What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-18 compared with 2024-02-20 · 320 added, 305 removed, 791 unchanged (44% of the section changed)

35 unchanged sentences

The Company adjusts its inventory carrying value for estimated excess or obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based on projected customer demand, which is determined by considering historical usage, customer orders and forecast, and qualitative considerations such as market and economic conditions.

Auditing management’s inventory valuation was complex and involved a high degree of judgment because a critical factor in determining excess and obsolete inventory requires management to determine projected customer demand, which could be impacted by future market and economic conditions.

Auditing management’s inventory valuation was complex and involved judgment because a critical factor in determining excess and obsolete inventory requires management to determine projected customer demand, which could be impacted by future market and economic conditions.

How We Addressed the Matter in Our Audit

56 unchanged sentences

Operating lease liabilities

Pension benefits

Defined employee benefit pension plan

Other long-term liabilities

Total liabilities

Deferred compensation

Commitments and contingencies (Note 17)

3 unchanged sentences

37,711 and 37,318 issued and outstanding at December 31, 2024 and December 31, 2023, respectively

Common stock associated with deferred compensation plan

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Retained earnings

20 unchanged sentences

Income from continuing operations

Income (loss) from discontinued operations, net of income tax

Loss from discontinued operations, net of income tax

Income from continuing operations attributable to noncontrolling interest

2 unchanged sentences

Diluted weighted-average common shares outstanding

Earnings per share:

Earnings (loss) per share:

Continuing operations:

13 unchanged sentences

Foreign currency translation

Change in fair value of cash flow hedges

Minimum pension benefit retirement liability

Cash flow hedges

Defined employee benefit plan

Comprehensive income

7 unchanged sentences

Stockholders' Equity

Associated with

Comprehensive

Stockholders'

Compensation Plan

Income (loss)

5 unchanged sentences

Other comprehensive income

Acquisition of non-controlling interest

Balances, December 31, 2022

3 unchanged sentences

Dividends declared ($ 0.10 per share)

Other comprehensive income

Acquisition of non-controlling interest

Other comprehensive loss

Warrants and note hedges, net

Tax impact of convertible notes and note hedges

Balances, December 31, 2023

Stock issued from equity plans, net

Stock issuance (Note 2)

Stock-based compensation

1 unchanged sentence

Dividends declared ($ 0.10 per share)

Other comprehensive income

Warrants and note hedges, net

Tax impact of convertible notes and note hedges

Other comprehensive loss

Deferred compensation

Common stock issued to deferred compensation plan ( 9,487 shares)

Balances, December 31, 2024

5 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

income (loss) from discontinued operations, net of income tax

loss from discontinued operations, net of income tax

Income from continuing operations, net of income tax

2 unchanged sentences

Stock-based compensation

Deferred income tax provision (benefit)

(Gain) loss from discount on notes receivable

Loss (gain) on disposal and sale of assets

Amortization and write off of debt issuance costs and debt discount

Deferred income tax benefit

Changes in operating assets and liabilities, net of assets acquired

1 unchanged sentence

Accounts payable

Operating lease right-of-use assets and operating lease liabilities, net

Other liabilities and accrued expenses

4 unchanged sentences

Purchases of long-term investments

Proceeds from the sale of assets

Purchases of property and equipment

15 unchanged sentences

CASH AND CASH EQUIVALENTS, end of period

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest

Cash paid for income taxes

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

4 unchanged sentences

We have continuing involvement with regard to certain warranty obligations.

Accordingly, the results of our inverter business are reflected as income (loss) from discontinued operations, net of income taxes on our Consolidated Statements of Operations.

Accordingly, the results of our inverter business are reflected as loss from discontinued operations, net of income taxes on our Consolidated Statements of Operations.

Principles of Consolidation

2 unchanged sentences

Our consolidated financial statements are stated in United States (“U.S.”) Dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

Reclassifications

We reclassified certain prior period amounts to conform to the current year presentation.

Within the operating activities section of our Consolidated Statements of Cash Flows, we present activity associated with our operating leases separately in the caption “Operating lease right-of-use assets and operating lease liabilities, net.” Additionally, we separately present “Amortization and write-off of debt issuance costs and debt discount.” Previously the above activity was included within “Other liabilities and accrued expenses.”

Use of Estimates in the Preparation of the Consolidated Financial Statements

1 unchanged sentence

GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

The significant estimates, assumptions, and judgments include, but are not limited to:

● excess and obsolete inventory;

● income taxes and other provisions;

● acquisitions and asset valuations

The significant estimates, assumptions, and judgments include, but are not limited to, excess and obsolete inventory, income taxes and other provisions, and acquisitions and asset valuation.

Segment Information

Our Chief Executive Officer is the chief operating decision maker who reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Accordingly, we determined we operate in a single reporting segment.

Our Chief Executive Officer (“CEO”) is the chief operating decision maker who reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Accordingly, we determined we operate in a single reporting segment – power electronics conversion products.

Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

Our CEO assesses performance and decides how to allocate resources primarily based on consolidated net income, which is reported on our Consolidated Statements of Operations.

Total assets on the Consolidated Balance Sheets represent our segment assets.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Foreign Currency Translation

3 unchanged sentences

Translation adjustments resulting from this process are reported as a separate component of other comprehensive income.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

For certain other subsidiaries, the functional currency is the U.S.

1 unchanged sentence

Subsequent changes in exchange rates for foreign currency denominated monetary assets and liabilities result in foreign currency transaction gains and losses, which are 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.

We use derivative financial instruments to manage risks associated with foreign currency and interest rate fluctuations.

We use derivative financial instruments to manage risks associated with foreign currency.

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 income (loss) on the Consolidated Balance Sheets and are reclassified into earnings when the underlying forecasted transaction is settled.

We reassess the probability of the underlying forecasted transactions occurring on a quarterly basis.

We value certain financial assets and liabilities using fair value measurements.

