31, 2020 and $ 0.5 million for the year ended December 31, 2019, and $ 0.4 million for the year ended December 31, 2018. 82 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The fair value of each purchase right granted under the ESPP was estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2020 2019 2018 Risk-free interest rates 0.10 % - 0.18 % % 1.62 % - 2.31 % 2.10 % - 2.56 % Expected dividend yield rates — % — % — % Expected term 0.5 years 0.5 years 0.5 years ​ Expected volatility 70.1 % 41.3 % 38.0 % ​ The risk-free interest rate is based on the six-month U.S. Treasury Bill at the time of the grant. We utilize our historical experience in determining the expected term of our stock options and volatility of our common stock. We have not historically issued dividends. ​ NOTE 19. COMMITMENTS AND CONTINGENCIES Disputes and Legal Actions We are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations. An unfavorable decision in patent litigation also could require material changes in production processes and products or result in our inability to ship products or components found to have violated third-party patent rights. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. The Company is currently not a party to any legal action that the Company believes would reasonably have a material adverse impact on its business, financial condition, results of operations or cash flows. ​ ​ NOTE 20. GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION The following table summarizes sales, and percentages of sales, by customers that individually accounted for 10% or more of our sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2020 2019 2018 Applied Materials, Inc. ​ ​ $ 248,350 17.5 % ​ $ 164,724 20.9 % ​ $ 258,027 35.9 % Lam Research ​ ​ 141,778 10.0 % ​ 88,251 11.2 % ​ 109,005 15.2 % ​ The following table summarizes the accounts receivable balances, and percentages of the total accounts receivable, for customers that individually accounted for 10% or more of accounts receivable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ ​ 2019 ​ Applied Materials, Inc. ​ $ 33,402 14.2 % $ 36,849 14.9 % Nidec Motor Corporation ​ ​ 24,344 ​ 10.4 % ​ 38,071 ​ 15.4 % ​ Our sales to Applied Materials, Inc., Lam Research Corp., and Nidec Corporation include precision power products used in semiconductor processing and solar and flat panel display. No other customer accounted for 10% or more of our sales or accounts receivable balances during these periods. 83 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The following table summarizes long-lived assets by geographic area: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 United States ​ $ 253,115 ​ $ 239,511 Asia ​ 283,549 ​ 301,020 Europe ​ 60,847 ​ 59,925 Total ​ $ 597,511 ​ $ 600,456 ​ Long-lived assets include property and equipment, operating lease right-of-use assets , goodwill, and other intangible assets. ​ NOTE 21. CREDIT FACILITY In September 2019, in connection with the Artesyn Acquisition Agreement, the Company entered into a credit agreement ("Credit Agreement") that provided aggregate financing of $ 500.0 million, consisting of a $ 350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $ 150.0 million senior unsecured revolving facility the ("Revolving Facility"). Both the Term Loan Facility and Revolving Facility mature on September 10, 2024. The Term Loan Facility and Revolving Facility bear interest, at the option of the Company, at a rate based on a reserve adjusted Eurodollar Rate or a Base Rate, as defined in the Credit Agreement, plus an applicable margin. Additionally, the Revolving Facility is subject to an unused line fee. As of December 31, 2020, the effective interest rate for the Revolving Facility and Term Loan Facility was 1.26 %, and the effective rate for the unused line fee was 0.10 %. As of December 31, 2020, the Company had $ 150.0 million available to withdraw on the Revolving Facility and was in compliance with all covenants. The fair value of the Company’s outstanding debt approximates the carrying value of $ 322.0 million as of December 31, 2020. In connection with entering into the Credit Agreement, the Company terminated the Loan Agreement, as amended (the "Loan Agreement") which previously provided a revolving line of credit of up to $ 150.0 million subject to certain funding conditions. The Company recognized additional interest expense for the remaining unused line of credit fees at the time of termination of the Loan Agreement. ​ The debt obligation on our Consolidated Balance Sheets consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 Debt: ​ ​ ​ ​ ​ ​ Term Loan Facility ​ $ 323,750 ​ $ 341,250 Less: debt issuance costs ​ ​ ( 1,704 ) ​ ​ ( 2,223 ) Total debt ​ ​ 322,046 ​ ​ 339,027 Less current portion of long-term debt ​ ​ ( 17,500 ) ​ ​ ( 17,500 ) Total long-term debt ​ $ 304,546 ​ $ 321,527 ​ 84 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Contractual maturities of the Company’s debt obligations, excluding amortization of debt issuance costs, as of are as December 31, 2020 follows: ​ ​ ​ ​ ​ Year Ending December 31, Amount 2021 ​ $ 17,500 2022 ​ ​ 17,500 2023 ​ ​ 17,500 2024 ​ ​ 271,250 Total ​ $ 323,750 ​ Interest expense and unused line of credit fees were recorded in Other income (expense), net, in our Consolidated Statements of Operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2020 2019 2018 Interest expense ​ $ 5,080 ​ $ 2,994 ​ $ — Amortization of debt issuance costs ​ ​ 519 ​ ​ 186 ​ ​ — Unused line of credit fees and other ​ ​ 153 ​ ​ 236 ​ ​ 228 Total interest expense ​ $ 5,752 ​ $ 3,416 ​ $ 228 ​ ​ ​ ​ ​ ​ ​ 85 Table of Contents ​ ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ​