Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 ("Act") is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Stephen D. Kelley, President and Chief Executive Officer) and Principal Financial Officer (Paul Oldham, Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021. The conclusions of the Chief Executive Officer and Chief Financial Officer from this evaluation were communicated to the Audit Committee. We intend to continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Management’s Annual Report on Internal Control over Financial Reporting
It is management’s responsibility to establish and maintain effective internal control over our financial reporting, which is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management, and other personnel. Our internal control over financial reporting is designed to provide reasonable assurance concerning the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
In June 2021, we acquired TEGAM, Inc. Refer to Note 2. Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data" for additional information. TEGAM's objectives regarding internal controls over financial reporting are consistent, in all material respects, with Advanced Energy’s objectives. We are in the process of completing a more comprehensive review of TEGAM's internal control over financial reporting and will be implementing changes to better align their reporting and controls with the rest of Advanced Energy. As a result of the timing of the acquisition, anticipated changes, and general guidance issued by the SEC regarding exclusion of certain acquired businesses, we excluded TEGAM from Advanced Energy's December 31, 2021 assessment of internal controls over financial reporting. TEGAM accounted for approximately 1% of our total assets at December 31, 2021, and 1% of our total net sales for the year ended December 31, 2021.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021, using the criteria described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
Ernst & Young LLP, an independent registered public accounting firm, has audited our consolidated financial statements included in this Form 10-K, and as part of the audit, has issued an audit report, included herein, on the effectiveness of our internal control over financial reporting as of December 31, 2021.
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Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls and Procedures
Management has concluded that our disclosure controls and procedures and internal control over financial reporting provide reasonable assurance that the objectives of our control system are met. We do not expect, however, that our disclosure controls and procedures or internal control over financial reporting will prevent or detect all misstatements, errors, or fraud, if any. All control systems, no matter how well designed and implemented, have inherent limitations, and therefore no evaluation can provide absolute assurance that every misstatement, error, or instance of fraud, if any, or risk thereof, has been or will be prevented or detected. The occurrence of a misstatement, error, or fraud, if any, would not necessarily require a conclusion that our controls and procedures are not effective.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Advanced Energy Industries, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Advanced Energy Industries, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Advanced Energy Industries, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of TEGAM, Inc., which is included in the 2021 consolidated financial statements of the Company and constituted 1% and 2% of total and net assets, respectively, as of December 31, 2021 and 0.6% and 0.5% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of TEGAM, Inc.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 16, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects.
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Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Denver, Colorado
March 16, 2022
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
In accordance with General Instruction G(3) of Form 10-K, certain information required by this Part III is incorporated by reference to the definitive proxy statement relating to our 2022 annual meeting of stockholders (the "2022 Proxy Statement"), as set forth below. The 2022 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information set forth in the 2022 Proxy Statement under the headings "Management" and "Proposal No. 1 - Election of Directors" is incorporated herein by reference.
We adopted a Code of Ethical Conduct that applies to all employees, including our Chief Executive Officer, Chief Financial Officer, and others performing similar functions. We posted a copy of the Code of Ethical Conduct on our website at www.advancedenergy.com, and such Code of Ethical Conduct is available, in print, without charge, to any stockholder who requests it from the Company’s Secretary. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Code of Ethical Conduct by posting such
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information on our website at www.advancedenergy.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 2022 Proxy Statement under the headings "Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth in the 2022 Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" is incorporated herein by reference.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes information about the equity incentive compensation plans as of December 31, 2021. All outstanding awards relate to our common stock.
(A)
(B)
(C)
Plan Category
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
Weighted average exercise price
of outstanding options, warrants
and rights
Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column A)
(in thousands, except exercise price per share)
Equity compensation plans approved by security holders
112
$
24.41
2,554
(1)
Equity compensation plans not approved by security holders
—
—
—
Total
112
$
24.41
2,554
(1) This number includes 665 thousand shares available for future issuance under the Employee Stock Purchase Plan
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Not applicable.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information set forth in the 2022 Proxy Statement under the caption "Proposal No. 2 - Ratification of the Appointment of Ernst & Young LLP as Advanced Energy’s Independent Registered Public Accounting Firm for 2022" is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)
Documents filed as part of this Annual Report on Form 10-K are as follows:
1.
Financial Statements:
See Index to Financial Statements at Part II, Item 8 herein.
2.
Financial Statement Schedules for the years ended December 31, 2021, 2020 and 2019
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NOTE: All schedules have been omitted because they are either not applicable or the required information is included in the financial statements and notes thereto.
(B)
Exhibits:
Exhibit
Incorporated by Reference
Number
Description
Form
File No.