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

We have various assets and liabilities measured at fair value on a recurring basis, including:

Category of Asset or Liability

Certificates of deposit

Methodology for Estimating Fair Value

Certificates of deposit and investments

Observable market data for similar assets

1 unchanged sentence

Forecasted movement in the forward rates of foreign currency for the applicable duration in which the hedging instrument is denominated

Interest rate swaps

Estimated net present value of the expected cash flows based on market rates and the associated yield curves, adjusted for non-performance credit risk, as applicable

Deferred compensation liability

Observable market data for participants’ notional funds

Pension benefit obligations

4 unchanged sentences

Intangible Assets and Goodwill for further discussion and presentation of these amounts.

Cash, Cash Equivalents, and Marketable Securities

Cash and Cash Equivalents

We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Allowance for Credit Losses

28 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

We lease manufacturing and office space under non-cancelable operating leases.

13 unchanged sentences

We evaluate the useful life and test for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group containing the right-of-use assets may not be recoverable.

Goodwill and Intangible Assets

Intangible Assets and Goodwill

Our intangible assets consist of customer relationships, developed technology, trademarks, patents, and intellectual property, which are stated at cost less accumulated amortization.

Intangible assets, which are considered long-lived assets, are amortized over their estimated useful lives and reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset group containing these assets may not be recoverable.

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination.

6 unchanged sentences

Each method is subjective in nature and involves the use of significant estimates and assumptions, which can include projected financial results, discount rates, long-term growth rates, and industry trends.

Our intangible assets consist of customer relationships, developed technology, trademarks, patents, and intellectual property, which are stated at cost less accumulated amortization.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Debt Issuance Costs

4 unchanged sentences

Long-Term Debt for additional details.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Revenue Recognition

22 unchanged sentences

Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair value at the grant date.

We utilize the Black-Scholes Merton option pricing model to estimate the fair value of stock options.

This model requires various estimates and assumptions.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

We estimate the fair value of restricted stock units (“RSUs”) on the grant date.

3 unchanged sentences

If the awards are forfeited, we reverse the stock-based compensation expense.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Certain RSUs vest based on a market condition.

17 unchanged sentences

We have elected to account for GILTI in the year that the tax is incurred.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Commitments and Contingencies

5 unchanged sentences

We are not currently a party to any legal action that we believe would reasonably have a material adverse impact on our business, financial condition, results of operations or cash flows.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

New Accounting Standards

3 unchanged sentences

New Accounting Standards Adopted

The FASB issued the following ASUs that we adopted in the current year:

Issuance Date

Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Reference Rate Reform (Topic 848):

December 2022

Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848

This collective guidance provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate that is expected to be discontinued.

Our Credit Agreement (see Note 18.

Long-Term Debt ) and interest rate swap agreements (see Note 7.

Derivative Financial Instruments ) referenced the one-month USD LIBOR rate.

On March 31, 2023, we executed agreements with our debt holders and the counterparties to our interest rate swap agreements to transition the benchmark interest rate from LIBOR to the one-month-USD Term Secured Overnight Financing Rate (“SOFR”).

The impact of this transition and the adoption of the above guidance was not material to our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” The amendments in ASU 2023-07 expand disclosure requirements.

In addition, the ASU enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new disclosures requirements for entities with a single reportable segment.

We adopted this guidance on December 31, 2024, and it was not material to our consolidated financial statements.

New Accounting Standards Issued But Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” The amendments in ASU 2023-07 expand disclosure requirements to require additional information about significant segment expenses.

In addition, the ASU enhances interim disclosures, clarifies

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new disclosures requirements for entities with a single reportable segment.

This guidance will be effective for us on January 1, 2024.

In December 2023, the FASB issued ASU 2023-09 “Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional disclosure on income taxes paid.

This guidance will be effective for us on January 1, 2025 for annual disclosures.

We do not expect the above guidance to materially impact our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 “Improvements to Income Tax Disclosures.” The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional disclosure on income taxes paid.

In March 2024, the SEC issued climate-related disclosure rules.

These rules do not change accounting treatment, but they significantly expand the climate-related information companies are required to disclose.

Several petitions were filed challenging these climate-related disclosure rules and, in April 2024, the SEC voluntarily stayed the rules, pending completion of judicial review.

Disclosure requirements, absent the results of pending legal challenges, may begin phasing in with our annual reporting for the year ending December 31, 2025.

We do not expect the above disclosure requirement to materially impact our consolidated financial statements.

We are evaluating the disclosure requirements and changes to our business processes, systems, and controls to support the additional disclosures.

In November 2024, the FASB issued ASU 2024-03 final standard on Income Statement:

Disaggregation of Income Statement Expenses, which requires disaggregated disclosure of income statement expenses for public business entities.

The ASU does not change the expense captions an entity presents on the face of the income statement;

rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

This guidance will be effective for us on January 1, 2027.

We do not expect the above guidance to materially impact our consolidated financial statements.

On April 25, 2022, we acquired 100 % of the issued and outstanding shares of capital stock of SL Power Electronics Corporation (“SL Power”), which is based in Calabasas, California.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

On June 20, 2024, we acquired 100 % of the issued and outstanding shares of capital stock of Airity Technologies, Inc.

We accounted for this transaction as a business combination.

This acquisition added complementary products to Advanced Energy’s medical power offerings and extended our presence in several advanced industrial markets.

The components of the fair value of the total consideration transferred were as follows:

Cash paid for acquisition

Less cash acquired

This acquisition added high voltage power conversion technologies and products, broadening our range of targeted applications within the Semiconductor Equipment and Industrial and Medical markets.

The following table summarizes the consideration paid:

Consideration

(in thousands)

Cash paid at closing

Advanced Energy common stock

Settlement of payables

Indemnity holdback payable on the one-year anniversary

Total fair value of purchase consideration

We allocated the purchase price consideration to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess allocated to goodwill.

The following represents the final purchase price allocation.

