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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED).
For the fiscal year ended December 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED).
For the transition period from __________ to __________.
Commission file number: 0-26966
ADVANCED ENERGY INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-0846841
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1625 SHARP POINT DRIVE, FORT COLLINS, CO 80525
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (970) 221-4670
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's
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knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ].
As of February 29, 2000, there were 28,456,816 shares of the Registrant's Common
Stock outstanding and the aggregate market value of such stock held by
non-affiliates of the Registrant was $1,174,584,105.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual meeting of
stockholders to be held on May 10, 2000 are incorporated by reference into Part
III of this Form 10-K.
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ADVANCED ENERGY INDUSTRIES, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 4
EXECUTIVE OFFICERS OF THE REGISTRANT 29
ITEM 2. PROPERTIES 30
ITEM 3. LEGAL PROCEEDINGS 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 30
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS 31
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 33
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 47
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES 68
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 69
ITEM 11. EXECUTIVE COMPENSATION 69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 69
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 69
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 70
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PART I
ITEM 1. BUSINESS
GENERAL
We design, manufacture and support power conversion and control systems.
These systems are important components in industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses,
solar panels and other products. Our systems refine, modify and control the raw
electrical power from a utility and convert it into power that is uniform and
predictable. This allows manufacturing equipment to produce and deposit very
thin films at an even thickness on a mass scale.
We market and sell our systems primarily to large, original equipment
manufacturers of semiconductor, flat panel display, data storage and other
industrial thin film manufacturing equipment. We have sold our systems worldwide
to more than 100 OEMs and directly to more than 500 end-users. Our principal
customers include Applied Materials, Balzers, Eaton, Lam Research, Novellus,
Singulus and ULVAC.
We seek to expand our product offerings and customer base. In August 1997 we
acquired Tower Electronics, Inc. This acquisition expanded our technology and
customer base, and provided us with the capability to design and manufacture
power conversion systems for use in modems, non-impact printers, night vision
goggles and laser devices. Representative customers of these systems include
U.S. Robotics, Videojet Systems International and ITT.
We achieved another step with additional technology and new market
penetration in September 1998 when we acquired the assets of Fourth State
Technology, Inc. This acquisition provided us with the capability to design and
manufacture power-related process control systems used to monitor and analyze
data in thin film processes.
In October 1998 we acquired RF Power Products, Inc., which designs,
manufactures and markets radio frequency (RF) power conversion and control
systems consisting of generators and matching networks. This acquisition
expanded our existing product line of RF generators and matching networks.
Generators provide radio frequency power and matching networks provide the power
flow control to our customers' equipment. We sell these products principally to
semiconductor capital equipment manufacturers. We also sell similar systems to
capital equipment manufacturers in the flat panel display and thin film disk
media industries. We continue to explore applications for these products in
other industries.
In October 1999 we further expanded our range of product offerings when we
acquired a majority ownership in LITMAS, in which we had previously held a
minority interest. LITMAS is a manufacturer of plasma gas abatement systems and
high-density plasma
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sources for the semiconductor capital equipment industry.
Since inception we have sold over 175,000 power conversion and control
systems. Sales to customers in the semiconductor capital equipment industry
constituted 49% of our sales in 1998 and 61% in 1999. We sell our systems
primarily through direct sales personnel to customers in the United States,
Europe and Asia, and through distributors and representatives in Australia,
China, Hong Kong, India, Israel, Italy, Mexico, Singapore, Sweden and Turkey.
International sales represented 28% of our sales in 1998 and 29% in 1999.
DEVELOPMENT OF COMPANY BUSINESS
We incorporated in Colorado in 1981 and reincorporated in Delaware in 1995.
In 1995 we effected the initial public offering of our Common Stock. As used in
this Form 10-K, references to "Advanced Energy" refer to Advanced Energy
Industries, Inc. and references to "we", "us", or "our" refer to Advanced Energy
and its consolidated subsidiaries. Our principal executive offices are located
at 1625 Sharp Point Drive, Fort Collins, Colorado 80525, and our telephone
number is 970-221-4670.
PRODUCTS
Our switchmode power conversion and control systems have enabled our
customers to develop new plasma-based processing applications. In 1982 we
introduced our first low-frequency switchmode power conversion and control
system specifically designed for use in plasma processes. In 1983 we introduced
our first direct current (DC) system designed for use in physical vapor
deposition (PVD) applications. This DC system is a compact, cost-effective power
solution, which greatly reduces stored energy, a major limitation in PVD
systems. In 1989 we introduced tuners used to match the characteristics of the
plasma with the RF generators. We carried this theme further in 1995 when we
introduced the Pinnacle series of DC systems. In 1990 we introduced the first
switchmode RF power conversion and control systems for use in semiconductor etch
applications. This product line achieved significant design wins because of its
smaller size and its ability to provide more precise control. In 1998 we
developed the APEX series of RF systems, which use new technology to further
reduce size and extend the frequency and power range of our RF product line. We
introduced a family of accessories for the DC product line in 1993. These pulsed
DC products provided major improvements in arc prevention and suppression. We
are currently extending the power range of our systems to much higher power
levels to enable them to supply products for emerging industrial applications.
The products in these product families range in price from $1,500 to $170,000,
with an average price of approximately $9,200.
The acquisition of the assets of MIK Physics, Inc. in 1997 provided the base
technology for our recently introduced Astral products, which are high-power DC
systems used in PVD process equipment. As part of this acquisition, several
technologists
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familiar with ion sources joined us and, together with a technology transfer
agreement, provided us with an initial design of ion sources suitable for
cleaning, deposition and etching processes at sub-atmospheric pressures. These
products are useful in industrial applications and in the data storage area.
The acquisition of Tower in 1997 expanded our product line to include
low-power DC power conversion systems for use in telecommunications and other
industrial applications. These power conversion systems range in power from 50
watts to 600 watts and have an average selling price of approximately $500.
The acquisition of RF Power Products in 1998 expanded our product line of RF
generators and matching networks. Solid-state generators are presently available
for power requirements of up to 5,000 watts and are sold primarily to capital
equipment manufacturers in the semiconductor equipment, flat panel display, thin
film and analytical equipment markets. Tube-type generators are available at
power levels from 10,000 to 30,000 watts and are sold primarily to capital
equipment manufacturers in the thin film head manufacturing market. RF matching
networks are systems composed primarily of variable inductors and capacitors
with application-specific circuits that can be designed to a customer's specific
power requirements. Our RF generators and matching networks have average selling
prices similar to our DC products.
The acquisition of Fourth State Technology in 1998 enhanced our capability
to design and manufacture RF power-related process control systems used to
monitor and analyze data in thin film processes. This technology also is
enabling us to develop power conversion and control systems that incorporate
advanced measurement and control systems.
The acquisition of a majority interest in LITMAS in 1999 expanded our
product line to include plasma abatement systems and high-density plasma
sources. We market these products to semiconductor capital equipment
manufacturers.
The following chart sets forth our principal product lines and related basic
information:
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PRODUCT POWER/CURRENT MAJOR PROCESS
PLATFORM DESCRIPTION LEVEL APPLICATIONS
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MDX Power control and 500W-80kW PVD
DIRECT conversion system o Metal sputtering
o Reactive sputtering
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CURRENT MDX II Power control and 15kW-120kW PVD
conversion system o Metal sputtering
PRODUCTS o Reactive sputtering
---------------- ---------------------- --------------------- ------------------------
Pinnacle(TM) Power control and 6kW-120kW PVD
conversion
system o Metal sputtering
o Reactive sputtering
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Pinnacle(TM) Pulsed power control 6kW PVD
Plus and
conversion system o Metal sputtering
o Reactive sputtering
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Sparc-le(R) Arc management 1kW-60kW For use with MDX
accessory systems - permits
precise control of
reactive sputtering of
insulating films
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E-Chuck Electrostatic chuck <100W General wafer handling
power system in semiconductor PVD,
CVD, and etch
applications
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Astral(TM) Pulsed DC power 20kW, 120kW, 200kW PVD
HIGH-POWER system o Reactive sputtering
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Crystal(TM) Mid-frequency power 180kW PVD
PRODUCTS control and CVD
conversion system Reactive sputtering
Dual magnetron
sputtering
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PE and PE-II Low frequency 1.25kW-30kW CVD
LOW AND MID- power control and PVD
conversion system o Reactive sputtering
FREQUENCY Surface modification
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PD Mid-frequency 1.25kW-8kW CVD
PRODUCTS power control and PVD
conversion system o Reactive sputtering
Surface modification
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LF Low frequency 500W-1kW Etch
power control and PVD
conversion system
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HFV Power control and 3kW-8kW PVD
conversion system Etch
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RADIO RFX Power control and 600W General R&D
conversion system
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FREQUENCY RFG Power control and 600W-5.5kW Etch
conversion system CVD
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PRODUCTS RFXII Power control and 600W-5.5kW Etch
conversion system CVD
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APEX(TM) Power control and 1kW-10kW Etch
conversion system CVD
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AZX, VZX, Tuner 100W-5kW Impedance matching
SwitchMatch(TM) network
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RF Power control and 500W-3kW Etch
conversion system CVD
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Hercules(TM) Power control and 10kW-30kW PVD
conversion system
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Atlas(TM) Power control and 1.5kW-5kW Etch
conversion system
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Mercury(TM) Tuner 500W-10kW Impedance matching
network
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FTMS(TM) Tuner 2kW-5kW Impedance matching
network
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12cm Round ion beam source 1.5kW-2.0kW Magnetic media
ION BEAM SOURCES multi-cell ion DLC deposition
beam source Optical ion assist
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PRODUCTS Linear ion 38cm, 65cm, 94cm 1.0kW-3.0kW Architectural glass
beam sources Flat panel displays -
pre-cleaning
Ion assist deposition
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Inductively 3kW linear ICP 3kW Enhanced reactive
coupled plasma deposition
source (ICP - Low energy CVD
3) Low energy cleaning
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Gen-Cal(TM) RF power measurement 50W-3kW Generator diagnostic
tool
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OTHER RF-EP RF probe 50W-5kW End-point detection
system
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Z-Scan(TM) RF probe 50W-5kW Impedance measurement
tool
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PRODUCTS RF-MS RF metrology system 5W-5kW Plasma diagnostic tool
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ID Ion-beam conversion 500W-5kW Ion-beam deposition
and control system Ion implantation
Ion-beam
etching/milling
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E'Wave(TM) Bipolar 400W-8kW Electroplating copper
electroplating onto a
wafer
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DIRECT CURRENT PRODUCTS
THE MDX SERIES. We introduced our MDX series of products in 1983. These
products are most commonly used as DC power supplies for PVD sputtering where
precise control, superior arc prevention and suppression and low stored energy
characteristics are required. They are also used as bias supplies for RF
sputtering, tool coating and some etching systems. The MDX series consists of
six different product lines that provide a range of power levels from 500W to
120kW. Our second generation product, the MDX II, was introduced in 1991 to
support higher power levels, to provide wider output range, and to meet strict
European regulatory requirements. A model in the MDX series, the MDX-L, was
designed for especially high reliability and was introduced in 1992.
THE PINNACLE(TM) PLATFORM. The Pinnacle platform, introduced in 1995, is the
most recent platform in the DC product line. We developed the Pinnacle primarily
for use in DC PVD sputtering processes, and it provides substantial improvements
in arc prevention, arc suppression capability, reduced size, higher precision
and expanded control capability. The low stored energy of Pinnacle, a basic
feature of our DC power conversion equipment, is the lowest ever achieved in a
switchmode power supply, and is due to the patented basic circuit topology.
THE PINNACLE(TM) PLUS PLATFORM. This platform, introduced in 1999, is a
pulsed DC power system designed principally for use in reactive sputtering to
produce insulating films. It is capable of producing 6kW of power in short
pulses at frequencies up to 350kHz, for virtual elimination of arcing in
difficult processes.
SPARC-LE(R) ACCESSORIES. Our Sparc-le line of DC accessories, introduced in
1993, is designed both to reduce the number of arcs that occur in plasma-based
processes and to reduce the energy delivered if arcs do occur. The Sparc-le
accessories are especially effective in applications involving the deposition of
insulating materials where the reaction between the plasma and target is likely
to produce more severe arc conditions. The Sparc-le accessories are most
commonly used with the MDX product lines.
ELECTROSTATIC CHUCK POWER SYSTEMS. We designed this system of power
conversion units for a specific customer for use in wafer handling systems for
the semiconductor fabrication market. The electrostatic chuck is a device that
uses electric fields to hold or "chuck" a wafer in a vacuum environment without
mechanical holding force. This permits more gentle handling of the wafer and
simultaneous heating or cooling of the wafer during processing. When our power
system applies voltage to the wafer, electric fields are created which hold the
wafer in position. Exact control and careful ramping of the voltage permits the
wafer to be picked and placed with precision. The system permits multiple power
units to be held in a single chassis for ease of integration into the customer's
system.
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HIGH-POWER PRODUCTS
These products are designed for use in heavy industrial processes such as
architectural glass and other large area coating applications.
ASTRAL(TM) PRODUCTS. The Astral products, made in 20kW, 120kW and 200kW
versions, offer a new technology, called "current pulsed dual magnetron
sputtering." These units are used for development of coatings for CRT and flat
panel displays, automotive applications and new types of glass coatings.
CRYSTAL(TM). The Crystal 180kW power conversion unit was developed for use
in industrial PVD applications such as architectural glass coating, but is also
useful in PECVD (Plasma Enhanced Chemical Vapor Deposition). The latter may be
used for deposition of oxygen- and water-vapor-barrier coatings on films used in
food packaging. In PVD the unit is typically used as a powering source for a
pair of magnetron sputtering sources in the "dual" configuration in a reactive
sputtering system.
LOW AND MID-FREQUENCY PRODUCTS
THE PE AND PD SERIES. We introduced the PE low frequency power systems in
1982. The PE series systems are air cooled and primarily intended for use in
certain PVD, CVD and industrial surface modification applications, including
dual cathode sputtering and printed circuit board de-smearing. The PE series
systems range in frequency from 25kHz to 100kHz. The PE-II systems are water
cooled and produce 10kW at 40kHz. The PD series of mid-frequency power
conversion and control systems, introduced in 1990, represented significant
technological advancements by applying switchmode techniques to higher
frequencies. The water-cooled PD systems are used primarily in semiconductor
etch and CVD applications. The PD series range in frequency from 275kHz to
400kHz. Both the PE and PD series systems have cost-effective single-stage power
generation, and include systems with pulsed power technology.
LF GENERATORS. The LF low-frequency generators were introduced to us as a
result of the acquisition of RF Power Products. The LF-5 is a 500W unit and the
LF-10 is a 1kW unit. Both of these units are variable-frequency,
microprocessor-controlled systems. With a frequency range extending from 50kHz
to 460kHz, these generators are a good complement to the PD and PE series.
RADIO FREQUENCY PRODUCTS
HFV POWER GENERATOR. The HFV power generator produces 3, 5, or 8kW of power
at a variable frequency of about 2MHz for powering inductively coupled plasma
(ICP) systems. It is water cooled and ultra compact, providing up to 8kW of
power in a 5-1/4 inch rack mount enclosure 20-1/4 inches deep, thereby
representing the highest power density in the industry at these frequencies.
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THE RF SERIES. The RFX system is a 13.56MHz, 600W, air-cooled platform
introduced in 1985. This low-power system is used primarily in research and
development applications. The RFG and RFXII, introduced in the early 1990s, are
water-cooled power conversion and control systems utilizing a hybrid switchmode
technology. The RFG and RFXII systems operate at frequencies ranging from 4MHz
to 13.56MHz. These systems were the first fully switchmode RF designs. These RF
systems are most commonly used in semiconductor processes, including RF
sputtering, plasma etching/deposition and reactive ion etching applications.
During 1998 we developed the APEX series of power control and conversion
systems, which have the highest power density ever produced at radio
frequencies. One APEX unit produces 10kW at 13.56MHz in a 5-1/4 inch rack mount
enclosure. Another APEX unit produces 5.5kW in a 5x7.5x15 inch enclosure, and
still another produces 3kW in the same enclosure but includes a switchable
matching network and a voltage-current (V-I) probe measurement system integrated
in the package. The APEX line also includes power conversion systems that
produce 1, 2, 4 and 8kW at 27.12MHz.
The RF-5, RF-10, RF-20, and RF-30 units generate power between 500W and 3kW.
These units are available at 13.56 and 27.12MHz. These units are being replaced
in new applications with either the Atlas or APEX power systems.
THE ATLAS(TM) SERIES. We introduced the Atlas power systems in 1998. These
systems currently range in power from 1.5kW to 5kW at nominal frequencies of
13.56 and 27.12MHz. These units complement our new APEX series. For a number of
applications, the ability to sweep the frequency about the nominal center
frequency provides significant advantages to the customer. Now the customer can
choose to have either the compact package of the fixed-frequency APEX or, where
required, the frequency agility of the Atlas systems.
THE HERCULES(TM) SERIES. We introduced the new Hercules series in 1998.
These power generation systems range in power from 10kW to 30kW at 13.56 and
27.12MHz. These units employ a solid state front end with tube technology for
the high-power output stage.
THE AZX SERIES. The AZX series tuners are RF matching networks designed as
accessories to match the complex electrical characteristics of a plasma to the
requirements of our RF series of power conversion and control systems. AZX
tuners, introduced in 1989, are also sold separately for incorporation into
other vendors' power conversion and control systems. The AZX tuners typically
operate at a 13.56MHz frequency range. The VZX series tuners, introduced in
1998, are digital automatic impedance matching networks which utilize a
predictive algorithm to provide tuning speeds up to three times faster than the
older AZX series. SwitchMatch(TM) networks, also introduced by us in 1998, are
selectable fixed matching units, which we offer both as part of APEX systems and
as standalone products.
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THE MATCHING NETWORK SERIES. The mechanical matching networks are available
in power handling capabilities up to 30kW. These matching networks are extremely
compact, utilizing two ceramic envelope vacuum variable capacitors. The modular
construction of the matching networks allows rapid customization without the
delays usually encountered in custom design. Since most applications require
custom refinements for optimum performance, this feature has benefited us
greatly in achieving numerous design wins. In 1998, we introduced the FTMS
(Frequency Transformation Matching System), which is a solid state matching
network with no moving parts. We use this system in conjunction with our Atlas
generators. The FTMS is available in power levels up to 5kW.
ION BEAM SOURCES
PLASMA SOURCES. We introduced our ion sources and inductively coupled plasma
(ICP) sources products in 1998. Several versions of the ion sources product
include a 12cm round source for the magnetic media and optical markets as well
as linear sources up to one meter long for applications in the flat panel
display and architectural glass markets. The ICP product rounds out the family
of products, allowing us access to reactive deposition and cleaning applications
where low energy is critical to prevent substrate damage. Both products feature
high reliability, low maintenance designs, and are well suited for the demanding
environments in today's production facilities.
OTHER PRODUCTS
THE RF-EP END-POINT DETECTION SYSTEM. The RF-EP reduces length of time to
end-point on CVD and etch chambers in comparison to optical detection. This
system uses one of three signals (voltage, current or phase) to precisely and
accurately detect end-point. The RF-EP also greatly reduces the level of
greenhouse emissions by consuming less process gas.
THE Z-SCAN(TM) VOLTAGE-CURRENT (V-I) PROBE. This unit, first delivered in
1998, replaces the RFZ impedance probe introduced in 1993. Z-Scan measures the
RF properties of a plasma process and provides condensed information through its
Z-Ware software. The sensing technology incorporated in Z-Scan probe allows
accurate, real-time measurement of power, voltage, current and impedance levels
at both fundamental and harmonic frequencies, under actual powered process
conditions. Such measurements not only help our customers design their process
systems, but are also used as sensitive detectors of process conditions,
including etch endpoint.
THE RF-MS DIAGNOSTIC SYSTEM. The RF-MS simultaneously performs endpoint and
excursion detection for multiple CVD chambers. Additionally, the system's
software monitors the long-term transients in the process tool performance such
as wet clean and transition in the film stress. The RF-MS has demonstrated
significant cost savings through improved wafer yields, reduced particle
contamination and higher throughput.
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THE ID SERIES. The ID power conversion and control systems, introduced in
1981, were the first products we designed. These systems were specifically
designed to power broad-beam ion sources. ID series systems are composed of a
coordinated set of multiple special purpose power supplies that are used for
ion-beam deposition and sputtering, implantation, etching and milling.
THE E'WAVE(TM). The E'Wave is designed for the semiconductor industry for
electroplating copper onto a wafer. The power supply can produce up to four
channels of multi-step, bipolar, square waveforms. Each channel can produce 400W
continuous and up to 2kW peak, for a total supply output of 1.6kW continuous and
8kW peak.
MARKETS AND CUSTOMERS
MARKETS
Most of our sales historically have been to customers in the semiconductor
capital equipment industry. Sales to customers in this industry represented 49%
of our sales 1998 and 61% in 1999. Our power conversion and control systems are
also used in the flat panel display, data storage and other industrial markets.
Following is a discussion of the major markets for our systems:
SEMICONDUCTOR CAPITAL EQUIPMENT MANUFACTURING MARKET. We sell our products
primarily to semiconductor capital equipment manufacturers for incorporation
into equipment used to make integrated circuits. Our products are currently used
in a variety of applications including deposition, etch, ion implantation,
photo-resist strip and megasonic cleaning. The precise control over plasma-based
processes that use our power conversion and control systems enables the
production of integrated circuits with reduced feature sizes and increased speed
and performance. We anticipate that the semiconductor capital equipment industry
will continue to be a substantial part of our business for the foreseeable
future.
DATA STORAGE MANUFACTURING EQUIPMENT MARKETS. We also sell systems to data
storage equipment manufacturers and to data storage device manufacturers for use
in producing a variety of products, including CDs, computer hard disks,
including both media and thin film heads, CD-ROMs and DVDs. These products use a
PVD process to produce optical and magnetic thin film layers, as well as a
protective wear layer. In this market the trend towards higher recording
densities is driving the demand for increasingly dense, thinner and more precise
films. The use of equipment incorporating magnetic media to store analog and
digital data continues to expand with the growth of the laptop, desktop and
workstation computer markets and the consumer electronics audio and video
markets.
FLAT PANEL DISPLAY MANUFACTURING EQUIPMENT MARKET. We also sell our systems
to manufacturers of flat panel displays and flat panel projection devices, which
have
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fabrication processes similar to those employed in manufacturing integrated
circuits. Flat panel technology produces bright, sharp, large, color-rich images
on flat screens for products ranging from hand-held computer games to laptop and
desktop computer monitors to large-screen televisions. There are three major
types of flat panel displays, including liquid crystal displays, field emitter
displays and gas plasma displays. There are two types of flat panel projection
devices, including liquid crystal projection and digital micro-mirror displays.
We sell our products to all five of these markets.
EMERGING MARKETS. We also sell our products to OEMs and producers of end
products in a variety of industrial markets. Thin film optical coatings are used
in the manufacture of many industrial products including solar panels,
architectural glass, eyeglasses, lenses, barcode readers and front surface
mirrors. Thin films of diamond-like coatings and other materials are currently
applied to products in plasma-based processes to strengthen and harden surfaces
on such diverse products as tools, razor blades, automotive parts and hip joint
replacements. Other thin film processes that use our products also enable a
variety of industrial packaging applications, such as decorative wrapping and
food packaging. The advanced thin film production processes allow precise
control of various optical and physical properties, including color,
transparency and electrical and thermal conductivity. The improved adhesion and
high film quality resulting from plasma-based processing make it the preferred
method of applying the thin films. Many of these thin film industrial
applications require power levels substantially greater than those used in our
other markets.
We sell low-wattage power supplies to OEMs in the telecommunications,
non-impact printing and laser markets through Tower. For example, Tower provides
products to the largest manufacturer of non-impact printers used for printing
date codes and lot information on beverage cans.
APPLICATIONS
We have sold our products for use in connection with the following processes
and applications:
SEMICONDUCTOR DATA STORAGE FLAT PANEL DISPLAY EMERGING
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Chemical vapor deposition CD-ROMs Active matrix LCDs Automobile coatings
(CVD)(metal and CDs Digital micro-mirror Chemical, physical and materials
dielectric) research
Etch DVDs Field emission Circuit board etch-back and
displays de-smear
High density plasma CVD Hard disk carbon wear Large flat panel Consumer product coatings
coatings displays
Ion implantation Hard disk magnetic media LCD projection Diamond-like coatings
Magnet field controls Magneto-optic CDs Liquid crystal Food package coatings
displays
Megasonic cleaning Recordable CDs Medical applications Glass coatings
Photo-resist stripping Thin film heads Plasma displays Non-impact printing
Physical vapor deposition Optical coatings
(PVD)
Plasma-enhanced CVD Photovoltaics
Superconductors
Telecommunications
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CUSTOMERS
We have sold our systems worldwide to more than 100 OEMs and directly to
more than 500 end-users. Since inception we have sold more than 175,000 power
conversion and control systems. Our ten largest customers accounted for 67% of
our total sales in 1997, 62% in 1998 and 68% in 1999. We expect that sales of
our products to these ten customers will continue to account for a high
percentage of our sales in the foreseeable future. Representative customers
include:
Alcatel Comptech Mattson Technologies
Applied Materials Motorola
Balzers Novellus
CVC Products Optical Coating Laboratory
Eaton PlasmaTherm
First Light Technology Singulus
Fujitsu Sony
Hewlett-Packard Sputtered Films
IBM Texas Instruments
Intevac 3Com
Komag ULVAC
Lam Research Verteq
Materials Research Division of Tokyo Videojet International
Electron, Ltd.
MARKETING, SALES AND SERVICE
We sell our systems primarily through direct sales personnel to customers in
the United States, Europe and Asia. Our sales personnel are located at our
headquarters in Fort Collins, Colorado, and in regional sales offices in
Voorhees, New Jersey; Austin, Texas; Milpitas, California; and Concord,
Massachusetts. To serve customers in Asia and Europe, we have offices in Tokyo,
Japan; Filderstadt, Germany; Bicester, England; Bundang, South Korea; and
Taipei, Taiwan. These offices have primary responsibility for sales in their
respective markets. We also have distributors and representatives in Australia,
China, Hong Kong, India, Israel, Italy, Mexico, Singapore, Sweden and Turkey.
Tower, which is located in Fridley, Minnesota, sells through direct sales
personnel and manufacturers' representatives.
Sales outside the United States represented approximately 23% of our total
sales during 1997, 28% in 1998 and 29% in 1999. We expect sales outside the
United States to continue to represent a significant portion of future sales.
Although we have not experienced any significant difficulties involving
international sales, such sales are subject to certain risks, including exposure
to currency fluctuations, the imposition of governmental controls, political and
economic instability, trade restrictions, changes in tariffs and taxes and
longer payment cycles typically associated with international sales. Our future
performance will depend, in part, upon our ability to compete successfully in
Japan, one of the largest markets for semiconductor fabrication equipment and
flat panel display equipment, and a major market for data storage and other
industrial equipment utilizing our systems. The Japanese market has historically
been difficult for non-
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Japanese companies to penetrate. Although we and a number of our significant
non-Japanese customers have established operations in Japan, there can be no
assurance that we or our customers will be able to maintain or improve our
competitive positions in Japan.
We believe that customer service and technical support are important
competitive factors and are essential to building and maintaining close,
long-term relationships with our customers. We maintain customer service offices
in Fort Collins, Colorado; Austin, Texas; Voorhees, New Jersey; Milpitas,
California; Tokyo, Japan; Filderstadt, Germany; Bundang, South Korea; and
Taipei, Taiwan. Tower maintains a customer service office in Fridley, Minnesota.
We offer warranty coverage for our systems for periods ranging from 12 to 24
months after shipment against defects in design, materials and workmanship.
MANUFACTURING
We conduct the majority of our manufacturing at facilities in Fort Collins,
Colorado, and Voorhees, New Jersey. We also conduct manufacturing for one
customer in Austin, Texas. Tower conducts manufacturing at its facility in
Fridley, Minnesota. We generally manufacture different systems at each facility.
Our manufacturing activities consist of the assembly and testing of components
and subassemblies, which are then integrated into our final products. Once final
testing of all electrical and electro-mechanical subassemblies is completed, the
final product is subjected to a series of reliability enhancing operations prior
to shipment to customers. We purchase a wide range of electronic, mechanical and
electrical components, some of which are designed to our specifications. We
outsource some of our subassembly work.
We rely on sole and limited source suppliers for certain parts and
subassemblies. This reliance creates a potential inability to obtain an adequate
supply of required components, and reduced control over pricing and timing of
delivery of components. An inability to obtain adequate supplies would require
us to seek alternative sources of supply or might require us to redesign our
systems to accommodate different components or subassemblies. We could be
prevented from the timely shipping of our systems to our customers if we were
forced to seek alternative sources of supply, manufacture such components or
subassemblies internally, or redesign our systems.
INTELLECTUAL PROPERTY
We have a policy of seeking patents on inventions governing new products or
technologies as part of our ongoing research, development, and manufacturing
activities. We currently hold twenty-five United States patents and four foreign
patents covering various aspects of our products, and have over forty patent
applications pending in the
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United States, Europe and Japan. We believe the duration of our patents
generally exceeds the life cycles of the technologies disclosed and claimed
therein. No assurance can be given that our patents will be sufficiently broad
to protect our technology, or that any existing or future patents will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide meaningful competitive advantages to us. Any of such events could
have a material adverse effect on our business, financial condition and results
of operations.
Although we have not been notified that any of our products have infringed
any patents or proprietary rights of others, there can be no assurance that such
infringements do not exist or will not occur in the future. Litigation may be
necessary in the future to enforce patents issued to us, to protect trade
secrets or know-how owned by us, to defend us against claimed infringement of
the rights of others or to determine the scope and validity of the proprietary
rights of others. Any such litigation could result in substantial cost and
diversion of effort by us, which could have a material adverse effect on our
business, financial condition and results of operations. Moreover, adverse
determinations in such litigation could result in our loss of proprietary
rights, subject us to significant liabilities to third parties, require us to
seek licenses from third parties, or prevent us from manufacturing or selling
our products. Such determinations could have a material adverse effect on our
business, financial condition and results of operations.
COMPETITION
The markets we serve are highly competitive and characterized by ongoing
technological development and changing customer requirements. Significant
competitive factors in our markets include product performance, price, quality
and reliability and level of customer service and support. We believe that we
currently compete effectively with respect to these factors, although there can
be no assurance that we will be able to compete effectively in the future.
The markets in which we compete have seen an increase in global competition,
especially from Japanese- and European-based equipment vendors. We have several
foreign and domestic competitors for each of our product lines. Some of these
competitors are larger and have greater resources than we have. Our ability to
continue to compete successfully in these markets depends on our ability to make
timely introductions of system enhancements and new products. Our primary
competitors are ENI, a subsidiary of Astec (BSR) plc, Applied Science and
Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and Daihen. Our
competitors are expected to continue to improve the design and performance of
their systems and to introduce new systems with competitive performance
characteristics. We believe we will be required to maintain a high level of
investment in research and development and sales and marketing in order to
remain competitive.
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OPERATING SEGMENT
We operate and manage our business of supplying power conversion and control
systems as one segment.
RESEARCH AND DEVELOPMENT
The market for power conversion and control systems and related accessories
is characterized by ongoing technological changes. We believe that continued and
timely development of new products and enhancements to existing systems to
support OEM requirements is necessary for us to maintain a competitive position
in the markets we serve. Accordingly, we devote a significant portion of our
personnel and financial resources to research and development projects and seek
to maintain close relationships with our customers and other industry leaders to
remain responsive to their product requirements.
Research and development expenses were $19.3 million in 1997, $23.8 million
in 1998 and $26.5 million in 1999. Such expenses represented 11.0% of our total
sales in 1997, 19.1% in 1998 and 14.4% in 1999. We believe that continued
research and development investment and ongoing development of new products are
essential to the expansion of our markets, and expect to continue to make
significant investments in research and development activities.
NUMBER OF EMPLOYEES
At December 31, 1999, we had a total of 1,090 employees, of whom 922 are
full-time continuous employees. There is no union representation of our
employees, and we have never experienced a work stoppage. We utilize temporary
employees as a means to provide additional staff while reviewing the performance
of the temporary employee. We consider our employee relations to be good.
EFFECTS OF ENVIRONMENTAL LAWS
We are subject to federal, state and local environmental laws and
regulations. We are in compliance with all such laws and regulations.
CAUTIONARY STATEMENTS - RISK FACTORS
This Form 10-K contains, in addition to historical information,
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. For example,
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statements relating to our beliefs, expectations and plans are forward-looking
statements, as are statements that certain actions, conditions or circumstances
will continue. Forward-looking statements involve risks and uncertainties. As a
result, our actual results may differ materially from the results discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences or prove any forward-looking statements, by hindsight, to be overly
optimistic or unachievable, include, but are not limited to the risks described
in this section. We do not have any obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH
COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND STOCK
PRICE.
Our quarterly operating results have fluctuated significantly and we expect
them to continue to experience significant fluctuations. Downward fluctuations
in our quarterly results have historically resulted in decreases in the price of
our common stock. Quarterly operating results are affected by a variety of
factors, many of which are beyond our control. These factors include:
o changes or slowdowns in economic conditions in the semiconductor
and semiconductor capital equipment industries and other
industries in which our customers operate;
o the timing and nature of orders placed by major customers;
o customer cancellations of previously placed orders and shipment
delays;
o pricing competition from our competitors;
o component shortages resulting in manufacturing delays;
o changes in customers' inventory management practices;
o the introduction of new products by us or our competitors; and
o costs incurred by responding to specific feature requests by
customers.
In addition, companies in the semiconductor capital equipment industry and
other electronics companies experience pressure to reduce costs. Our customers
exert pressure on us to reduce prices, shorten delivery times and extend payment
terms. These pressures could lead to significant changes in our operating
results from quarter to quarter.
In the past, we have incurred charges and costs related to events such as
acquisitions, restructuring and storm damages. The occurrence of similar events
in the future could adversely affect our operating results in the applicable
quarter.
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Our operating results in one or more future quarters may fall below the
expectations of analysts and investors. In those circumstances, the trading
price of our common stock would likely decrease and, as a result, any trading
price of the convertible notes may decrease.
THE SEMICONDUCTOR AND SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRIES ARE HIGHLY
VOLATILE AND OUR OPERATING RESULTS ARE AFFECTED TO A LARGE EXTENT BY EVENTS IN
THOSE INDUSTRIES.
The semiconductor industry historically has been highly volatile and has
experienced periods of oversupply resulting in significantly reduced demand for
semiconductor fabrication equipment, which includes our systems. During
downturns, some of our customers have drastically reduced their orders to us and
have implemented substantial cost reduction programs. Sales to customers in the
semiconductor capital equipment industry accounted for 59% of our total sales in
1997, 49% in 1998 and 61% in 1999. We expect that we will continue to depend
significantly on the semiconductor and semiconductor capital equipment
industries for the foreseeable future.
A rapid decrease in demand for our products can occur with limited advance
notice because we supply subsystems to equipment manufacturers and make a
substantial proportion of our shipments on a just-in-time basis. This decrease
in demand can adversely impact our business and financial results
disproportionately because of its unanticipated nature.
A SIGNIFICANT PORTION OF OUR SALES ARE CONCENTRATED AMONG A FEW CUSTOMERS.
Our four largest customers accounted for 51% of our total sales in 1997, 47%
in 1998 and 53% in 1999. Our largest customer accounted for 31% of our total
sales in 1997, 23% in 1998 and 32% in 1999. The loss of any of these customers
or a material reduction in any of their purchase orders would have a material
adverse effect on our business, financial condition and results of operations.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.
We face substantial competition, primarily from established companies, some
of which have greater financial, marketing and technical resources than we do.
Our primary competitors are ENI, a subsidiary of Astec (BSR) plc, Applied
Science and Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and
Daihen. We expect that our competitors will continue to develop new products in
direct competition with ours, improve the design and performance of their
systems and introduce new systems with enhanced performance characteristics.
To remain competitive, we need to continue to improve and expand our systems
and system offerings. In addition, we need to maintain a high level of
investment in research and development and expand our sales and marketing
efforts, particularly outside of the
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United States. We may not be able to make the technological advances and
investments necessary to remain competitive.
New products developed by competitors or more efficient production of their
products could increase pressure on the pricing of our systems. In addition,
electronics companies, including companies in the semiconductor capital
equipment industry, have been facing pressure to reduce costs. Either of these
factors may require us to make significant price reductions to avoid losing
orders. Further, our current and prospective customers consistently exert
pressure on us to lower prices, shorten delivery times and improve the
capability of our systems. Failure to respond adequately to such pressures could
result in a loss of customers or orders.
WE MAY NOT BE ABLE TO INTEGRATE OUR ACQUISITIONS.
We have experienced significant growth through acquisitions and continue to
actively pursue acquisition opportunities. Our acquisitions to date generally
have been in markets in which we have limited experience. We may not be able to
compete successfully in these markets or might not be able to operate the
acquired businesses efficiently. Our business and results of operations could be
adversely affected if integrating these acquisitions results in substantial
costs, delays or other operational or financial problems.
Future acquisitions could place additional strain on our operations and
management. Our ability to manage future acquisitions will depend on our success
in:
o evaluating new markets and investments;
o monitoring operations;
o controlling costs;
o integrating acquired operations and personnel;
o maintaining effective quality controls; and
o expanding our internal management, technical and accounting
systems.
Also, in connection with future acquisitions we may issue equity securities,
which could be dilutive, incur debt, recognize substantial one-time expenses or
create goodwill or other intangible assets that could result in significant
amortization expense.
WE ARE GROWING AND MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
We have been experiencing a period of growth and expansion. This growth and
expansion is placing significant demands on our management and our operating
systems. We need to continue to improve and expand our management, operations
and financial systems, procedures and controls, including accounting and other
internal management
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systems, quality control, delivery and service capabilities.
In order to manage our growth, we may also need to spend significant amounts
of cash to:
o fund increases in expenses;
o acquire additional facilities and equipment;
o take advantage of unanticipated opportunities, such as major
strategic alliances or other special marketing opportunities,
acquisitions of complementary businesses or assets, or the
development of new products; or
o otherwise respond to unanticipated developments or competitive
pressures.
If we do not have enough cash on hand, cash generated from our operations or
cash available under our credit facility to meet these cash requirements, we
will need to seek alternative sources of financing to carry out our growth and
operating strategies. We may not be able to raise needed cash on terms
acceptable to us, or at all. Financings may be on terms that are dilutive or
potentially dilutive. If alternative sources of financing are required but are
insufficient or unavailable, we will be required to modify our growth and
operating plans to the extent of available funding.
SHORTAGES OF COMPONENTS NECESSARY FOR OUR PRODUCT ASSEMBLY CAN DELAY OUR
SHIPMENTS.
Manufacturing our power conversion and control systems requires numerous
electronic components. Dramatic growth in the electronics industry has
significantly increased demand for these components. This demand has resulted in
periodic shortages and allocations of needed components, and we expect to
experience additional shortages and allocations from time to time. Shortages and
allocations could cause shipping delays for our systems, adversely affecting our
results of operations. Shipping delays also could damage our relationships with
current and prospective customers.
OUR DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT OUR ABILITY TO
MANUFACTURE PRODUCTS AND SYSTEMS.
We rely on sole and limited source suppliers for some of our components and
subassemblies that are critical to the manufacturing of our systems. This
reliance involves several risks, including the following:
o the potential inability to obtain an adequate supply of required
components;
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o reduced control over pricing and timing of delivery of
components; and
o the potential inability of our suppliers to develop
technologically advanced products to support our growth and
development of new systems.
We believe that in time we could obtain and qualify alternative sources for
most sole and limited source parts or could manufacture the parts ourselves.
Seeking alternative sources or commencing internal manufacture of the parts
could require us to redesign our systems, resulting in increased costs and
likely shipping delays. We may be unable to manufacture the parts internally or
redesign our systems, which could result in further costs and shipping delays.
These increased costs would decrease our profit margins if we could not pass the
costs to our customers. Further, shipping delays could damage our relationships
with current and potential customers and have a material adverse effect on our
business and results of operations.
WE ARE HIGHLY DEPENDENT ON OUR INTELLECTUAL PROPERTY BUT MAY NOT BE ABLE TO
PROTECT IT ADEQUATELY.
Our success depends in part on our proprietary technology. We attempt to
protect our intellectual property rights through patents and non-disclosure
agreements. However, we might not be able to protect our technology, and
competitors might be able to develop similar technology independently. In
addition, the laws of certain foreign countries might not afford our
intellectual property the same protection as do the laws of the United States.
For example, our intellectual property is not protected by patents in several
countries in which we do business, and we have limited patent protection in
certain other countries. The costs of applying for patents in foreign countries
and translating the applications into foreign languages require us to select
carefully the inventions for which we apply for patent protection and the
countries in which we seek such protection. Generally, we have concentrated our
efforts to obtain international patents in the United Kingdom, Germany, France,
Italy and Japan because there are other manufacturers and developers of power
conversion and control systems in those countries, as well as customers for
those systems. Our inability or failure to obtain adequate patent protection in
a particular country could have a material adverse effect on our ability to
compete effectively in that country.
Our patents also might not be sufficiently broad to protect our technology,
and any existing or future patents might be challenged, invalidated or
circumvented. Additionally, our rights under our patents may not provide
meaningful competitive advantages.
We do not believe that any of our products are infringing any patents or
proprietary rights of others, although infringements may exist or might occur in
the future. Litigation may be necessary to enforce patents issued to us, to
protect our trade secrets or know-how, to defend ourselves against claimed
infringement of the rights of others or to determine the scope and validity of
the proprietary rights of others. Litigation could result in substantial cost
and diversion of our efforts. Moreover, an adverse determination in
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any litigation could cause us to lose proprietary rights, subject us to
significant liabilities to third parties, require us to seek licenses or
alternative technologies from third parties or prevent us from manufacturing or
selling our products. Any of these events could have a material adverse effect
on our business, financial condition and results of operations.
WE MUST CONSTANTLY DEVELOP AND SELL NEW SYSTEMS IN ORDER TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGES.
The markets for our systems and the markets in which our customers compete
are characterized by ongoing technological developments and changing customer
requirements. We must continue to improve existing systems and to develop new
systems that keep pace with technological advances and meet the needs of our
customers in order to succeed. We might not be able to continue to improve our
systems or develop new systems. The systems we do develop might not be
cost-effective or introduced in a timely manner. Developing and introducing new
systems may involve significant and uncertain costs. Our business, financial
condition and results of operations, as well as our customer relationships,
could be adversely affected if we fail to develop or introduce improved systems
and new systems in a timely manner.
WE MUST ACHIEVE DESIGN WINS TO RETAIN OUR EXISTING CUSTOMERS AND TO OBTAIN NEW
CUSTOMERS.
The constantly changing nature of semiconductor fabrication technology
causes equipment manufacturers to continually design new systems. We often must
work with these manufacturers early in their design cycles to modify our
equipment to meet the requirements of the new systems. Manufacturers typically
choose one or two vendors to provide the power conversion equipment for use with
the early system shipments. Selection as one of these vendors is called a design
win. It is critical that we achieve these design wins in order to retain
existing customers and to obtain new customers.
We typically must customize our systems for particular customers to use in
their equipment to achieve design wins. This customization increases our
research and development expenses and can strain our engineering and management
resources. These investments do not always result in design wins.
Once a manufacturer chooses a power conversion and control system for use in
a particular product, it is likely to retain that system for the life of that
product. Our sales and growth could experience material and prolonged adverse
effects if we fail to achieve design wins. In addition, design wins do not
always result in substantial sales or profits.
We believe that equipment manufacturers often select their suppliers based
on factors such as long-term relationships. Accordingly, we may have difficulty
achieving design wins from equipment manufacturers who are not currently
customers. In addition, we must compete for design wins for new systems and
products of our existing customers, including those with whom we have had
long-term relationships.
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OUR EFFORTS TO BE RESPONSIVE TO CUSTOMERS MAY LEAD TO INCURRING COSTS THAT ARE
NOT READILY RECOVERABLE.
We may incur manufacturing overhead and other costs, many of which are
fixed, to meet anticipated customer demand. Accordingly, operating results could
be adversely affected if orders or revenues in a particular period or for a
particular system do not meet expectations.
We often require long lead times for development of our systems during which
times we must expend substantial funds and management effort. We may incur
significant development and other expenses as we develop our systems without
realizing corresponding revenue in the same period, or at all.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
Our success depends upon the continued efforts of our senior management team
and our technical, marketing and sales personnel. These employees may
voluntarily terminate their employment with us at any time. Our success also
depends on our ability to attract and retain additional highly qualified
management, technical, marketing and sales personnel. The process of hiring
employees with the combination of skills and attributes required to carry out
our strategy can be extremely competitive and time-consuming. We may not be able
to successfully retain existing personnel or identify, hire and integrate new
personnel. If we lose the services of key personnel for any reason, including
retirement, or are unable to attract additional qualified personnel, our
business, financial condition and results of operations could be materially and
adversely affected.
WE CONDUCT MANUFACTURING AT ONLY A FEW SITES.
We conduct the majority of our manufacturing at our facilities in Fort
Collins, Colorado and in Voorhees, New Jersey. We also conduct manufacturing for
one customer in Austin, Texas. Our Tower Electronics subsidiary conducts
manufacturing only at its facility in Fridley, Minnesota. Each facility
generally manufactures different systems. In July 1997 a severe rainstorm in
Fort Collins caused substantial damage to our Fort Collins facilities and to
some equipment and inventory. The damage caused us to stop manufacturing at that
facility temporarily and prevented us from resuming full production there until
mid-September 1997. Our insurance policies did not cover all of the costs that
we incurred in connection with the rainstorm. Future natural or other
uncontrollable occurrences at any of our primary manufacturing facilities that
negatively impact our manufacturing processes may not be fully covered by
insurance and could have a material adverse effect on our operations and results
of operations.
WE HAVE LIMITED EXPERIENCE IN MAINTAINING MULTIPLE MANUFACTURING FACILITIES.
The acquisitions of Tower Electronics in 1997 and RF Power Products in 1998
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provided us with manufacturing facilities located outside of our facilities in
Fort Collins, Colorado. Accordingly, we have limited experience in maintaining
multiple manufacturing locations. Substantial costs and delays could result if
we fail to effectively manage and integrate our geographically separate
facilities.
WE MIGHT NOT BE ABLE TO COMPETE SUCCESSFULLY IN INTERNATIONAL MARKETS OR TO MEET
THE SERVICE AND SUPPORT NEEDS OF OUR INTERNATIONAL CUSTOMERS.
Our customers increasingly require service and support on a worldwide basis
as the markets in which we compete become increasingly global. We maintain sales
and service offices in Germany, Japan, South Korea, the United Kingdom and
Taiwan.
Sales to customers outside the United States accounted for 23% of our total
sales in 1997, 28% in 1998 and 29% in 1999, and we expect international sales to
continue to represent a significant portion of our future sales. International
sales are subject to various risks, including:
o currency fluctuations;
o governmental controls;
o political and economic instability;
o barriers to entry;
o trade restrictions;
o changes in tariffs and taxes; and
o longer payment cycles.
In particular, the Japanese market has historically been difficult for
non-Japanese companies, including us, to penetrate.
Providing support services for our systems on a worldwide basis also is
subject to various risks, including:
o our ability to hire qualified support personnel;
o maintenance of our standard level of support; and
o differences in local customs and practices.
Our international activities are also subject to the difficulties of
managing overseas distributors and representatives and managing foreign
subsidiary operations.
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We cannot assure you that we will be successful in addressing any of these
risks.
FLUCTUATIONS IN THE CURRENCY EXCHANGE RATE BETWEEN THE U.S. DOLLAR AND FOREIGN
CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
A portion of our sales is subject to currency exchange risks as a result of
our international operations. We have experienced fluctuations in foreign
currency exchange rates, particularly against the Japanese yen. We entered into
various forward foreign exchange contracts as a hedge against currency
fluctuations in the yen. We have not employed hedging techniques with respect to
any other currencies. Our current or any future hedging techniques might not
protect us adequately against substantial currency fluctuations.
WE MUST MAINTAIN MINIMUM LEVELS OF CUSTOMIZED INVENTORY TO SUPPORT CERTAIN
CUSTOMER DELIVERY REQUIREMENTS.
We must keep a relatively large number and variety of customized systems in
our inventory to meet client delivery requirements because a substantial
proportion of our business involves the just-in-time shipment of systems. Our
inventory may become obsolete as we develop new systems and as our customers
develop new systems. Inventory obsolescence could have a material adverse effect
on our financial condition and results of operations.
WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS.
We are subject to federal, state, local and foreign regulations, including
environmental regulations and regulations relating to the design and operation
of our power conversion and control systems. We must ensure that our systems
meet certain safety and emissions standards, many of which vary across the
states and countries in which our systems are used. For example, the European
Union has published directives specifically relating to power supplies. We must
comply with these directives in order to ship our systems into countries that
are members of the European Union. In the past, we have invested significant
resources to redesign our systems to comply with these directives. We believe we
are in compliance with current applicable regulations, directives and standards
and have obtained all necessary permits, approvals and authorizations to conduct
our business. However, compliance with future regulations, directives and
standards could require us to modify or redesign certain systems, make capital
expenditures or incur substantial costs. If we do not comply with current or
future regulations, directives and standards:
o we could be subject to fines;
o our production could be suspended; or
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o we could be prohibited from offering particular systems in
specified markets.