Exhibit
Filing Date
2.1
Stock Purchase Agreement by and among Advanced Energy Industries, Inc., Artesyn Embedded Technologies, Inc., Pontus Intermediate Holdings II, LLC and Pontus Holdings, LLC, dated May 14, 2019 **
8-K
000-26966
2.1
May 15, 2019
2.2
First Amendment to the Stock Purchase Agreement by and among Advanced Energy Industries, Inc., Artesyn Embedded Technologies, Inc., Pontus Intermediate Holdings II, LLC and Pontus Holdings, LLC, dated September 9, 2019 **
8-K
000-26966
2.2
September 10, 2019
3.1
Amended and Restated Certificate of Incorporation of Advanced Energy Industries, Inc.
10-Q
000-26966
3.1
August 5, 2019
3.2
Second Amended and Restated By-Laws of Advanced Energy Industries, Inc.
8-K
000-26966
3.1
May 20, 2020
4.1
Form of Specimen Certificate for Common Stock
S-1
33-97188
4.1
September 21, 1995
4.2
Description of Advanced Energy Industries, Inc. Securities
10-K
000-26966
4.2
March 2, 2020
10.1
Lease dated January 16, 2003, by and between China Great Wall Computer Shenzhen Co., Ltd., Great Wall Limited and Advanced Energy Industries (Shenzhen) Co., Ltd., for a building located in Shenzhen, China
10-K
000-26966
10.18
February 24, 2004
10.2
Form of Indemnification Agreement
S-1
33-97188
10.2
September 21, 1995
10.3
Form of Director Indemnification Agreement
8-K
000-26966
10.1
December 14, 2009
10.4
Form of Notice of Grant for Restricted Stock Unit *
8-K
000-26966
10.1
May 10, 2013
10.5
Form of Restricted Stock Unit Agreement *
8-K
000-26966
10.2
May 10, 2013
10.6
Form of Notice of Grant of Stock Option *
8-K
000-26966
10.3
May 10, 2013
10.7
Form of Incentive Stock Option Agreement *
8-K
000-26966
10.4
May 10, 2013
10.8
Form of Non-Qualified Stock Option Agreement *
8-K
000-26966
10.5
May 10, 2013
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Exhibit
Incorporated by Reference
Number
Description
Form
File No.
Exhibit
Filing Date
10.9
Form of LTI Notice of Grant *
8-K
000-26966
10.6
May 10, 2013
10.10
Form of LTI Performance Stock Option Agreement pursuant to the 2008 Omnibus Incentive Plan *
8-K
000-26966
10.7
May 10, 2013
10.11
Form of LTI Performance Stock Unit Agreement pursuant to the 2008 Omnibus Incentive Plan *
8-K
000-26966
10.8
May 10, 2013
10.12
Form of 2020 Short-Term Incentive Plan *
10-K
000-26966
10.13
March 2, 2020
10.13
2017 Long-Term Incentive (LTI) Plan *
DEF 14A
000-26966
Appendix A
March 14, 2017
10.14
2017 Short-Term Incentive (STI) Plan *
DEF 14A
000-26966
Appendix B
March 14, 2017
10.15
2017 Omnibus Incentive Plan *
DEF 14A
000-26966
Appendix A
March 14, 2017
10.16
2008 Omnibus Incentive Plan, as amended May 4, 2010 *
10-K
000-26966
10.37
March 2, 2011
10.17
Employee Stock Purchase Plan *
S-1
33-97188
10.17
September 21, 1995
10.18
Transition and Retirement Agreement dated February 8, 2021 *
8-K
000-26966
10.1
February 10, 2021
10.19
Offer Letter dated February 8, 2021 *
8-K
000-26966
10.2
February 10, 2021
10.20
Global Supply Agreement by and between Advanced Energy Industries, Inc. and Applied Materials, Inc. dated August 29, 2005 +
10-Q
000-26966
10.1
November 7, 2005
10.21
Shipping Amendment to the Global Supply Agreement by and between Advanced Energy Industries, Inc. and Applied Materials, Inc. dated August 29, 2005 +
10-Q
000-26966
10.2
November 7, 2005
10.22
Bridge Amendment to the Global Supply Agreement by and between Advanced Energy Industries, Inc. and Applied Materials, Inc. dated January 28, 2011 +
10-Q
000-26966
10.1
May 6, 2011
10.23
Fixed Dollar Accelerated Share Repurchase Transaction, dated November 6, 2015, between Advanced Energy Industries, Inc. and Morgan Stanley & Co. LLC.