(in thousands)

Current assets and liabilities, net

Property and equipment

Operating lease right-of-use assets

Deferred tax and other liabilities

Deferred tax liability

Intangible assets

Operating lease liability

Goodwill (not deductible for tax purposes)

Total fair value of net assets acquired

The following table summarizes the intangible assets acquired:

Customer relationships

Straight-line

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

To estimate the fair value of intangible assets, we used a multi-period excess earnings approach for the customer relationships and a relief from royalty approach for developed technology.

Goodwill represents SL Power’s assembled workforce and the expected operating synergies from combining operations.

Virtually all of the goodwill is deductible for tax purposes.

We included SL Power’s results of operations in our consolidated financial statements from the date of acquisition.

During the years ended December 31, 2023 and 2022, SL Power contributed $ 54.9 million and $ 50.3 million, respectively, to our net revenue.

We included Airity’s results of operations in our consolidated financial statements from the date of acquisition, which were not material.

In connection with the acquisition, we entered into agreements with certain former Airity employees.

On the closing date, these individuals received a total of 0.1 million shares of Advanced Energy common stock valued at $ 15.6 million based on the June 20, 2024 closing price, of which $ 4.5 million was allocated to purchase consideration and $ 11.1 million will be future compensation.

We will record the $ 11.1 million as stock-based compensation expense over the three-year expected vesting period.

Stock-based Compensation .

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Disaggregation of Revenue

2 unchanged sentences

Years Ended December 31,

(in thousands)

Semiconductor Equipment

4 unchanged sentences

Years Ended December 31,

(in thousands)

North America

1 unchanged sentence

Years Ended December 31,

(in thousands)

United States

We attribute revenue to individual countries and regions based on the customer’s ship to location.

Apart from the United States and China, no revenue attributable to any individual country exceeded 10% of our total consolidated revenues during the periods presented.

Aside from the specific countries listed above, no individual country exceeded 10% of our total consolidated revenues during the periods presented.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Revenue by Category

Years Ended December 31,

(in thousands)

Services and other

Other revenue includes certain spare parts and products sold by our service group.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Significant Customers

During the year ended December 31, 2024, Applied Materials, Inc.

and Lam Research Corporation accounted for 26 % and 11 %, respectively, of our total revenue.

During the year ended December 31, 2023, Applied Materials, Inc.

accounted for 22 % of our total revenue.

During the years ended December 31, 2022 and 2021, Applied Materials Inc.

and Lam Research Corporation accounted for 20 % and 14 %, respectively, and 20 % and 10 %, respectively, of our total revenue.

As of December 31, 2023 and 2022, the account receivable balance from Applied Materials, Inc.

accounted for 26 % and 18 %, respectively, of our total accounts receivable.

During the year ended December 31, 2022, Applied Materials Inc.

and Lam Research Corporation accounted for 20 % and 14 %, respectively, of our total revenue.

As of December 31, 2024, the account receivable balance from Applied Materials, Inc.

and Lam Research Corporation accounted for 25 % and 14 %, respectively, of our total accounts receivable.

During the year ended December 31, 2023, Applied Materials, Inc.

accounted for 26 % of our total accounts receivable.

No other customer’s account receivable exceeded 10% of our total accounts receivable in the periods presented.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The geographic distribution of pretax income from continuing operations was as follows:

Years Ended December 31,

(in thousands)

Income from continuing operations, before income taxes

1 unchanged sentence

Years Ended December 31,

(in thousands)

Total current provision

Total deferred provision (benefit)

Total deferred benefit

Total income tax provision (benefit)

Effective tax rate

Our effective tax rate decreased in 2023 compared to 2022, primarily driven by a change in valuation allowance assessment in 2023.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

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,

(in thousands)

Income taxes per federal statutory rate

4 unchanged sentences

Uncertain tax positions

Audit settlements

Change in valuation allowance assessment

1 unchanged sentence

Executive compensation limitation

Impact of intellectual property transfer

Other permanent items, net

Total income tax provision (benefit)

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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:

(in thousands)

Deferred tax assets:

Net operating loss and tax credit carryforwards

Interest expense limitation

Pension obligation

Bond hedge original issue discount

Employee bonuses and commissions

Depreciation and amortization

Operating lease liabilities

3 unchanged sentences

Deferred tax liabilities:

Depreciation and amortization

Unremitted earnings

Operating lease right-of-use assets

Operating lease liability

Total deferred tax liabilities

Net deferred tax assets

Of the $ 100.5 million and $ 38.7 million net deferred tax asset on December 31, 2023 and 2022, respectively, $ 107.9 million and $ 48.1 million, respectively, are included as a net non-current deferred tax asset within other assets on

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

the Consolidated Balance Sheets.

$ 7.4 million and $ 9.4 million, respectively, are included as a net non-current deferred tax liability within other long-term liabilities on the Consolidated Balance Sheets.

During the fourth quarter of 2023, we executed a tax planning strategy to facilitate the future utilization of deferred tax assets against which a valuation allowance had been previously recorded.

We simultaneously evaluated the need for a valuation allowance and determined that the tax planning strategy resulted in sufficient positive evidence to more likely than not realize the deferred tax assets.

As a result, we recorded at $ 25.6 million tax benefit from the release of the related valuation allowance.

Of the $ 120.8 million and $ 100.5 million net deferred tax assets as of December 31, 2024 and 2023, respectively, $ 121.4 million and $ 107.9 million, respectively, were included as a net non-current deferred tax asset within other assets on the Consolidated Balance Sheets.

$ 0.6 million and $ 7.4 million, respectively, were included as a net non-current deferred tax liability within other long-term liabilities on the Consolidated Balance Sheets.

During the fourth quarter of 2024, we completed the transfer of certain intellectual property between certain of our legal entities in connection with simplifying our corporate legal entity structure.

The tax impact of the transfer resulted in the recognition of deferred tax assets totaling approximately $ 23.0 million with a corresponding decrease to tax expense.