WE MAY INVEST IN START-UP COMPANIES AND COULD LOSE OUR ENTIRE INVESTMENT.
We have a majority interest in a start-up company and may invest in other
start-up companies that develop products and technologies that we believe may
provide us with future benefits. These investments may not provide us with any
benefit, and we may not achieve any economic return on any of these investments.
Our investments in these start-up companies are subject to all of the risks
inherent in investing in companies that are not established. We could lose all
or any part of our investments in these companies.
WE LEASE OUR FORT COLLINS, COLORADO FACILITIES AND A CONDOMINIUM FROM ENTITIES
IN WHICH TWO INDIVIDUALS WHO ARE INSIDERS AND MAJOR STOCKHOLDERS HAVE FINANCIAL
INTERESTS.
We lease our executive offices and manufacturing facilities in Fort Collins,
Colorado from Prospect Park East Partnership and from Sharp Point Properties,
LLC. Douglas S. Schatz, our Chairman and Chief Executive Officer, holds a 26.7%
interest in each of the leasing entities. G. Brent Backman, a member of our
board of directors, holds a 6.6% interest in each of the leasing entities.
Aggregate rental payments under such leases for 1999 totaled approximately $1.7
million. We also lease a condominium in Breckenridge, Colorado to provide
rewards and incentives to our customers, suppliers and employees. We lease the
condominium from AEI Properties, a partnership in which Mr. Schatz holds a 60%
interest and Mr. Backman holds a 40% interest. Aggregate rental payments under
the condominium lease for 1999 totaled approximately $36,000. As of December 31,
1999 Mr. Schatz owned approximately 38.43% of our common stock, and Mr. Backman
owned approximately 4.12% of our common stock.
THE MARKET PRICE OF OUR STOCK HAS BEEN AND WILL LIKELY CONTINUE TO BE HIGHLY
VOLATILE.
The stock market generally and the market for technology stocks in
particular have experienced significant price and volume fluctuations, which
often have been unrelated or disproportionate to the operating performance of
such companies. From our IPO in November 1995 through March 13, 2000, the
closing prices of our common stock on the Nasdaq National Market have ranged
from $3.50 to $73.25. The market for our common stock likely will continue to be
subject to similar fluctuations. Many factors could cause the trading price of
our common stock to fluctuate substantially, including the following:
o future announcements concerning our business, our customers or
our competitors;
o variations in our operating results;
o announcements of technological innovations;
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o the introduction of new products or changes in product pricing
policies by us, our competitors or our customers;
o changes in earnings estimates by securities analysts or
announcements of operating results that are not aligned with the
expectations of analysts and investors;
o the economic and competitive conditions in the industries in
which our customers operate; and
o general stock market trends.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A MAJORITY OF OUR OUTSTANDING COMMON
STOCK, WHICH COULD ENABLE THEM TO CONTROL OUR BUSINESS AND AFFAIRS.
Our executive officers and directors owned approximately 44.66% of our
common stock outstanding as of December 31, 1999. Douglas S. Schatz, our
Chairman and Chief Executive Officer, owned approximately 38.43% of our common
stock outstanding as of December 31, 1999. These stockholdings give our
executive officers and directors collectively, and Mr. Schatz individually,
significant voting power. Depending on the number of shares that abstain or
otherwise are not voted, our executive officers collectively, and Mr. Schatz
individually, may be able to elect all of the members of our board of directors
and to control our business affairs for the foreseeable future.
ANTI-TAKEOVER PROVISIONS LIMIT THE ABILITY OF A PERSON OR ENTITY TO ACQUIRE
CONTROL OF US.
Our certificate of incorporation and bylaws include provisions which:
o allow the board of directors to issue preferred stock with
rights senior to those of the common stock without any vote or
other action by the holders of the common stock;
o limit the right of our stockholders to call a special meeting of
stockholders; and
o impose procedural and other requirements that could make it
difficult for stockholders to effect certain corporate actions.
In addition, we are subject to the anti-takeover provisions of the Delaware
General Corporation Law. Any of these provisions could delay or prevent a person
or entity from acquiring control of us. The effect of these provisions may be to
limit the price that investors are willing to pay in the future for our
securities. These provisions might also discourage potential acquisition
proposals or could diminish the opportunities for our stockholders to
participate in a tender offer, even if the acquisition proposal or tender offer
is at a price above the then current market price for our common stock.
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EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers and their ages as of February 29, 2000 are as
follows:
NAME AGE POSITION
---- ----- --------
Douglas S. Schatz 54 Chief Executive Officer and Chairman of the Board
Hollis L. Caswell, Ph.D. 68 President, Chief Operating Officer and Director
Richard P. Beck 66 Senior Vice President, Chief Financial Officer
and Director
Richard A. Scholl 61 Senior Vice President and Chief Technology Officer
James F. Gentilcore 47 President, Advanced Energy Voorhees, Inc.
- ----------
DOUGLAS S. SCHATZ is a co-founder and has been our Chief Executive Officer
and Chairman of the Board since our incorporation in 1981. From our
incorporation to July 1997, Mr. Schatz also served as our President. Mr. Schatz
also co-founded Energy Research Associates, Inc., a designer of custom power
supplies, and served as its Vice President of Engineering from 1977 through
1980. Prior to co-founding Energy Research Associates, Mr. Schatz held various
engineering and management positions at Applied Materials.
HOLLIS L. CASWELL, PH.D. joined our board of directors in February 1997 and
became our Chief Operating Officer in June 1997. He also became our President in
July 1999. From 1990 to 1994 Dr. Caswell was Chairman of the Board and Chief
Executive officer of HYPRES, Inc., a manufacturer of superconducting
electronics. Prior to that time, Dr. Caswell served as Senior Vice President of
Unisys Corporation, an information technology company, and President of its
Computer Systems Group.
RICHARD P. BECK joined us in March 1992 as Vice President and Chief
Financial Officer and became Senior Vice President in April 1998. He joined our
board of directors in September 1995. From 1987 to 1992 Mr. Beck served as
Executive Vice President and Chief Financial Officer of Cimage Corporation, a
computer software company. Mr. Beck is a director of Applied Films Corporation,
a publicly held manufacturer of flat panel display equipment.
RICHARD A. SCHOLL joined us in 1988 as Vice President, Engineering. Mr.
Scholl became our Chief Technology Officer in September 1995. Prior to joining
us, Mr. Scholl was General Manager, Vacuum Products Division at Varian
Associates, Inc., a manufacturer of high-technology systems and components.
JAMES F. GENTILCORE joined us in March 1996 as Vice President of Sales and
Marketing. He became Senior Vice President of Sales and Marketing in April 1998
and President of Advanced Energy Voorhees, Inc. in October 1999. From 1990 to
1996 he served with MKS Instruments and held the position of Vice President,
Marketing.
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ITEM 2. PROPERTIES
Our headquarters and main manufacturing facility are located in Fort
Collins, Colorado, in approximately 172,000 square feet of leased space.
Additional manufacturing and office facilities are located in Voorhees, New
Jersey, in approximately 78,000 square feet of leased space; Austin, Texas, in
approximately 20,000 square feet of leased space; and Fridley, Minnesota, in
approximately 21,000 square feet of leased space. To serve the needs of our
customers, we also maintain regional offices in Milpitas, California; Concord,
Massachusetts; Tokyo, Japan; Filderstadt, Germany; Bicester, England; Bundang,
South Korea; and Taipei, Taiwan.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any material legal proceedings that are expected to have
a material effect on our business, assets or property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Advanced Energy's common stock was approved for quotation on the Nasdaq
National Market under the symbol AEIS, beginning November 17, 1995. At February
29, 2000, the number of common stockholders of record was 906.
Below is a table showing the range of high and low bid quotations for the
common stock as quoted (without retail markup or markdown and without
commissions) on the Nasdaq National Market; they do not necessarily represent
actual transactions:
High Bid Low Bid
-------- -------
1998 Fiscal Year
First Quarter 18 13/16 10
Second Quarter 16 7/16 11
Third Quarter 13 6
Fourth Quarter 25 3/4 5 5/8
1999 Fiscal Year
First Quarter 30 1/2 17 7/8
Second Quarter 40 3/4 23 1/2
Third Quarter 45 30
Fourth Quarter 49 7/8 30 3/8
Advanced Energy has not declared or paid any cash dividends on its capital
stock since it terminated its election to be treated as an S corporation for tax
purposes, effective January 1, 1994. Advanced Energy currently intends to retain
all future earnings to finance its business. Accordingly, Advanced Energy does
not anticipate paying cash or other dividends on its common stock in the
foreseeable future. Furthermore, Advanced Energy's revolving credit facility
prohibits the declaration or payment of any cash dividends on its common stock.
We issued 12,791 shares of common stock to Curtis Camus, an employee, as of
October 1, 1999. Mr. Camus was a founder of LITMAS, a privately held ion source
company in which we now hold a majority interest. The shares were issued to Mr.
Camus as partial consideration for his shares of LITMAS and were valued at
$385,000. We did not use any underwriters in connection with the sale of shares
to Mr. Camus. We did not register the sale with the Securities and Exchange
Commission, as we relied on the exemption from registration provided by Rule 506
under the Securities Act of 1933.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to, and should be read with, our 1999 Consolidated Financial Statements, related
notes and management's discussion included in this Form 10-K. The selected
consolidated statement of operations data and the consolidated balance sheet
data as of and for the years ended December 31, 1999 and 1998 were derived from
consolidated financial statements audited by Arthur Andersen LLP, independent
accountants, whose related audit report is included in this Form 10-K. The
selected consolidated statement of operations data for the year ended December
31, 1997 was derived from consolidated financial statements audited in part by
Arthur Andersen LLP and in part by KPMG LLP, whose audit reports are included in
this Form 10-K, and pertain to RF Power Products' fiscal year ended November 30,
1997. As such, our statement of operations data for fiscal 1997 includes the
statement of operations for RF Power Products' fiscal year ended November 30,
1997. The selected consolidated statements of operations data for the years
ended December 31, 1996 and 1995, and the related consolidated balance sheet
data as of December 31, 1997, 1996 and 1995 were derived from audited
consolidated financial statements not included in this Form 10-K.
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Sales .................................... $ 183,958 $ 124,698 $ 175,758 $ 129,931 $ 121,075
Gross profit ............................. 81,857 36,713 66,956 47,246 56,072
Total operating expenses ................. 56,516 49,488 47,242 36,876 31,733
Income (loss) from operations ............ 25,341 (12,775) 19,714 10,370 24,339
Net income (loss) ........................ $ 16,838 $ (9,517) $ 12,056 $ 6,371 $ 14,798
========= ========= ========= ========= =========
Diluted earnings (loss) per share ........ $ 0.59 $ (0.36) $ 0.46 $ 0.25 $ 0.63
Diluted weighted-average common shares
outstanding ........................... 28,389 26,572 26,302 25,738 23,310
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and marketable securities ........... $ 205,792 $ 28,134 $ 32,215 $ 11,778 $ 14,022
Working capital .......................... 251,869 62,059 74,342 41,638 38,861
Total assets ............................. 312,385 101,035 130,064 68,078 68,234
Total debt ............................... 137,305 537 6,518 3,741 3,458
Stockholders' equity ..................... 148,347 89,133 97,527 54,927 48,057
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. For example, statements relating to our beliefs, expectations and
plans are forward-looking statements, as are statements that certain actions,
conditions or circumstances will continue. Forward-looking statements involve
risks and uncertainties. As a result, our actual results may differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences or prove any forward-looking statements,
by hindsight, to be overly optimistic or unachievable, include, but are not
limited to the following:
o the significant fluctuations in our quarterly operating results;
o the volatility of the semiconductor and semiconductor capital
equipment industries;
o timing and success of integration of recent and potential future
acquisitions; and
o supply constraints and technological changes.
For a discussion of these and other factors that may impact our realization of
our forward-looking statements, see Part I "Cautionary Statements - Risk
Factors."
OVERVIEW
We design, manufacture and support power conversion and control systems.
These systems are important components of industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses and
other products. We market and sell our systems primarily to large global OEMs of
semiconductor, data storage and flat panel display manufacturing equipment and
for manufacturers of other products in emerging markets. A substantial
proportion of our sales are made on a just-in-time basis in which the shipment
of systems occurs within a few days or hours after an order is received. We
recognize revenues upon shipment of our systems and there is no requirement for
acceptance when a product is shipped.
The semiconductor capital equipment industry accounted for approximately 59%
of our sales in 1997, 49% in 1998 and 61% in 1999. We have been successful in
achieving a number of design wins each year, which have resulted in our
obtaining new customers and solidifying relationships with our existing
customers. We believe our ability to
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continue to achieve design wins with existing and potential customers will be
critical to our future success.
We continue to seek to expand our product offerings and customer base
through internal development and acquisitions.
In May 1997 we acquired the assets of MIK Physics, Inc. This acquisition
provided the base technology for our Astral products, which are high power
direct current (DC) systems used in PVD equipment.
In August 1997 we acquired Tower Electronics. This acquisition expanded our
technology and customer base, and provided us with the capability to design and
manufacture power conversion systems for use in modems, non-impact printers,
telephone switches and laser devices.
In October 1997 we completed an underwritten public offering of 1,000,000
shares of our common stock at a price of $31 per share, for aggregate net
proceeds of approximately $28.7 million. In that same month we also completed
formation of our wholly owned sales and service subsidiary in South Korea.
We took another step towards achieving further market penetration in
September 1998 when we acquired the assets of Fourth State Technology. This
acquisition enhanced our capability to design and manufacture RF power-related
process control systems used to monitor and analyze data in thin film etch
processes.
In October 1998 we acquired RF Power Products, which designs, manufactures
and supports RF power conversion and control systems, consisting of generators
and matching networks. We believe our ability to offer an expanded line of RF
systems to our existing customer base has strengthened those relationships. We
sell these products principally to semiconductor capital equipment
manufacturers. We also sell similar systems to capital equipment manufacturers
in the flat panel display and thin film data storage industries, and are
exploring applications for these products in other industries. In April 1999 we
changed the name of RF Power Products to Advanced Energy Voorhees, Inc. and
conduct business under that name.
In October 1999 we acquired a majority interest in LITMAS, a company that
designs and manufactures plasma gas abatement systems and high-density plasma
sources. We believe that LITMAS' current and future products will expand our
product offerings to our existing and potential customers in the semiconductor
capital equipment industry.
In November 1999 we completed two underwritten public offerings, one for
$135 million of convertible subordinated notes, and one for 1,000,000 shares of
our common stock at a price of $39 per share. These offerings provided aggregate
net proceeds of approximately $167.1 million.
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In December 1999 we completed formation of our wholly owned sales and
service subsidiary in Taiwan.
RESULTS OF OPERATIONS
The following table summarizes certain data as a percentage of sales
extracted from our statement of operations:
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
-------- -------- --------
Sales .............................................. 100.0% 100.0% 100.0%
Cost of sales ...................................... 55.5 70.6 61.9
-------- -------- --------
Gross margin ....................................... 44.5 29.4 38.1
-------- -------- --------
Operating expenses:
Research and development ......................... 14.4 19.1 11.0
Sales and marketing .............................. 9.2 10.9 6.6
General and administrative ....................... 7.1 7.5 6.0
Restructuring charge ............................. -- 0.8 --
Merger costs ..................................... -- 2.2 --
Storm (recoveries) damages ....................... -- (0.9) 1.5
Purchased in-process research and development -- -- 1.8
-------- -------- --------
Total operating expenses ........................... 30.7 39.6 26.9
-------- -------- --------
Income (loss) from operations ...................... 13.8 (10.2) 11.2
Other income (expense) ............................. 0.9 0.2 (0.1)
-------- -------- --------
Net income (loss) before income taxes and
minority interest ................................ 14.7 (10.0) 11.1
Provision (benefit) for income taxes ............... 5.5 (2.4) 4.2
Minority interest in net income .................... 0.0 -- --
-------- -------- --------
Net income (loss) .................................. 9.2% (7.6)% 6.9%
======== ======== ========
SALES
We sell power conversion and control systems and plasma gas abatement
systems primarily to the semiconductor capital equipment, data storage and
emerging markets in the United States, to the flat panel display and data
storage markets in Japan, and to data storage and emerging markets in Europe. We
also sell spare parts and repair services worldwide through our customer service
and technical support organization.