8-K
000-26966
10.1
November 6, 2015
10.24
Offer Letter to Paul Oldham, dated March 26, 2018 *
8-K
000-26966
10.1
March 29, 2018
10.25
Form of Executive Change in Control and General Severance Agreement
8-K
000-26966
10.1
August 6, 2018
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Exhibit
Incorporated by Reference
Number
Description
Form
File No.
Exhibit
Filing Date
10.26
Credit Agreement, dated September 10, 2019, by and among Advanced Energy Industries, Inc., Bank of America N.A. as the Administrative Agent, Bank of America N.A., Bank of the West and HSBC Bank USA, N.A. as the Joint Lead Arrangers and Joint Book Runners, and Citibank N.A., as the Co-Manager
8-K
000-26966
10.1
September 10, 2019
10.27
ISDA 2002 Master Agreement, by and between Advanced Energy Industries, Inc. and HSBC Bank USA, National Association, dated as of April 2, 2020 (the "HSBC ISDA Master Agreement")
8-K
000-26966
10.1
April 10, 2020
10.28
ISDA 2002 Master Agreement, by and between Advanced Energy Industries, Inc. and Citibank, N.A., dated as of April 7, 2020 (the "Citibank ISDA Master Agreement")
8-K
000-26966
10.2
April 10, 2020
10.29
Schedule to the HSBC ISDA Master Agreement
8-K
000-26966
10.3
April 10, 2020
10.30
Schedule to the Citibank ISDA Master Agreement
8-K
000-26966
10.4
April 10, 2020
10.31
Rate Swap Transaction Confirmation, by and between Advanced Energy Industries, Inc. and HSBC Bank USA, National Association, dated April 7, 2020
8-K
000-26966
10.5
April 10, 2020
10.32
Rate Swap Transaction Confirmation, by and between Advanced Energy Industries, Inc. and Citibank, N.A., dated April 9, 2020
8-K
000-26966
10.6
April 10, 2020
10.33
Amendment No. 1 to Credit Agreement, dated September 9, 2021, by and among Advanced Energy Industries, Inc., the guarantors party thereto, Bank of America N.A. as the Administrative Agent, and the lenders party thereto (which included the marked Credit Agreement as Exhibit A thereto)
8-K
000-26966
10.2
September 9, 2021
10.34
Offer of Employment to Eduardo Bernal Acebedo dated August 2, 2021 *
8-K
000-26966
10.1
September 8, 2021
10.35
Form of Long-Term Incentive Plan
8-K
000-26966
10.1
February 4, 2021
10.36
Transition and Separation Agreement of Mr. Dana Huth, dated July 7, 2021 *
10-Q
000-26966
10.1
November 9, 2021
10.37
Advanced Energy Industries, Inc. Deferred Compensation Plan *
10-Q
000-26966
10.4
November 9, 2021
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Exhibit
Incorporated by Reference
Number
Description
Form
File No.
Exhibit
Filing Date
21.1
Subsidiaries of Advanced Energy Industries, Inc .
Filed herewith
23.1
Consent of Independent Registered Public Accounting Firm
Filed herewith
31.1
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of the Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
101.INS
Inline XBRL Instance Document
Filed herewith
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)
Filed herewith
* Compensation Plan
** Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
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+ Confidential treatment has been granted for portions of this agreement.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
ADVANCED ENERGY INDUSTRIES, INC.
(Registrant)
/s/ Stephen D. Kelley
Stephen D. Kelley
Chief Executive Officer
Date:
March 16, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Stephen D. Kelley
Chief Executive Officer and Director
March 16, 2022
Stephen D. Kelley
(Principal Executive Officer)
/s/ Paul Oldham
Chief Financial Officer and Executive Vice President
March 16, 2022
Paul Oldham
(Principal Financial and Accounting Officer)
/s/ Grant H. Beard
Chairman of the Board
March 16, 2022
Grant H. Beard
/s/ Frederick A. Ball
Director
March 16, 2022
Frederick A. Ball
/s/ Anne DelSanto
Director
March 16, 2022
Anne DelSanto
/s/ Tina M. Donikowski
Director
March 16, 2022
Tina M. Donikowski
/s/ Ronald C. Foster
Director
March 16, 2022
Ronald C. Foster
/s/ Edward C. Grady
Director
March 16, 2022
Edward C. Grady
/s/ Lanesha Minnix
Director
March 16, 2022
Lanesha Minnix
/s/ David W. Reed
Director
March 16, 2022
David W. Reed
/s/ John A. Roush
Director
March 16, 2022
John A. Roush
/s/ Thomas M. Rohrs
Director
March 16, 2022
Thomas M. Rohrs
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