As of December 31, 2024, we have recorded a total valuation allowance on $ 2.9 million of our 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 $ 35.5 million and is associated primarily with operations in Germany, Hong Kong, and Switzerland.

The remaining valuation allowance on deferred tax assets approximates $ 39.4 million and is associated primarily with operations in Hong Kong, Germany, China, and Switzerland.

As of December 31, 2024, there is not sufficient positive evidence to conclude that such deferred tax assets, presently reduced by a valuation allowance, will more likely than not be recognized.

The December 31, 2023 valuation allowance balance reflects a decrease of $ 1.9 million during the year.

The change in the valuation allowance is primarily due to the release of valuation allowance in Germany, offset by increased losses in Hong Kong subject to a valuation allowance and increases from foreign exchange movements and current year’s activity.

The December 31, 2024 valuation allowance balance reflects an increase of $ 4.4 million during the year.

As of December 31, 2024, we had U.S., foreign and state tax loss carryforwards of $ 31.3 million, $ 277.7 million, and $ 107.2 million, respectively.

2 unchanged sentences

and state tax credit carryforwards of $ 0.1 million and $ 2.3 million, respectively.

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.

and state net operating losses, tax credits, and interest expense limitation are

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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 the case of the interest expense limitation amount, no expiration period.

3 unchanged sentences

The tax holidays are conditional upon our meeting certain employment and investment thresholds.

For the years ended December 31, 2023, 2022 and 2021, the impact of the tax holidays decreased foreign taxes by $ 14.3 million, $ 19.4 million, and $ 13.3 million, respectively, and.

the benefit on earnings per diluted share was $ 0.38 , $ 0.52 , and $ 0.35 , respectively.

The expected benefit of these tax holidays may be limited by the impact of Pillar II global minimum tax or other actions taken by these countries.

For the years ended December 31, 2024, 2023 and 2022, the impact of the tax holidays decreased foreign taxes by $ 12.4 million, $ 14.3 million, and $ 19.4 million, respectively, and the benefit on earnings per diluted share was $ 0.33 , $ 0.38 , and $ 0.52 , respectively.

As of December 31, 2024, we have undistributed earnings in certain foreign subsidiaries of approximately $ 36.3 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.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

We account for uncertain tax positions by applying a minimum recognition threshold to tax positions before recognizing these positions in the consolidated financial statements.

1 unchanged sentence

Years Ended December 31,

(in thousands)

Balance at beginning of period

10 unchanged sentences

With few exceptions, we are no longer subject to federal, state, or foreign income tax examinations by tax authorities for years before 2020.

The Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted in August 2022.

The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases.

The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities.

The IRA and the CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no benefit to our consolidated financial statements for any of the periods presented, and we do not expect them to have a direct material impact on our future results of operations, financial condition, or cash flows.

The Organization for Economic Cooperation and Development is coordinating negotiations among more than 140 countries with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate of 15%.

Various countries have implemented the legislation as of January 1, 2024, and we are still evaluating the impact.

As additional jurisdictions enact such legislation, our effective tax rate and cash tax payments could increase in future years.

As of January 1, 2024, the Pillar II minimum global effective tax rate of 15% enacted by the Organization for Economic Cooperation and Development (“OECD”) was effectuated.

More than 140 countries agreed to enact the Pillar II global minimum tax.

However, the timing of the implementation for each country varies.

For the year ended December 31, 2024, we included an estimate of global minimum tax liability as a result of those countries where we conduct business that have adopted Pillar II.

As countries continue to make revisions to their legislation and release additional guidance with respect to the global minimum tax, we continue to determine any potential impact in the countries in which we operate.

The impact of these changes may have a material impact on our cash tax expense and tax rate.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of, and changes in, accumulated other comprehensive income (loss), net of income taxes.

1 unchanged sentence

Change in Fair Value of Cash Flow Hedges

Minimum Pension Benefit Retirement Liability

Defined Employee Benefit Plan

(in thousands)

Balance at December 31, 2021

Other comprehensive income prior to reclassifications

Other comprehensive income (loss) prior to reclassifications

Amounts reclassified from accumulated other comprehensive income

Balance at December 31, 2022

Other comprehensive income prior to reclassifications

Other comprehensive income (loss) prior to reclassifications

Amounts reclassified from accumulated other comprehensive income

Balance at December 31, 2023

Other comprehensive income prior to reclassifications

Amounts reclassified from accumulated other comprehensive income

Other comprehensive income (loss) prior to reclassifications

Amounts reclassified from accumulated other comprehensive loss

Balance at December 31, 2024

1 unchanged sentence

Years Ended December 31,

To Caption on

Consolidated Statements of Operations

Change in fair value of cash flow hedges

To Caption on Consolidated

Statements of Operations

(in thousands)

Foreign currency translation

Other income (expense), net

Cash flow hedges

Interest expense

Minimum pension benefit retirement liability

Defined employee benefit plan

Other income (expense), net

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Earnings Per Share

1 unchanged sentence

Years Ended December 31,

(in thousands, except per share amounts)

Income from continuing operations

8 unchanged sentences

We compute basic earnings per share of common stock (“Basic EPS”) by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Long-Term Debt for information regarding our Convertible Notes, Note Hedges, and Warrants.

For diluted earnings per share of common stock (“Diluted EPS”), we increase the weighted-average number of common shares outstanding during the period, as needed, to include the following:

● Dilutive impact associated with the Convertible Notes using the if-converted method.

The Convertible Notes are repayable in cash up to par value and in cash or shares of common stock for the excess over par value, as such when the stock price is lower than the strike price, there is no dilutive or anti-dilutive impact.

Prior to conversion, we do not consider the Note Hedges for purposes of Diluted EPS as their effect would be anti-dilutive.

Upon conversion, we expect the Note Hedges to offset the dilutive effect of the Convertible Notes when the stock price is above $ 137.46 ;

● Additional common shares that would have been outstanding if our outstanding stock awards had been converted to common shares using the treasury stock method.