Sales were $175.8 million, $124.7 million and $184.0 million in 1997, 1998
and 1999, respectively, representing a decrease of 29% from 1997 to 1998 and an
increase of 48% from 1998 to 1999. Our sales decrease from 1997 to 1998 resulted
from decreased unit sales of our systems, while the increase from 1998 to 1999
was due to increased unit sales.
We started the year 1997 with strong sales growth to semiconductor capital
equipment customers, which followed the 1996 downturn in that industry that had
resulted from excess production capacity of semiconductor manufacturers and
sharply decreased memory device prices. Toward the end of 1997, after a
relatively strong recovery, the semiconductor capital equipment industry,
affected primarily by the Asian financial crisis, began a sudden and severe
downturn, which continued through 1998. This caused a
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41% decrease in our sales to this industry in 1998 when compared to 1997, and
resulted in lower sales to the United States and the Asia Pacific region. Sales
to the data storage industry decreased 27%, although sales to our largest
customer in that industry grew significantly from 1997 to 1998, resulting in
higher sales to Europe. Sales to emerging markets were slightly higher, but
would have been lower if not for the full-year effect of sales by Tower in 1998.
Our experience has shown that our sales to semiconductor capital equipment
customers has been dependent on the volatility of that industry, as a result of
sudden changes in semiconductor supply and demand, and rapid technological
advances in both semiconductor devices and wafer fabrication processes.
A substantial portion of our sales growth from 1998 to 1999 was due to
higher system sales to four of our largest customers, three of whom are
primarily semiconductor capital equipment OEMs, and one of whom is a data
storage OEM. Our sales in 1999 reflected the recovery in the semiconductor
capital equipment industry from the severe downturn of 1998, and resulted from
capacity expansion and increased investment in advanced technology by the
semiconductor industry. This recovery and expansion resulted in record sales for
us in 1999. It also resulted in record sales for us to the semiconductor capital
equipment industry specifically. Our sales to the semiconductor capital
equipment industry in 1999 increased 86% over sales to that industry in 1998,
and resulted in higher sales within the United States. Sales to the data storage
industry increased 32% from 1998 to 1999, and resulted in higher sales to
Europe. Sales to the flat panel display industry increased 75% from 1998 to
1999, and resulted in higher sales to the Asia Pacific region, particularly to
Japan. Sales to emerging industries decreased 15%, primarily due to decreased
sales by our Tower subsidiary.
The following tables summarize annual net sales, and percentages of net
sales, by customer type for us for each of the three years in the period ended
December 31, 1999:
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
Semiconductor capital equipment ....... $ 112,504 $ 60,573 $ 102,723
Data storage .......................... 22,801 17,300 23,583
Flat panel display .................... 10,193 5,832 11,438
Emerging .............................. 28,563 33,593 30,748
Customer service technical support .... 9,897 7,400 7,266
---------- ---------- ----------
$ 183,958 $ 124,698 $ 175,758
========== ========== ==========
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
Semiconductor capital equipment ....... 61.2% 48.6% 58.5%
Data storage .......................... 12.4 13.9 13.4
Flat panel display .................... 5.5 4.7 6.5
Emerging .............................. 15.5 26.9 17.5
Customer service technical support .... 5.4 5.9 4.1
---------- ---------- ----------
100.0% 100.0% 100.0%
========== ========== ==========
The following tables summarize annual net sales, and percentages of net
sales, by geographic region for us for each of the three years in the period
ended December 31, 1999:
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YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
United States and Canada ...... $ 130,762 $ 89,452 $ 134,955
Europe ........................ 31,228 25,357 23,092
Asia Pacific .................. 21,470 9,478 17,110
Rest of world ................. 498 411 601
---------- ---------- ----------
$ 183,958 $ 124,698 $ 175,758
========== ========== ==========
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
United States and Canada ...... 71.1% 71.7% 76.9%
Europe ........................ 17.0 20.3 13.1
Asia Pacific .................. 11.7 7.7 9.7
Rest of world ................. 0.2 0.3 0.3
---------- ---------- ----------
100.0% 100.0% 100.0%
========== ========== ==========
GROSS MARGIN
Our gross margins were 38.1%, 29.4% and 44.5% for 1997, 1998 and 1999,
respectively. The decrease in gross margin from 1997 to 1998 was primarily due
to unfavorable absorption of manufacturing overhead as a result of significant
capacity expansion in 1997 and the reduced level of sales in 1998. The
improvement in gross margin from 1998 to 1999 was primarily a result of our
efforts to reduce material costs, improve overhead cost controls and a more
favorable absorption of manufacturing costs from the higher sales base.
During the first quarter of 1997 we relocated and expanded the Voorhees, New
Jersey facility. In the fourth quarter of 1997 we expanded into a new
manufacturing facility in Fort Collins, Colorado. In the second quarter of 1998
we relocated part of our previously existing Fort Collins manufacturing
operations to a new facility in Austin, Texas. We intended the three new
facilities to serve existing and anticipated growth in the semiconductor capital
equipment industry. The expansion to the new location in Austin was to provide
service specifically to our largest customer, a semiconductor capital equipment
manufacturer, whose primary manufacturing facilities are in Austin.
In the fourth quarter of 1997 the semiconductor capital equipment industry
entered a sudden and severe downturn which continued through the end of 1998.
The downturn in this industry, with the resulting underutilization of capacity,
significantly impacted our financial results for 1998. The combination of the
expansion and lower sales resulted in an over-capacity situation for us, leading
to unfavorable absorption of manufacturing overhead and a substantially reduced
margin. This underutilization of manufacturing capacity continued to negatively
impact gross margins, until sales to the semiconductor capital equipment market
began to recover in 1999.
Historically, price competition has not had a material effect on margins.
However, competitive pressures may produce a decline in average selling prices
for certain products. Any decline in average selling prices not offset by
reduced costs could result in a decline in our gross margins.
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We provide warranty coverage for our systems ranging from 12 to 24 months,
and estimate the anticipated costs of repairing our systems under such
warranties based on the historical average costs of the repairs. To date, we
have not experienced significant warranty costs in excess of our recorded
reserves.
RESEARCH AND DEVELOPMENT
We invest in research and development to research new technologies, develop
new products and improve existing product designs. Our research and development
expenses were $19.3 million, $23.8 million and $26.5 million for 1997, 1998 and
1999, respectively, representing an increase of 23% from 1997 to 1998 and 11%
from 1998 to 1999. As a percentage of sales, research and development expenses
increased from 11.0% in 1997 to 19.1% in 1998 because of the lower sales base,
but decreased to 14.4% in 1999 because of the higher sales base. The increase in
expenses from 1997 to 1999 is primarily due to increases in payroll, materials
and supplies, and higher infrastructure costs for new product development.
In connection with the acquisition of Tower in August 1997, we recorded a
one-time charge of $3.1 million in 1997 for the portion of the purchase price
attributable to in-process research and development. This one-time charge is not
included in the $19.3 million reported for research and development expense in
1997.
We believe continued research and development investment for development of
new systems is critical to our ability to serve new and existing markets. Since
our inception, research and development costs generally have been internally
funded and all have been expensed as incurred.
SALES AND MARKETING EXPENSES
Our sales and marketing expenses support domestic and international sales
and marketing activities which include personnel, trade shows, advertising, and
other marketing activities. Sales and marketing expenses were $11.6 million,
$13.5 million and $16.9 million for 1997, 1998 and 1999, respectively. This
represented a 16% increase from 1997 to 1998 and 25% from 1998 to 1999. The
increases are attributable to higher payroll costs incurred as we continue to
increase our sales management and product management capabilities. Additionally,
we increased spending in 1998 to develop worldwide applications engineering
capabilities. As a percentage of sales, these expenses increased from 6.6% in
1997 to 10.9% in 1998 because of the lower sales base but decreased to 9.2% in
1999 because of the higher sales base.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses support our worldwide financial,
administrative, information systems and human resources functions. General and
administrative expenses were $10.5 million, $9.5 million and $13.1 million for
1997,
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1998 and 1999, respectively. The decrease in expenses from 1997 to 1998 is
primarily due to cost control measures implemented in 1998, and the increase
from 1998 to 1999 is primarily due to higher spending for payroll and purchased
services. As a percentage of sales, general and administrative expenses were
6.0%, 7.5% and 7.1% for 1997, 1998 and 1999, respectively. The increase from
1997 to 1998 was due to the lower sales base, while the decrease from 1998 to
1999 was due to the higher sales base.
We continue to implement our management system software, including the
replacement of existing systems in our domestic and foreign locations. We expect
that charges related to training and implementation of the new software will
continue through 2000.
ONE-TIME CHARGES AND CREDITS
We took one-time net charges totaling $5.8 million in 1997. Included was a
net charge of $2.7 million for storm damage to our headquarters and main
manufacturing facilities that resulted from heavy rains in the Fort Collins area
in July 1997. We settled with our insurance carrier in 1998, which resulted in a
$1.1 million recovery we recorded in the fourth quarter of 1998.
As discussed above in "Research and Development," the acquisition of Tower
resulted in a charge of $3.1 million in 1997 for purchased in-process research
and development, which is nondeductible for income tax purposes.
In addition to the settlement for storm damage, we took one-time charges
totaling $3.7 million in 1998. In August 1998 we announced a restructuring plan
to respond to the downturn in the semiconductor capital equipment market. The
plan included a reduction of workforce of 128 people, the closure of one
facility in our Fort Collins, Colorado campus, and the abandonment of plans to
construct a new manufacturing facility in Fort Collins. We achieved other
reductions in workforce at the Voorhees facility throughout 1998. We took a
one-time charge of $1.0 million for the restructuring in the third quarter of
1998.
On October 8, 1998, Advanced Energy acquired RF Power Products, in a pooling
of interests that involved the exchange of four million shares of Advanced
Energy common stock for the publicly held common stock of RF Power Products. As
part of the business combination, we incurred $2.7 million of expense recorded
in the fourth quarter of 1998. We incurred additional operating expenses during
1999 relating to consolidating and integrating operations of this business
combination.
OTHER INCOME (EXPENSE)
Other income (expense) consists primarily of interest income and expense,
foreign exchange gains and losses and other miscellaneous income and expense
items. Interest income was approximately $0.6 million, $1.1 million and $2.1
million for the years 1997,
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1998 and 1999, respectively. In 1997 and 1998, interest income was earned
primarily from earnings on investments made from the proceeds of our initial
public offering in 1995 and our underwritten public offering in 1997. In 1999
interest income was earned primarily from the proceeds of our offering of
convertible subordinated debt and common stock offering of November 1999.
Interest expense consists principally of accruals of interest on our
convertible subordinated notes, on borrowings under our bank credit and capital
lease facilities and a state government loan. Interest expense was approximately
$0.5 million, $0.2 million and $1.2 million for the years 1997, 1998 and 1999,
respectively. The increase of interest expense from 1998 to 1999 was primarily
due to interest on the convertible subordinated notes.
Our foreign subsidiaries' sales are primarily denominated in currencies
other than the U.S. dollar. We recorded net foreign currency gains of $0.1
million, $0.4 million and $1.5 million for 1997, 1998 and 1999, respectively.
The increase from 1998 to 1999 was primarily due to strengthening of the
exchange rate of the Japanese yen to the U.S. dollar. Beginning in 1997, we
entered into various forward foreign exchange contracts as a hedge against
currency fluctuations in the Japanese yen. We will continue to evaluate various
policies to minimize the effect of foreign currency fluctuations.
Eleven European countries have adopted a Single European Currency (the
"euro") as of January 1, 1999 with a transition period continuing through
January 1, 2002. As of January 1, 1999, these eleven of the fifteen member
countries of the European Union (the "participating countries") established
fixed conversion rates between their existing sovereign currencies and the euro.
For three years after the introduction of the euro, the participating countries
can perform financial transactions in either the euro or their original local
currencies. This will result in a fixed exchange rate among the participating
countries, whereas the euro (and the participating countries' currencies in
tandem) will continue to float freely against the U.S. dollar and other
currencies of non-participating countries. Although we do not expect the
introduction of the euro currency to have a significant impact on our revenues
or results of operations, we are unable to determine what effects, if any, the
currency change in Europe will have on competition and competitive pricing in
the affected regions.
PROVISION (BENEFIT) FOR INCOME TAXES
The income tax provision for 1997 was $7.5 million and represented an
effective tax rate of 38.2%. The income tax benefit of $2.9 million for 1998
represented an effective rate of 23.4%. The income tax provision of $10.2
million in 1999 represented an effective rate of 37.6%. The lower rate of the
tax benefit in 1998 was due to nondeductible costs associated with Advanced
Energy's acquisition of RF Power Products, and foreign operating losses with no
benefit recorded. Changes in our relative earnings and the earnings of our
foreign subsidiaries affect our consolidated effective tax rate. We adjust our
income taxes periodically based upon the anticipated tax status of all foreign
and
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domestic entities.
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly results in dollars and as a
percentage of sales for each of the eight quarters in the period ended December
31, 1999. We believe that all necessary adjustments have been included in the
amounts stated below to present fairly such quarterly information. The operating
results for any quarter are not necessarily indicative of results for any
subsequent period.
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales ................................ $ 43,869 $ 31,981 $ 26,292 $ 22,556 $ 32,728 $ 41,515 $ 51,142 $ 58,573
Cost of sales ........................ 30,263 23,466 18,317 15,939 19,630 23,222 28,598 30,651
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit ......................... 13,606 8,515 7,975 6,617 13,098 18,293 22,544 27,922
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development ........... 5,835 6,394 5,722 5,898 5,852 6,758 6,935 6,972
Sales and marketing ................ 3,564 3,512 3,255 3,200 3,305 3,979 4,187 5,464
General and administrative ......... 2,859 2,768 2,353 1,503 2,870 3,088 3,715 3,391
Restructuring charge ............... -- -- 1,000 -- -- -- -- --
Merger costs ....................... -- -- -- 2,742 -- -- -- --
Storm recoveries ................... -- -- -- (1,117) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ............. 12,258 12,674 12,330 12,226 12,027 13,825 14,837 15,827
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ........ 1,348 (4,159) (4,355) (5,609) 1,071 4,468 7,707 12,095
Other income (expense) ............... 98 129 (214) 345 (39) 56 1,131 595
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) before income
taxes and minority interest ........ 1,446 (4,030) (4,569) (5,264) 1,032 4,524 8,838 12,690
Provision (benefit) for income
taxes .............................. 552 (885) (1,089) (1,478) 498 1,754 3,303 4,622
Minority interest in net income ...... -- -- -- -- -- -- -- 69
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) .................... $ 894 $ (3,145) $ (3,480) $ (3,786) $ 534 $ 2,770 $ 5,535 $ 7,999
======== ======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per share .... $ 0.03 $ (0.12) $ (0.13) $ (0.14) $ 0.02 $ 0.10 $ 0.20 $ 0.28
======== ======== ======== ======== ======== ======== ======== ========
Diluted weighted-average common
shares outstanding ................. 27,170 26,531 26,585 26,681 28,027 28,169 28,318 29,043
======== ======== ======== ======== ======== ======== ======== ========
QUARTERS ENDED
--------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- -------
PERCENTAGE OF SALES:
Sales .................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales .......................... 69.0 73.4 69.7 70.7 60.0 55.9 55.9 52.3
----- ----- ----- ----- ----- ----- ----- -----
Gross margin ........................... 31.0 26.6 30.3 29.3 40.0 44.1 44.1 47.7
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Research and development ............. 13.3 19.9 21.8 26.1 17.9 16.3 13.5 12.0
Sales and marketing .................. 8.1 11.0 12.4 14.2 10.1 9.6 8.2 9.3
General and administrative ........... 6.5 8.7 8.9 6.7 8.7 7.4 7.3 5.8
Restructuring charge ................. -- -- 3.8 -- -- -- -- --
Merger costs ......................... -- -- -- 12.2 -- -- -- --
Storm recoveries ..................... -- -- -- (5.0) -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses ............... 27.9 39.6 46.9 54.2 36.7 33.3 29.0 27.1
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations .......... 3.1 (13.0) (16.6) (24.9) 3.3 10.8 15.1 20.6
Other income (expense) ................. 0.2 0.4 (0.8) 1.6 (0.1) 0.1 2.2 1.1
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) before income
taxes and minority interest .......... 3.3 (12.6) (17.4) (23.3) 3.2 10.9 17.3 21.7
Provision (benefit) for income taxes ... 1.3 (2.8) (4.2) (6.5) 1.6 4.2 6.5 7.9
Minority interest in net income ........ -- -- -- -- -- -- -- 0.1
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) ...................... 2.0% (9.8)% (13.2)% (16.8)% 1.6% 6.7% 10.8% 13.7%
===== ===== ===== ===== ===== ===== ===== =====
We have experienced and expect to continue to experience significant
fluctuations in our quarterly operating results. Our expense levels are based,
in part, on expectations of future revenues. If revenue levels in a particular
quarter do not meet expectations,
41
42
operating results may be adversely affected. A variety of factors have an
influence on the level of our revenues in a particular quarter. These factors
include:
o general economic conditions;
o specific economic conditions in the industries we serve;
o timing and receipt of orders from major customers;
o customer cancellations or delays of shipments;
o specific feature requests by customers;
o production delays or manufacturing inefficiencies;
o exchange rate fluctuations;
o management decisions to commence or discontinue product lines;
o our ability to design, introduce and manufacture new products on
a cost effective and timely basis;
o the introduction of new products by us or our competitors;
o the timing of research and development expenditures; and
o expenses related to acquisitions, strategic alliances, and the
further development of marketing and service capabilities.