We exclude any stock awards that have an anti-dilutive effect;

● Dilutive impact associated with the Convertible Notes using the if-converted method.

The Convertible Notes are repayable in cash up to par value and in cash or shares of common stock for the excess over par value.

When the stock price is lower than the strike price, there is no dilutive or anti-dilutive impact.

Prior to conversion, we do not consider the Note Hedges for purposes of Diluted EPS as their effect would be anti-dilutive.

Upon conversion, we expect the Note Hedges to offset the dilutive effect of the Convertible Notes when the stock price is above $ 137.46 but below $ 179.76 ;

● Dilutive effect of the Warrants issued concurrently with the Convertible Notes using the treasury stock method.

For all periods presented, the Warrants did not increase the weighted-average number of common shares outstanding because the $ 179.76 exercise price of the Warrants exceeded the average market price of our common stock.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Share Repurchases

To repurchase shares of our common stock, we periodically enter into stock repurchase agreements.

To repurchase shares of our common stock, we periodically enter into share repurchase agreements.

The following table summarizes these repurchases:

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At December 31, 2024, the remaining amount authorized by the Board of Directors (“our Board” or “the Board”) for future share repurchases was $ 197.4 million with no time limitation .

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

FAIR VALUE MEASUREMENTS

The following tables present information about our assets and liabilities measured at fair value on a recurring basis.

Refer to Note 15.

Employee Retirement Plans and Post Retirement Benefits for information on fair value of our pension asset and liabilities.

The following tables present information about our non-pension assets and liabilities measured at fair value on a recurring basis:

December 31, 2024

Balance Sheet Classification

(in thousands)

Certificates of deposit

Other current assets

Interest rate swaps

Other current assets

Available for sale investments

Net assets measured at fair value on a recurring basis

Foreign currency forward contracts

Other accrued expenses

Deferred compensation liabilities

Other long-term liabilities

December 31, 2023

Balance Sheet Classification

(in thousands)

Certificates of deposit

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Interest rate swaps

Net assets measured at fair value on a recurring basis

Deferred compensation liabilities

Other long-term liabilities

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

DERIVATIVE FINANCIAL INSTRUMENTS

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These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies.

Typically, we execute these derivative instruments for one-month periods and do not designate them as hedges;

Typically, we execute these derivative instruments for one-month periods and do not designate them as hedges for accounting purposes;

however, they do partially offset the economic fluctuations of certain of our assets and liabilities due to foreign exchange rate changes.

There were no foreign currency forward contracts outstanding at December 31, 2023 or 2022.

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.

The gains and losses related to these foreign currency exchange contracts are intended to offset the 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.

We have executed interest rate swap contracts that fix a portion of the interest payments related to the outstanding principal balance on our Term Loan Facility to a total interest rate of 1.172 %.

The interest rate swap contracts expire on September 10, 2024 and are accounted for as cash flow hedging instruments.

Long-term Debt for information regarding the Term Loan.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

The following table summarizes the notional amount of our qualified hedging instruments:

Interest rate swap contracts

The following table summarizes the amounts net of tax recorded in accumulated other comprehensive income on the Consolidated Balance Sheets for qualifying hedges.

Interest rate swap contract gains

At December 31, 2024 we have $ 70.6 million foreign currency forward contracts outstanding.

There were no foreign currency forward contracts outstanding at December 31, 2023.

We had interest rate swap contracts that fixed a portion of the interest payments on our Term Loan Facility.

The interest rate swap contracts expired on September 10, 2024.

In connection with the expiration, there are no longer any related balances for these contracts within accumulated other comprehensive income (loss) on the Consolidated Balance Sheets as of December 31, 2024.

Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data.”

Fair Value Measurements for information regarding the fair value of derivative instruments.

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We record accounts receivable at net realizable value.

Our accounts receivable, net balance on the Consolidated Balance Sheets was $ 265.3 million at December 31, 2024.

The following table summarizes the changes in expected credit losses related to receivables:

Years Ended December 31,

(in thousands)

Balance at beginning of period

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Balance at end of period

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

We value inventories at the lower of cost or net realizable value, computed on a first-in, first-out basis.

Components of inventories were as follows:

(in thousands)

Parts and raw materials

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Finished goods

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

PROPERTY AND EQUIPMENT, NET

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Life (in years)

(in thousands)

Buildings, machinery, and equipment

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The following table summarizes property and equipment, net by geographic area:

(in thousands)

United States

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Years Ended December 31,

(in thousands)

Depreciation expense

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

INTANGIBLE ASSETS AND GOODWILL

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Useful Life (in years)

(in thousands)

Customer relationships

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Gross Carrying

Weighted Average Remaining

Useful Life (in years)

(in thousands)

Customer relationships

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Years Ended December 31,

(in thousands)

Amortization expense

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Year Ending December 31,

(in thousands)

The following table summarizes the changes in goodwill:

(in thousands)

Balance at beginning of period

Measurement period adjustments

Additions from acquisition

Foreign currency translation

Measurement period adjustments

Foreign currency translation and other

Balance at end of period

Additions and adjustments are the result of business combinations.

Refer to Note 2.

Acquisitions.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

RESTRUCTURING, ASSET IMPAIRMENTS, AND OTHER CHARGES

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Years Ended December 31,

(in thousands)

Restructuring

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We have several restructuring plans in process:

In 2023, we approved a plan intended to optimize and consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align to our expenses to revenue levels (the “2023 Plan”).

We expect additional charges of $ 1.0 million to $ 2.0 million to be incurred in future periods through the second quarter of 2025.

We anticipate the 2023 Plan will be substantially completed by the end of 2024, with the final activities concluding by June 2025.

This plan was approved to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure.

We anticipate the 2022 Plan will be substantially completed by the end of 2024.

The purpose of this plan is to optimize our manufacturing footprint and to improve our operating efficiencies and synergies related to business combinations.

We incurred severance costs primarily related to the transition and exit of our facility in Shenzhen, China and actions associated with synergies related to the acquisition of Artesyn Embedded Technologies, Inc.’s embedded power business.

This plan is complete with the closure of our Shenzhen facility in February 2023.

Charges related to our restructuring plans are as follows:

Years Ended December 31,

Severance and related charges

Facility relocation and closure charges

Total restructuring charges

On July 29, 2024, we approved actions in furtherance of our manufacturing consolidation initiatives intended to optimize our manufacturing footprint and cost structure, including the closure of our Zhongshan, China manufacturing facility (the “2024 Plan”).

In connection with the 2024 Plan, we recorded a $ 29.6 million charge primarily associated with expected employment-related charges for, among other things, one-time cash payments for severance, benefits expenses, payroll taxes, and other ancillary costs.

The charge includes estimated liabilities for lease termination and facility exit costs, which could be subject to further adjustments.

The remaining contractual rental obligations under the lease agreements are recorded in current portion of operating lease liabilities and operating lease liabilities on our Consolidated Balance Sheets.

The amounts incurred as a result of the approved actions are estimates and actual results may differ, which could result in incremental restructuring charges in future periods.

We anticipate the 2024 Plan will be substantially completed by the end of second quarter of 2025, with final activities expected to conclude in 2026.

In 2023, we approved a plan intended to optimize and further consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align our expenses to revenue levels (the “2023 Plan”).

We expect to incur approximately $ 1.0 million in additional charges through the second quarter of 2025.

The 2023 Plan is substantially complete, with the final activities expected to conclude in 2026.

This plan was approved to improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure.

The 2022 Plan is now complete.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Cumulative Cost Through

December 31, 2023

Severance and related charges

Facility relocation and closure charges

Total restructuring charges

Our restructuring liabilities are included in other accrued expenses in our Consolidated Balance Sheets.

Changes in restructuring liabilities were as follows:

(in thousands)

December 31, 2022

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Costs paid or otherwise settled

Foreign currency translation

December 31, 2023

Costs incurred and charged to expense

Costs paid or otherwise settled

Foreign currency translation

December 31, 2024

Costs incurred and charged to expense

Costs paid or otherwise settled

The above restructuring liability of $ 30.0 million is comprised of $ 23.9 million in other accrued expenses and $ 6.1 million included in other long-term liabilities on our Consolidated Balance Sheets.

Charges related to our restructuring plans are as follows:

Years Ended December 31,

(in thousands)

Severance and related charges

Facility relocation and closure charges

Total restructuring charges

Cumulative Cost Through

December 31, 2024

Asset Impairments

In connection with vacating facilities, we remeasured the operating lease right-of-use assets at fair value using Level 2 measurements and recorded a $ 1.4 million impairment charge.

(in thousands)

Severance and related charges

Facility relocation and closure charges

Total restructuring charges

Other Charges

Other charges relate to vacating and relocating facilities.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Our sales agreements include customary product warranty provisions, which generally range from 12 to 36 months after shipment.

We record the estimated warranty obligations cost when we recognize revenue.

This estimate is based on historical experience by product and configuration.

This estimate is based on historical experience by product.

Our estimated warranty obligation is included in other accrued expenses in our Consolidated Balance Sheets.

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Years Ended December 31,

(in thousands)

Balance at beginning of period

Additions from acquisitions

Net increases to accruals

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Balance at end of period

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Components of total operating lease cost were as follows:

Years Ended December 31,

(in thousands)

Operating lease cost

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Total operating lease cost

Payments on our operating lease liabilities are as follows:

Estimated future payments on our operating lease liabilities are as follows:

Year Ending December 31,

(in thousands)

Total lease payments

Present value of lease liabilities

In addition to the above, we have lease agreements with total payments of $ 48.9 million that commence on various dates in 2024 and 2025 and extend through 2037.

In addition to the above, we have a lease agreement with total payments of $ 7.0 million that commences in the first quarter of 2025 and extends through 2040.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

In connection with the closure of our Zhongshan, China manufacturing facility under the 2024 Plan (see Note 12.

Restructuring, Asset Impairments, and Other Charges ), we expect to terminate the facility’s lease agreement before its expiration.

During 2024, we reduced both the operating lease right-of-use asset and operating lease liability by $ 20.7 million.

The following tables present additional information about our lease agreements:

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Weighted average discount rate

Year Ended December 31,

Years Ended December 31,

(in thousands)

Cash paid for operating leases

Right-of-use assets obtained in exchange for operating lease liabilities

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

EMPLOYEE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS

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Profit-sharing contributions, which are discretionary, are approved by the Board.

For the years ended December 31, 2023 and 2022, we based our profit-sharing contribution on matching 100 % of employee contributions up to 3 % of compensation plus an additional match of 50 % on the next 2 % of compensation.

For the year ended December 31, 2021 we based our profit-sharing contribution on matching 50 % of employee contributions up to 6 % of the employee’s compensation.

For all periods presented, we based our profit-sharing contribution on matching 100 % of employee contributions up to 3 % of compensation plus an additional match of 50 % on the next 2 % of compensation.

During the years ended December 31, 2024, 2023, and 2022 we recognized total defined contribution plan costs of $ 5.0 million, $ 5.1 million, and $ 4.5 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Our projected benefit obligation and plan assets for defined benefit pension plans and the related assumptions used to determine the related liabilities are as follows:

(in thousands)

Projected benefit obligation, beginning of year

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Funded status of plan

(in thousands)

Accumulated benefit obligation

The following table summarizes classification of our net pension benefit obligation on our Consolidated Balance Sheets.

The current portion of the liability is included in accrued payroll and employee benefits.