We make a substantial portion of our shipments on a just-in-time basis in
which shipment of systems occurs within a few days or hours after we receive an
order. Our backlog is not meaningful because of the importance of just-in-time
shipments. We are dependent on obtaining orders for shipment in a particular
quarter to achieve our revenue objectives for that quarter. Accordingly, it is
difficult for us to predict accurately the timing and level of sales in a
particular quarter. Due to our just-in-time program, we anticipate quarterly
fluctuations in sales to continue to occur.
Our quarterly operating results in 1998 and 1999 reflect the changing demand
for our products during this period, principally from manufacturers of
semiconductor capital equipment and data storage equipment and emerging markets,
and our ability to adjust our manufacturing capacity to meet this demand. Demand
from the semiconductor capital equipment companies entered a sudden and severe
downturn at the end of 1997, which continued throughout 1998, but which
recovered slowly throughout 1999. Sales to the data storage industry declined
from the first quarter of 1998 to the second quarter of 1998, then increased in
the third quarter of 1998 but dropped significantly in the fourth quarter of
1998. Data storage sales then increased throughout 1999, except for a slight
decrease in the second quarter. Sales to the flat panel display industry
decreased from the
42
43
first quarter of 1998 to the second quarter of 1998, and decreased again from
the second quarter of 1998 to the third quarter of 1998, then increased in each
of the next five quarters. Sales to emerging markets were lower in the second
half of 1998 when compared to the first half of 1998, were lower again in the
first half of 1999, then increased in the second half of 1999.
Our gross margin fluctuated significantly on a quarterly basis in 1998 and
1999, primarily reflecting utilization of manufacturing capacity. The decrease
in gross margin from 31.0% to 26.6% from the first quarter of 1998 to the second
quarter of 1998 was due to decreased utilization of capacity resulting from the
decrease in sales to the semiconductor capital equipment industry. Gross margin
improved to 30.3% in the third quarter of 1998 even though there was a decrease
in sales to the semiconductor capital equipment industry and decreased
utilization of capacity. The improvement was due to our efforts to lower
material costs through supplier contract negotiations while improving material
quality and material handling efficiency, as well as from cost improvements
realized from the restructuring. Gross margin declined to 29.3% in the fourth
quarter of 1998, due primarily to another decrease in sales to the semiconductor
capital equipment industry that resulted in decreased utilization of capacity,
although material costs improved due to efforts continued from the previous
quarter. Gross margin then improved to 40.0% in the first quarter of 1999, to
44.1% in the second and third quarters of 1999 and to 47.7% in the fourth
quarter of 1999. These increases were due to increased utilization of capacity
from the recovery in the semiconductor capital equipment industry and from our
increased efforts to lower material costs.
Due to the downturn in the semiconductor capital equipment industry in 1998,
we held operating expenses, excluding one-time charges and credits, relatively
flat during the first half of 1998 in anticipation of an early recovery.
Operating expenses were $12.3 million and $12.7 million in the first and second
quarters of 1998, respectively. With the extent and duration of the downturn
still uncertain, in the second half of 1998 we reduced operating expenses,
excluding one-time charges and credits, while maintaining a minimum level of
resources necessary to address an upturn in the semiconductor capital equipment
industry that began to occur during 1999. Operating expenses in the third and
fourth quarters of 1998 were $12.3 million and $12.2 million, respectively, and
would have been $11.3 million and $10.6 million, respectively, if not for
one-time charges and credits. Operating expenses were $12.0 million, $13.8
million, $14.8 million and $15.8 million during the first, second, third and
fourth quarters of 1999, respectively, but declined as a percentage of sales
throughout 1999 as the sales base increased each quarter. As a percentage of
sales, operating expenses have declined during periods of rapid sales growth,
when sales increased at a rate faster than our ability to add personnel and
facilities to support the growth. Operating expenses as a percentage of sales
have increased during periods of flat or decreased sales, when our
infrastructure is retained to support anticipated future growth.
Other income (expense) consists primarily of interest income and expense and
foreign currency gain and loss. Interest income and expense were relatively
stable throughout
43
44
the periods presented, until the fourth quarter of 1999, when the interest
income and expense from the proceeds of the convertible subordinated notes and
the interest from the proceeds of the common stock sale began. During 1998 we
recorded a net foreign exchange gain of $0.4 million, earned primarily in the
fourth quarter of that year. During 1999 we recorded a net foreign exchange gain
of $1.5 million, which occurred mostly in the second half of the year. We
continue to utilize forward foreign exchange contracts in Japan to mitigate the
effects of foreign currency fluctuations.
Our effective rate for income tax provision (benefit) fluctuated
significantly throughout 1998, varying from 22.0% to 38.2%. The fluctuations
were due to certain nondeductible expenses including merger costs and losses in
foreign subsidiaries for which no tax benefit was recorded. Our effective income
tax rate became more stable in 1999, varying from 36.4% to 48.3%. We have
implemented certain business strategies which we believe will favorably impact
our effective income tax rate in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations, acquired equipment and
met our working capital requirements through borrowings under our revolving line
of credit, long-term loans secured by property and equipment, cash flow from
operations, proceeds from underwritten public offerings of our common stock and
proceeds from convertible subordinated debt.
Operating activities provided cash of $8.7 million in 1998, primarily as a
result of depreciation, amortization and decreases in accounts receivable and
inventories, offset by net loss, decreases in income taxes payable, accounts
payable and payroll. Operating activities provided cash of $10.1 million in
1999, primarily as a result of net income, depreciation, amortization, increases
in accounts payable and increased accruals for payroll, employee benefits and
income taxes, offset by increases in accounts receivable and inventories. We
expect future receivable and inventory balances to fluctuate with net sales. We
provide just-in-time deliveries to certain of our customers and may be required
to maintain higher levels of inventory to satisfy our customers' delivery
requirements. Any increase in our inventory levels will require the use of cash
to finance the inventory.
Investing activities in 1998 used cash of $3.7 million and included the
purchase of property and equipment of $5.3 million, the acquisition of the
assets of Fourth State Technology for $2.5 million and the initial investment in
LITMAS of $1.0 million, offset by a net decrease in marketable securities of
$5.1 million. Investing activities in 1999 used cash of $175.9 million and
included a net increase in marketable securities of $168.9 million, the purchase
of property and equipment of $6.8 million and an additional investment in LITMAS
of $0.2 million.
Financing activities used cash of $5.1 million in 1998 and consisted
primarily of changes in notes payable and capital lease obligations. Financing
activities provided cash
44
45
of $173.3 million in 1999, and consisted primarily of net proceeds from
convertible subordinated debt of $130.5 million, net proceeds from the sale of
common stock of $36.6 million, proceeds from the exercise of employee stock
options and sale of common stock through our employee stock purchase plan of
$4.5 million, and other items of $1.7 million.
We plan to spend approximately $8.5 million in 2000 for the acquisition of
equipment, leasehold improvements and furnishings, with depreciation expense
projected to be $5.7 million.
As of December 31, 1999, we had working capital of $251.9 million. Our
principal sources of liquidity consisted of $19.4 million of cash and cash
equivalents, $186.4 million of marketable securities, and a credit facility
consisting of a $30.0 million revolving line of credit which replaced our prior
line of credit, with options to convert up to $10.0 million to a three-year term
loan. Advances under the revolving line of credit bear interest at either the
prime rate (8.75% at February 29, 2000) minus 1.25% or the LIBOR 360-day rate
(6.76375% at February 29, 2000) plus 150 basis points, at our option. All
advances under this revolving line of credit will be due and payable in December
2000. As of December 31, 1999 there was an advance outstanding of $2.0 million
to our Japanese subsidiary, Advanced Energy Japan K.K. Additionally, we
guarantee a $2,500,000 bank term loan through March 31, 2000, entered into by a
non-public entity that serves as a supplier to us.
We believe that our cash and cash equivalents, cash flow from operations and
available borrowings, will be sufficient to meet our working capital needs
through at least the end of 2000. After that time, we may require additional
equity or debt financing to address our working capital, capital equipment or
expansion needs. In addition, any significant acquisitions we make may require
additional equity or debt financings to fund the purchase price, if paid in
cash. There can be no assurance that additional funding will be available when
required or that it will be available on terms acceptable to us.
YEAR 2000 PROGRAM
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues may occur with billing, payroll, or financial closings at the end of a
month, quarter or year. We have not experienced any such problems to date and we
believe that any such problems are likely to be minor and correctable. In
addition, we could still be negatively impacted if the Year 2000 or similar
issues adversely affect our
45
46
customers or suppliers. We currently are not aware of any significant Year 2000
or similar problems that have arisen for our customers and suppliers.
The foregoing beliefs and expectations are forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These are based in large part on certain statements and representations
made by persons other than us, any of which statements or representations
ultimately could prove to be inaccurate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio and long-term debt obligations. We generally place
our investments with high credit quality issuers and by policy are averse to
principal loss and seek to protect and preserve our invested funds by limiting
default risk, market risk and reinvestment risk. As of December 31, 1999, our
investments consisted of commercial paper, municipal bonds and notes and mutual
funds.
Our interest expense is sensitive to changes in the general level of U.S.
interest rates with respect to our bank facility of which $2.0 million was
outstanding as of December 31, 1999. Our other debt, including our convertible
subordinated notes, is fixed rate in nature and mitigates the impact of
fluctuations in interest rates. The fair value of our debt approximates the
carrying amount at December 31, 1999. We believe the potential effects of
near-term changes in interest rates on our debt is not material.
FOREIGN CURRENCY EXCHANGE RATE RISK
We transact business in various foreign countries. Our primary foreign
currency cash flows are generated in countries in Asia and Europe. We have
entered into various forward foreign exchange contracts as a hedge against
currency fluctuations in the Japanese yen. We will continue to evaluate various
methods to minimize the effects of currency fluctuations. At December 31, 1999,
we held foreign forward exchange contracts with nominal amounts of $4,500,000
and market settlement amounts of $4,498,000 for an unrealized gain position of
$2,000.
OTHER RISK
We have invested in a start-up company and may in the future make additional
investments in start-up companies that develop products which we believe may
provide future benefits. The current start-up investment and any future start-up
investments will be subject to all of the risks inherent in investing in
companies that are not established.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Arthur Andersen LLP, Independent Public Accountants.......................................... 48
Report of KPMG LLP, Independent Public Accountants..................................................... 49
Consolidated Balance Sheets as of December 31, 1999 and 1998........................................... 50
Consolidated Statement of Operations for the Years Ended December 31, 1999, 1998 and 1997.............. 52
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997.... 53
Consolidated Statement of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.............. 54
Notes to Consolidated Financial Statements............................................................. 55
Schedule II - Valuation and Qualifying Accounts........................................................ 68
47
48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Advanced Energy Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced Energy
Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits. The consolidated financial
statements give retroactive effect to the merger of the Company and RF Power
Products, Inc., which has been accounted for as a pooling of interests as
described in Note 3 to the consolidated financial statements. We did not audit
the consolidated statements of operations and cash flows for the year ended
November 30, 1997 (the previous year-end of RF Power Products, Inc. - see Note
3), which statements reflect total revenues of 19% of the related consolidated
totals for the year ended December 31, 1997. These statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to amounts included for RF Power Products, Inc., is based solely
upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Energy Industries, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule attached to the consolidated
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 8, 2000.