(in thousands)

Total pension benefit obligation

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,

(in thousands)

Interest cost

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Net periodic pension cost

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Assumptions used in the determination of the net periodic pension cost are:

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Expected long-term return on plan assets

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

The fair value of our qualified pension plan assets by category was as follows:

December 31, 2024

(in thousands)

Diversified Growth Fund

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December 31, 2023

(in thousands)

Diversified Growth Fund

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Year Ending December 31,

(in thousands)

As of December 31, 2024 and 2023, accumulated other comprehensive income (loss) on the Consolidated Balance Sheets includes net actuarial gains and other deferred items, net of related taxes of $ 10.6 million and $ 11.4 million, respectively, that have not yet been recognized in net periodic pension cost.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

STOCK-BASED COMPENSATION

The Compensation Committee of our Board administers our stock plans.

The Compensation Committee of our Board of Directors administers our stock plans.

As of December 31, 2024, we have two active stock-based incentive compensation plans:

the 2023 Omnibus Incentive Plan (“the 2023 Plan”) and the Employee Stock Purchase Plan (“ESPP”).

The 2023 Plan was approved on April 27, 2023.

We issue all new equity compensation grants 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.

The 2023 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, 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.

the Amended and Restated 2023 Omnibus Incentive Plan (the “2023 Incentive Plan”) and the Employee Stock Purchase Plan (“ESPP”).

We issue all new equity compensation grants under the 2023 Incentive Plan.

Outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans.

The 2023 Incentive Plan provides for the grant of awards including stock options, stock appreciation rights, performance stock units, performance units, stock, restricted stock, restricted stock units, and cash incentive awards.

The following table summarizes information related to our stock-based incentive compensation plans:

December 31, 2024

Shares available for future issuance under the 2023 Plan

(in thousands)

Shares available for future issuance under the 2023 Incentive Plan

Shares available for future issuance under the ESPP

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

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:

For the year ended December 31, 2024, stock-based compensation expense includes $ 1.8 million related to a modification for accounting purposes of prior awards and $ 1.9 million related to the Airity acquisition (see Note 2.

Acquisition ).

Stock-based compensation expense was as follows:

Years Ended December 31,

(in thousands)

Stock-based compensation expense

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Year Ended December 31, 2024

(in thousands)

RSUs outstanding at beginning of period

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RSUs outstanding at end of period

For vested RSUs, employees withheld shares for income tax totaling $ 9.1 million.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The weighted-average grant date fair value for RSUs granted in the years ended December 31, 2024, 2023, and 2022 was $ 104.84 , $ 100.04 , and $ 74.62 , respectively.

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Stock option awards generally have a term of ten years .

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Changes in our stock options were as follows:

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Contractual Life

(in thousands)

Options outstanding at beginning of period

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Employee Stock Purchase Plan

The ESPP, a stockholder-approved plan, provides for the issuance of rights to purchase up to 1.5 million shares of common stock.

Most employees are eligible to participate in the ESPP if employed 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.

The ESPP is a stockholder-approved plan that allows eligible employees to purchase our common stock at a discount.

Employees who meet the eligibility criteria 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.

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As of December 31, 2024, there was $ 0.5 million of total unrecognized compensation cost related to the ESPP that we expect to recognize over a remaining period of five months .

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Deferred Compensation Plan

We offer certain employees the opportunity to elect to defer compensation for salary, bonus, commission, and stock awards.

The Company maintains a rabbi trust in connection with the deferred compensation plan.

Assets of the rabbi trust not held in Company shares are presented in other assets, and the fair value of the Company shares held in the rabbi trust is classified in stockholders’ equity.

After a holding period, employees have the option to diversify the Company shares into other funds.

Stock awards that have been elected for deferral but have not yet vested and are probable of vesting are reported as deferred compensation in the temporary equity section of the Consolidated Balance Sheets.

The stock awards recorded in temporary equity are recognized at fair value, with any difference from stock-based compensation recorded in retained earnings.

COMMITMENTS AND CONTINGENCIES

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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 such loss can be reasonably estimated.

We are not currently a party to any legal action that we believe would reasonably have a material adverse impact on our business, financial condition, results of operations or cash flows.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

We are not currently a party to any legal action that we believe would have a material adverse impact on our business, financial condition, results of operations or cash flows.

We maintain defined benefit pension plans for certain of our non-U.S.

employees, including those in the United Kingdom.

In light of the United Kingdom’s High Court ruling in the case of Virgin Media Ltd v.

NTL Pension Trustees II Ltd & Ors, we reviewed past amendments made to our United Kingdom pension plans.

While unlikely, should there be a challenge to any previous amendments, we could face potential litigation and compliance risks.

We continue to account for our United Kingdom pension plans in accordance with the plan agreements and amendments, as we believe they represent a mutual understanding and agreement among all parties.

LONG-TERM DEBT

Long-term debt on our Consolidated Balance Sheets consists of the following:

Convertible Notes due 2028

Term Loan Facility due 2026

(in thousands)

Convertible Notes due 2028, 2.5 % interest

Term Loan Facility

Gross long-term debt, including current maturities

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For all periods presented, we were in compliance with the covenants under all debt agreements.

Contractual maturities of our gross long-term debt, including current maturities, are as follows:

Year Ending December 31,

The following table summarizes our borrowings:

December 31, 2023

Convertible Notes

Term Loan Facility at fixed interest rate due to interest rate swap

Term Loan Facility at variable interest rate

Total borrowings

The interest rate swap contracts expire on September 10, 2024.

After that date, this portion of our Term Loan Facility will be subject to a variable interest rate.

For more information, see Note 7.

Derivative Financial Instruments .

The Term Loan Facility and Revolving Facility bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The following table summarizes interest expense related to our debt:

Years Ended December 31,

(in thousands)

Interest expense

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Total interest expense related to debt

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

Credit Agreement

Our credit agreement dated as of September 10, 2019, as amended (the “Credit Agreement”) consists of a senior unsecured term loan facility (“Term Loan Facility”) and a senior unsecured revolving facility (“Revolving Facility”), both maturing on September 9, 2026.

On September 9, 2024, we entered into an amendment to the Credit Agreement to increase the capacity on the Revolving Facility from $ 200.0 million to $ 600.0 million.

This amendment was in connection with the concurrent prepayment, using existing cash on hand, of the full $ 345.0 million outstanding principal balance under our Term Loan Facility.

For all periods presented, no amounts were outstanding on the Revolving Facility.

The following table summarizes our availability to withdraw on the Revolving Facility:

(in thousands)

Available capacity on Revolving Facility

In addition to our available capacity on the Revolving Facility, prior to the maturity date of the Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $ 250.0 million.

Any requested increase is subject to lender approval.

The interest rate swap contracts previously entered into relative to the Term Loan Facility expired on September 10, 2024.

Should we have future borrowings under the Term Loan Facility or Revolving Facility, they will bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin.

Convertible Senior Notes due 2028

On September 12, 2023, we completed a private, unregistered offering of $ 575.0 million aggregate principal amount 2.50 % convertible senior notes (“Convertible Notes”) and received net proceeds of approximately $ 561.1 million after the discount for the initial purchasers’ fees.

We used $ 40.1 million of the net proceeds to repurchase approximately 0.4 million shares of common stock and $ 40.1 million to fund the net cost of convertible note hedge transactions (“Note Hedges”) after such costs were offset by the proceeds from the sale of warrants to purchase our common stock (“Warrants”).

On September 12, 2023, we completed a private, unregistered offering of $ 575.0 million aggregate principal amount of 2.50 % convertible senior notes due 2028 (“Convertible Notes”).

The $ 564.7 million remaining outstanding principal amount of the Convertible Notes, net of unamortized issuance costs, continues to be classified as long-term debt as none of the conversion triggers occurred as of December 31, 2024.

The Convertible Notes mature on September 15, 2028, unless earlier repurchased, redeemed, or converted.

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We do not maintain a sinking fund.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after September 20, 2026 if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period).

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● pay or deliver cash, shares of our common stock, or a combination (at our election) with respect to the remainder, if any, of the conversion obligation in excess of the aggregate principal amount being converted.

Concurrent with the Convertible Notes issuance, we entered into the Note Hedges with respect to our common stock.

We will exercise the Note Hedges simultaneously when the Convertible Notes are settled.

The Note Hedges have a $ 137.46 per share initial exercise price and cover, subject to customary anti-dilution adjustments, the number of shares

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

of common stock that initially underlie the Convertible Notes and are expected to reduce the potential dilution to the common stock and/or offset potential cash payments in excess of the principal amount upon conversion of the Convertible Notes.

We paid approximately $ 115.0 million in cash for the Note Hedges, which we recorded to additional paid-in capital in our Statements of Stockholders’ Equity .

Also concurrent with the issuance of our Convertible Notes, we sold Warrants, which provide the counterparties the option to acquire approximately 4.2 million aggregate shares of our common stock (subject to customary anti-dilution adjustments), which is the same number of shares of our common stock covered by the Note Hedges at a $ 179.76 per share initial exercise price, which represents a 70 % premium over the $ 105.74 closing price of our common stock on September 7, 2023.

Concurrent with the Convertible Notes issuance, we entered into hedges (“Note Hedges”) with respect to our common stock and sold warrants to purchase our common stock (“Warrants”) .

I n combination, the Note Hedges and Warrants synthetically increase the initial conversion price on the Convertible Notes from $ 137.46 to $ 179.76 , reducing the potential dilutive effect.

The Warrants provide the counterparties the option to acquire approximately 4.2 million aggregate shares of our common stock (subject to customary anti-dilution adjustments), which is the same number of shares of our common stock covered by the Note Hedges at a $ 179.76 per share initial exercise price, which represents a 70 % premium over the $ 105.74 closing price of our common stock on September 7, 2023.

The Warrants expire on July 7, 2029.

We received aggregate proceeds of $ 74.9 million for the sale of Warrants, which we recorded to additional paid-in capital in our Statements of Stockholders’ Equity.

If the market value per share of our common stock exceeds the exercise price of the Warrants during the measurement period at the maturity of such Warrants, the Warrants will have a dilutive effect on our earnings per share as we will owe the counterparties a number of shares of common stock in an amount based on the excess of such market price per share of the common stock over the Warrants’ exercise price.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The Note Hedge and Warrants are separate from the Convertible Notes.

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Counterparties in the Note Hedge and Warrants transactions have no rights with respect to the Convertible Notes.

However, in combination, the Note Hedges and Warrants synthetically increase the initial conversion price on the Convertible Notes from $ 137.46 to $ 179.76 , reducing the potential dilutive effect of the Convertible Notes.

We recorded a $ 26.1 million deferred tax asset to reflect the impact of the Convertible Notes and Note Hedges.

Credit Agreement

Both mature on September 9, 2026.

On March 31, 2023, we executed agreements pursuant to the Credit Agreement to transition the benchmark interest rate from LIBOR to SOFR.

The impact of this transition was not material to our consolidated financial statements.

On September 7, 2023, we entered into an additional amendment to the Credit Agreement to amend certain definitions, covenants, and events of default to enable the issuance of the Convertible Notes and the entry into the Note Hedges and Warrants.

The following table summarizes our availability to withdraw on the Revolving Facility:

Available capacity on Revolving Facility

As part of our available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $ 115.0 million.

Any requested increase is subject to lender approval.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(in thousands, except per share amounts)

We use level 2 measurements to estimate the fair value of our debt.

As of December 31, 2023, we estimate the fair value of our Convertible Notes to be $ 598.7 million, and the par value of the Term Loan Facility approximates its fair value.

As of December 31, 2024, we estimate the fair value of our Convertible Notes to be $ 624.6 million.

SUPPLEMENTAL CASH FLOW INFORMATION

Years Ended December 31,

(in thousands)

Non-cash investing activities:

Capital expenditures in accounts payable and other accrued expenses

Common stock used as consideration in business combination

Cash paid for:

Cash received from income taxes

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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What changed 10-K

Item 8. Financial Statements and Supplementary Data