48
49
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
RF Power Products, Inc.:
We have audited the consolidated statement of income, shareholders' equity, and
cash flows of RF Power Products, Inc. and subsidiary for the year ended November
30, 1997 (not separately presented herein). In connection with our audit of
these consolidated financial statements, we also have audited the related
consolidated financial statement schedule (not separately presented herein).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of RF Power
Products, Inc. and subsidiary and their cash flows for the year ended November
30, 1997 in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
January 16, 1998
49
50
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------
1999 1998
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................................... $ 19,352 $ 12,295
Marketable securities - trading .................................................... 186,440 15,839
Accounts receivable --
Trade (less allowances for doubtful accounts of approximately
$537 and $582 at December 31, 1999 and 1998, respectively) .................... 41,524 14,841
Related parties ................................................................. 32 221
Other ........................................................................... 1,787 542
Income tax receivable .............................................................. 1,224 3,576
Inventories ........................................................................ 25,474 21,412
Other current assets ............................................................... 1,708 797
Deferred income tax assets, net .................................................... 3,080 4,112
-------- --------
Total current assets ....................................................... 280,621 73,635
-------- --------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $17,990 and $14,316 at December 31,
1999 and 1998, respectively ........................................................ 16,675 15,320
-------- --------
OTHER ASSETS:
Deposits and other ................................................................. 533 1,007
Goodwill and intangibles, net of accumulated amortization of $2,905 and $1,505 at
December 31, 1999 and 1998, respectively ........................................ 7,949 8,586
Demonstration and customer service equipment, net of
accumulated depreciation of $2,235 and $1,743 at December 31,
1999 and 1998, respectively ..................................................... 2,197 2,487
Deferred debt issuance costs, net .................................................. 4,410 --
-------- --------
15,089 12,080
-------- --------
Total assets ............................................................... $312,385 $101,035
======== ========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
50
51
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
----------------------
1999 1998
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade ............................................................ $ 14,481 $ 5,675
Accrued payroll and employee benefits ............................................. 7,341 2,983
Other accrued expenses ............................................................ 2,207 2,074
Customer deposits ................................................................. 804 66
Accrued income taxes payable ...................................................... 886 567
Capital lease obligations, current portion ........................................ 89 111
Notes payable, current portion .................................................... 2,058 100
Accrued interest payable on convertible subordinated notes ........................ 886 --
--------- ---------
Total current liabilities ................................................. 28,752 11,576
--------- ---------
LONG-TERM LIABILITIES:
Capital lease obligations, net of current portion ................................. 42 110
Notes payable, net of current portion ............................................. 116 216
Convertible subordinated notes payable ............................................ 135,000 --
--------- ---------
135,158 326
--------- ---------
Total liabilities ......................................................... 163,910 11,902
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 13)
MINORITY INTEREST ................................................................... 128 --
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 1,000 shares
authorized, none issued and outstanding ........................................ -- --
Common stock, $0.001 par value, 40,000 and 30,000 shares authorized,
respectively; 28,250 and 26,725 shares issued and outstanding, respectively .... 28 27
Additional paid-in capital ........................................................ 103,232 60,381
Retained earnings ................................................................. 45,977 29,139
Accumulated other comprehensive loss .............................................. (890) (414)
--------- ---------
Total stockholders' equity ................................................ 148,347 89,133
--------- ---------
Total liabilities and stockholders' equity ................................ $ 312,385 $ 101,035
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
51
52
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
SALES ............................................................ $ 183,958 $ 124,698 $ 175,758
COST OF SALES .................................................... 102,101 87,985 108,802
--------- --------- ---------
Gross profit ................................................... 81,857 36,713 66,956
--------- --------- ---------
OPERATING EXPENSES:
Research and development ....................................... 26,517 23,849 19,336
Sales and marketing ............................................ 16,935 13,531 11,646
General and administrative ..................................... 13,064 9,483 10,480
Restructuring charge ........................................... -- 1,000 --
Merger costs ................................................... -- 2,742 --
Storm (recoveries) damages ..................................... -- (1,117) 2,700
Purchased in-process research and development .................. -- -- 3,080
--------- --------- ---------
Total operating expenses ..................................... 56,516 49,488 47,242
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS .................................... 25,341 (12,775) 19,714
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income ................................................ 2,119 1,111 573
Interest expense ............................................... (1,206) (191) (481)
Foreign currency gain .......................................... 1,504 369 97
Other, net ..................................................... (674) (931) (380)
--------- --------- ---------
1,743 358 (191)
--------- --------- ---------
Net income (loss) before income taxes and minority interest .. 27,084 (12,417) 19,523
PROVISION (BENEFIT) FOR INCOME TAXES ............................. 10,177 (2,900) 7,467
MINORITY INTEREST IN NET INCOME .................................. 69 -- --
--------- --------- ---------
NET INCOME (LOSS) ................................................ $ 16,838 $ (9,517) $ 12,056
========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE .................................. $ 0.62 $ (0.36) $ 0.47
========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE ................................ $ 0.59 $ (0.36) $ 0.46
========= ========= =========
BASIC WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING .................................................... 27,161 26,572 25,523
========= ========= =========
DILUTED WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING ............................................. 28,389 26,572 26,302
========= ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
52
53
ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
COMMON STOCK ADDITIONAL STOCKHOLDERS' OTHER TOTAL
-------------- PAID-IN RETAINED NOTES DEFERRED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE COMPENSATION (LOSS)INCOME EQUITY
------ ------ -------- -------- ---------- ------------ ------------- -------------
BALANCES, December 31, 1996 .............25,253 $25 $ 29,564 $ 27,082 $(1,161) $(82) $ (500) $ 54,928
Exercise of stock options for cash ... 135 -- 268 -- -- -- -- 268
Exercise of stock options in
exchange for stockholders' notes
receivable ....................... 90 -- 470 -- (470) -- -- --
Proceeds from stockholders' notes
receivable ....................... -- -- -- -- 1,564 -- -- 1,564
Sale of common stock through
employee stock purchase plan...... 8 -- 102 -- -- -- -- 102
Amortization of deferred
compensation ..................... -- -- -- -- -- 48 -- 48
Sale of common stock through
public offering, net of
approximately $2,276 of
expenses ......................... 1,000 1 28,723 -- -- -- -- 28,724
Tax benefit related to shares
acquired by employees
under stock compensation plans ... -- -- 29 -- -- -- -- 29
Comprehensive income:
Equity adjustment from foreign
currency translation ............. -- -- -- -- -- -- (192) --
Net income ........................... -- -- -- 12,056 -- -- -- --
Total comprehensive income .......... -- -- -- -- -- -- -- 11,864
------ --- -------- -------- ------- ---- --------- ---------
BALANCES, December 31, 1997 .............26,486 26 59,156 39,138 (67) (34) (692) 97,527
Exercise of stock options for cash ... 219 1 727 -- -- -- -- 728
Proceeds from stockholders' notes
receivable ....................... -- -- -- -- 67 -- -- 67
Sale of common stock through
employee stock purchase plan ..... 20 -- 133 -- -- -- -- 133
Amortization of deferred
compensation ..................... -- -- -- -- -- 34 -- 34
Tax benefit related to shares
acquired by employees
under stock compensation plans ... -- -- 365 -- -- -- -- 365
Adjustment to conform year-end of
merged entity .................... -- -- -- (482) -- -- -- (482)
Comprehensive loss:
Equity adjustment from foreign
currency translation ............. -- -- -- -- -- -- 278 --
Net loss ............................. -- -- -- (9,517) -- -- -- --
Total comprehensive loss ............ -- -- -- -- -- -- -- (9,239)
------ --- -------- -------- ------- ---- --------- ---------
BALANCES, December 31, 1998 .............26,725 27 60,381 29,139 -- -- (414) 89,133
Exercise of stock options for cash ... 490 -- 4,148 -- -- -- -- 4,148
Sale of common stock through
employee stock purchase plan ..... 22 -- 345 -- -- -- -- 345
Issuance of common stock for
acquisition of LITMAS ............ 13 -- 385 -- -- -- -- 385
Tax benefit related to shares
acquired by employees
under stock compensation plans ... -- -- 1,422 -- -- -- -- 1,422
Sale of common stock through
public offering, net of
approximately $2,448 of
expenses.......................... 1,000 1 36,551 -- -- -- -- 36,552
Equity adjustment from foreign
currency translation ............. -- -- -- -- -- -- (476) --
Net income ........................... -- -- -- 16,838 -- -- -- --
Total comprehensive loss ............ -- -- -- -- -- -- -- 16,362
------ --- -------- -------- ------- ---- --------- ---------
BALANCES, December 31, 1999 .............28,250 $28 $103,232 $ 45,977 $ -- $ -- $ (890) $ 148,347
====== === ======== ======== ======= ==== ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
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ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 16,838 $ (9,517) $ 12,056
Adjustment for conforming year-end of merged entity .................. -- (482) --
Adjustments to reconcile net income (loss) to net cash provided by
operating activities -
Depreciation and amortization ..................................... 7,683 6,544 4,838
Amortization of deferred debt issuance costs ...................... 81 -- --
Minority interest ................................................. 69 -- --
Provision for deferred income taxes ............................... 1,032 (792) (1,657)
Amortization of deferred compensation ............................. -- 34 48
Purchased in-process research and development ..................... -- -- 3,080
(Gain) loss on disposal of property and equipment ................. (15) 102 1,046
Earnings from marketable securities, net .......................... (1,724) (765) (174)
Writedown of LITMAS investment .................................... 322 600 --
Changes in operating assets and liabilities -
Accounts receivable-trade, net ................................. (26,523) 19,343 (12,067)
Related parties and other receivables .......................... (1,306) 1,473 (502)
Inventories .................................................... (4,062) 9,795 (11,513)
Other current assets ........................................... (911) 1,764 (1,138)
Deposits and other ............................................. 291 (37) 777
Demonstration and customer service equipment ................... (426) (1,016) (641)
Accounts payable trade ......................................... 8,547 (9,436) 10,402
Accrued payroll and employee benefits .......................... 4,358 (2,555) 2,613
Customer deposits and other accrued expenses ................... 1,757 (591) 699
Income taxes payable/receivable, net ........................... 4,093 (5,743) 1,040
--------- -------- --------
Net cash provided by operating activities .................... 10,104 8,721 8,907
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities .................................... (170,805) (1,000) (20,000)
Sale of marketable securities ........................................ 1,928 6,100 --
Purchase of property and equipment, net .............................. (6,841) (5,292) (7,494)
Purchase of LITMAS, net of cash acquired ............................. (175) (1,000) --
Acquisition of assets of Fourth State Technology, Inc. ............... -- (2,500) --
Acquisition of Tower Electronics, Inc., net of cash acquired ......... -- -- (12,995)
--------- -------- --------
Net cash used in investing activities ........................ (175,893) (3,692) (40,489)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable .......................................... 3,304 2,201 15,828
Repayment of notes payable and capital lease obligations ............. (1,536) (8,182) (14,449)
Proceeds from convertible debt, net .................................. 130,509 -- --
Sale of common stock, net of expenses ................................ 36,552 -- 28,724
Sale of common stock through employee stock purchase plan ............ 345 133 102
Proceeds from exercise of stock options and warrants ................. 4,148 728 268
Proceeds from stockholders' notes receivable ......................... -- 67 1,564
--------- -------- --------
Net cash provided by (used in) financing activities ............... 173,322 (5,053) 32,037
--------- -------- --------
EFFECT OF CURRENCY TRANSLATION ON CASH ................................. (476) 278 (192)
--------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS .................................. 7,057 254 263
CASH AND CASH EQUIVALENTS, beginning of period ......................... 12,295 12,041 11,778
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ............................... $ 19,352 $ 12,295 $ 12,041
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Tax benefit related to shares acquired by employees under stock
option plans .................................................... $ 1,422 $ 365 $ 29
========= ======== ========
Note payable assumed in Tower acquisition ......................... $ -- $ -- $ 1,389
========= ======== ========
Exercise of stock options in exchange for stockholders' notes
receivable ...................................................... $ -- $ -- $ 470
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................... $ 232 $ 283 $ 456
========= ======== ========
Cash paid for income taxes, net ...................................... $ 4,654 $ 2,327 $ 7,918
========= ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
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ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) COMPANY OPERATIONS
Advanced Energy Industries, Inc. (the "Company") was incorporated in Colorado in
1981 and reincorporated in Delaware in 1995. The Company is primarily engaged in
the development and production of power conversion and control systems, which
are used by manufacturers of semiconductors and in industrial thin film
manufacturing processes. The Company owns 100% of each of the following
subsidiaries: Advanced Energy Japan K.K. ("AE-Japan"), Advanced Energy
Industries GmbH ("AE-Germany"), Advanced Energy Industries U.K. Limited
("AE-UK"), Advanced Energy Industries Korea, Inc. ("AE-Korea") and Advanced
Energy Taiwan, Ltd. ("AE-Taiwan"). The Company also owns 100% of Advanced Energy
Voorhees, Inc. ("AEV"), formerly RF Power Products, Inc. ("RFPP") and Tower
Electronics, Inc. ("Tower"), and 56.5% of LITMAS. AEV is a New Jersey-based
designer and manufacturer of radio frequency power systems, matching networks
and peripheral products primarily used by original equipment providers in the
semiconductor capital equipment, commercial coating, flat panel display and
analytical instrumentation markets. Tower is a Minnesota-based designer and
manufacturer of custom, high-performance switchmode power supplies used
principally in the telecommunications, medical and non-impact printing
industries. LITMAS is a start-up company that designs and manufactures plasma
gas abatement systems and high-density plasma sources.
The Company continues to be subject to certain risks similar to other companies
in its industry. These risks include significant fluctuations of quarterly
operating results, the volatility of the semiconductor and semiconductor capital
equipment industries, customer concentration within the markets the Company
serves, manufacturing facilities risks, recent and potential future
acquisitions, management of growth, supply constraints and dependencies,
dependence on design wins, barriers to obtaining new customers, the high level
of customized designs, rapid technological changes, competition, international
sales risks, the Asian financial markets, intellectual property rights,
governmental regulations, and the volatility of the market price of the
Company's common stock. A significant change in any of these risk factors could
have a material impact on the Company's business.
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- For cash flow purposes, the Company considers all
cash and highly liquid investments with an original maturity of 90 days or less
to be cash and cash equivalents.
INVENTORIES -- Inventories include costs of materials, direct labor and
manufacturing overhead. Inventories are valued at the lower of market or cost,
computed on a first-in, first-out basis.
MARKETABLE SECURITIES - TRADING -- The Company has investments in marketable
equity securities and municipal bonds, which have original maturities of 90 days
or more. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the
investments are classified as trading securities and reported at fair value with
unrealized gains and losses included in earnings.
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DEMONSTRATION AND CUSTOMER SERVICE EQUIPMENT -- Demonstration and customer
service equipment are manufactured products utilized for sales demonstration and
evaluation purposes. The Company also utilizes this equipment in its customer
service function as replacement and loaner equipment to existing customers.
The Company depreciates the equipment based on its estimated useful life in the
sales and customer service functions. The depreciation is computed based on a
3-year life.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. Additions,
improvements, and major renewals are capitalized. Maintenance, repairs, and
minor renewals are expensed as incurred.
Depreciation is provided using straight-line and accelerated methods over three
to ten years for machinery and equipment. Amortization of leasehold improvements
and leased equipment is provided using the straight-line method over the life of
the lease term or the life of the assets, whichever is shorter.
GOODWILL AND INTANGIBLES -- Goodwill and intangibles are recorded at the date of
acquisition at their allocated cost. Amortization is provided over the estimated
useful lives of approximately 7 years for both the goodwill and the intangible
assets.
CONCENTRATIONS OF CREDIT RISK -- The Company's revenues generally are
concentrated among a small number of customers, the majority of which are in the
semiconductor capital equipment industry. The Company's foreign subsidiaries
sales are primarily denominated in currencies other than the U.S. dollar (see
note 14). The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information.
WARRANTY POLICY -- The Company estimates the anticipated costs of repairing
products under warranty based on the historical average cost of the repairs. The
Company offers warranty coverage for its systems for periods ranging from 12 to
24 months after shipment.
CUMULATIVE TRANSLATION ADJUSTMENT -- The functional currency for the Company's
foreign operations is the applicable local currency.
The Company records a cumulative translation adjustment from translation of the
financial statements of AE-Japan, AE-Germany, AE-Korea, AE-UK and AE-Taiwan.
This equity account includes the results of translating balance sheet assets and
liabilities at current exchange rates as of the balance sheet date, and the
statements of operations and cash flows at the average exchange rates during the
respective year.
The Company recognizes gain or loss on foreign currency transactions, which are
not considered to be of a long-term investment nature. The Company recognized a
gain on foreign currency transactions of $1,504,000, $369,000 and $97,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
REVENUE RECOGNITION -- The Company recognizes revenue when products are shipped.
INCOME TAXES -- The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109,
deferred tax assets and liabilities are recognized for temporary differences
between the tax basis and financial reporting basis of assets and liabilities,
computed at current tax rates. Also, the Company's deferred income tax assets
include certain future tax benefits. The Company records a valuation allowance
against any portion of those deferred income tax assets which it believes it
will more likely than not fail to realize.
EARNINGS PER SHARE -- Basic EPS is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. The computation of diluted EPS is similar to the computation
of basic EPS except that the denominator is increased to include the number of
additional common shares that would have been outstanding (using the treasury
stock method)
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57
if dilutive potential common shares had been issued. Basic and diluted EPS were
the same for fiscal 1998 as the Company incurred losses from operations,
therefore, making the effect of all potential common shares anti-dilutive.
COMPREHENSIVE INCOME (LOSS) -- SFAS No. 130, "Reporting Comprehensive Income,"
established rules for the reporting of comprehensive income (loss) and its
components. Comprehensive income (loss) for the Company consists of net income
(loss) and foreign currency translation adjustments and is presented in the
Consolidated Statement of Stockholders' Equity.
SEGMENT REPORTING -- SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," requires a public business enterprise to report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. Management operates and manages its business of supplying power
conversion and control systems as one operating segment, as their products have
similar economic characteristics and production processes.
RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1998 the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company is
required to adopt SFAS No. 133, as amended by SFAS No. 137, in fiscal 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activity by requiring all derivatives to be recorded
on the balance sheet as either an asset or liability and measured at their fair
value. Changes in the derivative's fair value will be recognized currently in
earnings unless specific hedging accounting criteria are met. SFAS No. 133 also
establishes uniform hedge accounting criteria for all derivatives. The Company
does not believe that the adoption of SFAS No. 133 will have a material impact
on the consolidated financial statements.
In December 1999 the staff of the Securities and Exchange Commission issued its
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." SAB No. 101
provides guidance on the measurement and timing of revenue recognition in
financial statements of public companies. Changes in accounting policies to
apply the guidance of SAB No. 101 must be adopted by recording the cumulative
effect of the change in the fiscal quarter ending March 31, 2000. Management
does not believe that the adoption of SAB No. 101 will have a material effect on
the Company's financial position or results of operations.
ESTIMATES AND ASSUMPTIONS -- The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that affect
the amounts reported and disclosed in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
ASSET IMPAIRMENTS -- The Company reviews its long-lived assets and certain
identifiable intangibles to be held and used by the Company for impairment
whenever events or changes in circumstances indicate their carrying amount may
not be recoverable. In so doing, the Company estimates the future net cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future net cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized to reduce the asset to its estimated fair value. Otherwise, an
impairment loss is not recognized. Long-lived assets and certain identifiable
intangibles to be disposed of, if any, are reported at the lower of carrying
amount or fair value less cost to sell.
(3) ACQUISITIONS
LITMAS -- During 1998 the Company acquired a 29% ownership interest in LITMAS, a
privately held, North Carolina-based start-up company that designs and
manufactures plasma gas abatement systems and high-density plasma sources. The
purchase price consisted of $1 million in cash. On October 1, 1999, the
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58
Company acquired an additional 27.5% interest in LITMAS for an additional
$560,000. The purchase price consisted of $385,000 in the Company's common stock
and $175,000 in cash. The acquisition was accounted for using the purchase
method of accounting and resulted in $523,000 allocated to intangible assets as
goodwill. The results of operations of LITMAS are included within the
accompanying consolidated financial statements from the date the controlling
interest of 56.5% was acquired.
AEV -- On October 8, 1998, AEV (formerly RF Power Products, Inc.), a New
Jersey-based designer and manufacturer of radio frequency power systems,
matching networks and peripheral products primarily for original equipment
providers in the semiconductor capital equipment, commercial coating, flat panel
display and analytical instrumentation markets, was merged with a wholly owned
subsidiary of the Company. The Company issued approximately 4 million shares of
its common stock to the former shareholders of AEV. Each share of AEV common
stock was exchanged for 0.3286 of one share of the Company's common stock. In
addition, outstanding AEV stock options were converted at the same exchange
factor into options to purchase approximately 148,000 shares of the Company's
common stock.
The merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined balance sheet, statements of operations
and cash flows of AEV as though it had always been part of the Company. AEV's
year-end was November 30, and therefore, the combined statements of operations
and cash flows for fiscal 1997 include AEV's results for the year ended November
30, 1997.
AEV's operating results for the month of December 1998 are not reflected in the
accompanying consolidated statement of operations. This is due to changing AEV's
year-end from November 30 to December 31 to conform to the Company's year-end.
AEV's month of December 1998 operating results were revenues of approximately
$723,000 and a net loss of $482,000, which has been charged directly to retained
earnings in order to report only twelve months' operating results. In connection
with the merger, the Company recorded in the fourth quarter of 1998 a charge to
operating expenses of $2,742,000 for direct merger-related costs.
There were no transactions between the Company and AEV prior to the combination,
and immaterial adjustments were recorded to conform AEV's accounting policies.
Certain reclassifications were made to conform the AEV financial statements to
the Company's presentations. The results of operations for the separate
companies and combined amounts presented in the consolidated financial
statements follow:
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
--------- --------
(IN THOUSANDS)
Sales:
Pre-merger
Advanced Energy .............................. $ 86,289 $141,923
AEV .......................................... 18,436 33,835
Post-merger .................................... 19,973 --
--------- --------
Consolidated ................................ $ 124,698 $175,758
========= ========
Net (loss) income:
Pre-merger
Advanced Energy .............................. $ (2,748) $ 10,362
AEV .......................................... (3,859) 1,694
Post-merger .................................... (168) --
Merger cost .................................... (2,742) --
--------- --------
Consolidated ................................ $ (9,517) $ 12,056
========= ========
FST -- Effective September 3, 1998, the Company acquired substantially all of
the assets of Fourth State Technology, Inc. ("FST"), a privately held,
Texas-based designer and manufacturer of process controls used to monitor and
analyze data in the RF process. The purchase price consisted of $2.5 million in
cash, assumption of a $113,000 liability, and an earn-out provision which is
based on profits over a twelve-
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quarter period beginning October 1, 1998. Approximately $2.6 million of the
initial purchase price was allocated to intangible assets. During the fourth
quarter of 1999, the Company accrued $240,000 to intangible assets as a result
of the earn-out provision being met during the fifth quarter period. The results
of operations of FST are included within the accompanying consolidated financial
statements from the date of acquisition.
TOWER -- Effective August 15, 1997, the Company acquired all of the outstanding
stock of Tower, a Minnesota-based designer and manufacturer of custom,
high-performance switchmode power supplies used principally in the
telecommunications, medical and non-impact printing industries. The purchase
price consisted of $14.5 million in cash and a $1.5 million non-interest-bearing
promissory note to the seller (the "Note"), which was paid in full during August
1998. Total consideration, including the effect of imputing interest on the
Note, equaled $15,889,000. The acquisition was accounted for using the purchase
method of accounting and resulted in a one-time charge of $3,080,000 for
in-process research and development costs acquired as a result of the
transaction. Acquisition costs totaled approximately $209,000.
The purchase price was allocated to the net assets of Tower as summarized below:
(In thousands)
Cash and cash equivalents $ 1,714
Accounts receivable 2,555
Inventories 2,691
Deferred tax asset 57
Fixed assets 280
Goodwill 7,490
Purchased in-process research and development 3,080
Other assets 39
Accounts payable (1,292)
Accrued liabilities (516)
--------
$ 16,098
========
The purchase agreement included a contingent purchase price based on Tower
exceeding a certain sales level in 1998. No additional purchase price was
recorded during 1998 as the sales level was not achieved.
The results of operations of Tower are included within the accompanying
consolidated financial statements from the date of acquisition.
(4) PUBLIC OFFERING OF COMMON STOCK
In October 1997 the Company closed on an offering of its common stock. In
connection with the offering, 1,000,000 shares of common shares were sold at a
price of $31 per share, providing gross proceeds of $31,000,000, less $2,276,000
in offering costs.
In November 1999 the Company closed on an additional offering of its common
stock. In connection with the offering, 1,000,000 shares of common shares were
sold at a price of $39 per share, providing gross proceeds of $39,000,000, less
$2,448,000 in offering costs.
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(5) MARKETABLE SECURITIES - TRADING
MARKETABLE SECURITIES - TRADING are reported at their fair value and consisted
of the following:
DECEMBER 31,
-------------------
1999 1998
-------- -------
(IN THOUSANDS)
Commercial paper ................................. $118,894 $12,290
Municipal bonds and notes ........................ 67,453 2,815
Mutual funds ..................................... 93 734
-------- -------
$186,440 $15,839
======== =======
These marketable securities have original costs of $185,069,000 and $14,900,000
as of December 31, 1999 and 1998, respectively.
(6) ACCOUNTS RECEIVABLE - TRADE
ACCOUNTS RECEIVABLE - TRADE consisted of the following:
DECEMBER 31,
--------------------
1999 1998
-------- -------
(IN THOUSANDS)
Domestic ......................................... $ 19,269 $ 8,295
Foreign .......................................... 22,792 7,128
Allowance for doubtful accounts .................. (537) (582)
-------- -------
$ 41,524 $14,841
======== =======
(7) INVENTORIES
INVENTORIES consisted of the following:
DECEMBER 31,
-------------------
1999 1998
-------- -------
(IN THOUSANDS)
Parts and raw materials .......................... $ 17,029 $13,212
Work in process .................................. 2,523 1,934
Finished goods ................................... 5,922 6,266
-------- -------
$ 25,474 $21,412
======== =======
(8) PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT consisted of the following:
DECEMBER 31,
--------------------
1999 1998
-------- -------
(IN THOUSANDS)
Machinery and equipment ......................... $ 17,734 $14,680
Computers and communication equipment ........... 8,731 7,306
Furniture and fixtures .......................... 3,548 3,591
Vehicles ........................................ 136 155
Leasehold improvements .......................... 4,516 3,904
-------- -------
34,665 29,636
Less - accumulated depreciation ................. (17,990) (14,316)
-------- -------
$ 16,675 $15,320
======== =======
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(9) NOTES PAYABLE
DECEMBER 31,
-----------------
1999 1998
------- -----
(IN THOUSANDS)
Revolving line of credit of $30,000,000, expiring December 7, 2000, interest
at bank's prime rate minus 1.25% or the LIBOR 360-day rate plus 150 basis
points, (average 2.06848% during 1999, 2.02857% at December 31, 1999)
This line includes $20,000,000 available for general use, with an option
to convert up to $10,000,000 to a three-year term loan; additional
advances up to $5,000,000 each for Optional Currency Rate Advances and
Foreign Exchange Contracts. Borrowing base consists of the sum of 80% of
eligible accounts receivable plus the lesser of 20% of eligible inventory
or $5,000,000. Loan covenants provide certain financial restrictions
related to working capital, leverage, net worth, payment and declaration
of dividends and profitability ................................................ $ 1,958 $ --
Note payable to the New Jersey Economic Development Authority, with
interest at 5%, principal and interest due monthly, matures January 2002
and secured by machinery and equipment ........................................ 216 316
------- -----
2,174 316
Less -- current portion ......................................................... (2,058) (100)
------- -----
$ 116 $ 216
======= =====
(10) CONVERTIBLE SUBORDINATED NOTES PAYABLE
In November 1999 the Company issued $135 million of convertible subordinated
notes payable at 5.25%. These notes mature November 15, 2006, with interest
payable on May 15th and November 15th each year beginning May 15, 2000. Net
proceeds to the Company were approximately $130.5 million, after deducting $4.5
million of offering costs which have been capitalized and are being amortized
over a period of 7 years. The notes may be converted, by the holder at any time,
into shares of the Company's common stock at $49.53 per share, and are
convertible by the Company on or after November 19, 2002 at conversion prices
ranging from $100.75 to $103.00 per common share. At December 31, 1999, $886,000
of interest expense was accrued as a current liability.
(11) INCOME TAXES
For the years ended December 31, 1999, 1998 and 1997, the provision for income
taxes consists of an amount for taxes currently payable and a provision for tax
effects deferred to future periods. In 1997 the Company increased its statutory
U.S. tax rate from 34% to 35%.
The provision (benefit) for income taxes for the years ended December 31, 1999,
1998 and 1997 is as follows:
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
Federal ................. $ 6,645 $(3,307) $ 5,964
State and local ......... 1,254 (475) 1,432
Foreign taxes ........... 2,278 882 71
-------- ------- -------
$ 10,177 $(2,900) $ 7,467
======== ======= =======
Current ................. $ 9,145 $(2,108) $ 9,124
Deferred ................ 1,032 (792) (1,657)
-------- ------- -------
$ 10,177 $(2,900) $ 7,467
======== ======= =======
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The following reconciles the Company's effective tax rate to the federal
statutory rate for the years ended December 31, 1999, 1998 and 1997:
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
Income tax expense (benefit) per federal statutory rate ......... $ 9,479 $(4,346) $ 6,808
State income taxes, net of federal deduction .................... 815 (309) 830
Foreign sales corporation ....................................... (331) -- (209)
Nondeductible merger costs ...................................... (228) 960 --
Nondeductible goodwill amortization ............................. 353 353 132
Nondeductible purchased in-process research and development ..... -- -- 1,078
Other permanent items, net ...................................... (94) (191) (22)
Effect of foreign taxes ......................................... 1,000 80 275
Foreign operating loss with no benefit provided ................. -- 610 --
Change in valuation allowance ................................... (717) 107 (530)
Tax credits ..................................................... (100) (164) (511)
Other ........................................................... -- -- (384)
-------- ------- -------
$ 10,177 $(2,900) $ 7,467
======== ======= =======
The Company's deferred income taxes assets are summarized as follows:
DECEMBER 31, 1999 CHANGE DECEMBER 31, 1998
----------------- ------ -----------------
(IN THOUSANDS)
Employee bonuses ....................................... $ -- $ (67) $ 67
Warranty reserve ....................................... 512 103 409
Bad debt reserve ....................................... 196 (9) 205
Vacation accrual ....................................... 488 211 277
Obsolete and excess inventory .......................... 740 (515) 1,255
Foreign operating loss carryforwards ................... -- (1,253) 1,253
Research and development credit carryforwards .......... -- (324) 324
Alternative minimum tax credit carryforwards ........... -- (276) 276
Investment in LITMAS ................................... 343 112 231
Depreciation and amortization .......................... 428 256 172
Other .................................................. 373 13 360
Less: Valuation allowance on foreign operating loss
carryforwards ........................................ -- 717 (717)
------ ------- -------
$3,080 $(1,032) $ 4,112
====== ======= =======
The domestic versus foreign component of the Company's net income (loss) before
income taxes at December 31, 1999, 1998 and 1997, was as follows:
DECEMBER 31,
-----------------------------------
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
Domestic ................ $ 21,385 $(12,891) $18,594
Foreign ................. 5,699 474 929
-------- -------- -------
$ 27,084 $(12,417) $19,523
======== ======== =======
(12) RETIREMENT PLAN
The Company has a 401(k) Profit Sharing Plan which covers all full-time
employees who have completed six months of full-time continuous service and are
age eighteen or older. Participants may defer up to 20% of their gross pay up to
a maximum limit determined by law. Participants are immediately vested in their
contributions.
The Company may make discretionary contributions based on corporate financial
results for the fiscal year. Effective January 1, 1998, the Company increased
its matching contribution for participants in the 401(k) Plan up to a 50%
matching on contributions by employees up to 6% of the employee's compensation.
The Company's total contributions to the plan were approximately $831,000,
$746,000 and $620,000 for the
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years ended December 31, 1999, 1998 and 1997, respectively. Vesting in the
profit sharing contribution account is based on years of service, with a
participant fully vested after five years of credited service.
(13) COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company finances a portion of its property and equipment under capital lease
obligations at interest rates ranging from 7.63% to 8.96%. The future minimum
lease payments under capitalized lease obligations as of December 31, 1999 are
as follows:
(IN THOUSANDS)
2000........................................................ $ 89
2001........................................................ 52
-----
Total minimum lease payments........................ 141
Less -- amount representing interest................ (10)
Less -- current portion............................. (89)
-----
$ 42
=====
OPERATING LEASES
The Company has various operating leases for automobiles, equipment, and office
and production space (Note 15). Lease expense under operating leases was
approximately $4,628,000, $4,556,000 and $2,976,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
The future minimum rental payments required under noncancelable operating leases
as of December 31, 1999 are as follows:
(IN THOUSANDS)
2000........................................................ $ 4,554
2001........................................................ 3,486
2002........................................................ 2,903
2003........................................................ 2,512
2004........................................................ 2,200
Thereafter.................................................. 8,274
-------
$23,929
=======
GUARANTEE
Subsequent to year-end, the Company extended a guarantee for a $2,500,000 bank
term loan through March 31, 2000, entered into by a non-public entity that
serves as a supplier to the Company. An officer of the Company serves as a
director of such entity. The Company has received warrants to purchase shares of
the supplier for providing this guarantee. No value has currently been assigned
to these warrants.
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(14) FOREIGN OPERATIONS
The Company operates in a single operating segment with operations in the U.S.,
Asia and Europe. The following is a summary of the Company's foreign operations:
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
Sales:
Originating in Japan to unaffiliated customers ........... $ 16,270 $ 6,300 $ 11,431
Originating in Europe to unaffiliated customers .......... 12,724 8,489 7,487
Originating in U.S. and sold to foreign customers ........ 22,767 20,457 21,885
Originating in U.S. and sold to domestic customers ....... 130,762 89,452 134,955
Originating in South Korea to unaffiliated customers ..... 1,435 -- --
Transfers between geographic areas ....................... 24,053 10,304 14,523
Intercompany eliminations ................................ (24,053) (10,304) (14,523)
--------- --------- ---------
$ 183,958 $ 124,698 $ 175,758
========= ========= =========
Income (loss) from operations:
Japan .................................................... $ 1,758 $ (1,505) $ (73)
Europe ................................................... 2,379 1,722 1,488
U.S ...................................................... 21,405 (12,971) 18,602
South Korea .............................................. 188 (186) --
Intercompany eliminations ................................ (389) 165 (303)
--------- --------- ---------
$ 25,341 $ (12,775) $ 19,714
========= ========= =========
Identifiable assets:
Japan .................................................... $ 13,967 $ 6,039
Europe ................................................... 11,950 5,073
U.S ...................................................... 332,383 120,675
South Korea .............................................. 1,393 610
Intercompany eliminations ................................ (47,308) (31,362)
--------- ---------
$ 312,385 $ 101,035
========= =========
Intercompany sales among the Company's geographic areas are recorded on the
basis of intercompany prices established by the Company.
(15) RELATED PARTY TRANSACTIONS
The Company leases office and production spaces from a limited liability
partnership consisting of certain officers of the Company and other individuals.
The leases relating to these spaces expire in 2009 and 2011 with monthly
payments of approximately $52,000 and $58,000, respectively.
The Company also leases other office and production space from another limited
liability partnership consisting of certain officers of the Company and other
individuals. The lease relating to this space expires in 2002 with a monthly
payment of approximately $28,000.
Approximately $1,693,000, $1,359,000 and $1,320,000 was charged to rent expense
attributable to these leases for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company leases, for business purposes, a condominium owned by a partnership
of certain stockholders. The Company paid the partnership approximately $36,000
for each of the years ended December 31, 1999, 1998 and 1997, relating to this
lease.
In prior years, certain stockholders of the Company exercised options to
purchase shares of the Company's common stock in exchange for notes receivable
in the amount of the exercise price. These notes receivable and accrued interest
have been paid in full.
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(16) MAJOR CUSTOMERS
The Company's sales to major customers (purchases in excess of 10% of total
sales) are to entities which are primarily manufacturers of semiconductor
capital equipment and disk storage equipment and, for the years ended December
31, 1999, 1998 and 1997 are as follows:
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
Customer A ................... 32 % 23% 31%
Customer B ................... 7% 7% 11%
Customer C ................... 7% 10% 5%
---- ---- ----
46% 40% 47%
==== ==== ====
(17) FORWARD CONTRACTS
AE-Japan enters into foreign currency forward contracts to buy U.S. dollars to
hedge its payable position arising from trade purchases and intercompany
transactions with its parent. Foreign currency forward contracts reduce the
Company's exposure to the risk that the eventual net cash outflows resulting
from the purchase of products denominated in other currencies will be adversely
affected by changes in exchange rates. Foreign currency forward contracts are
entered into with a major commercial Japanese bank that has a high credit rating
and the Company does not expect the counterparty to fail to meet its obligations
under outstanding contracts. Foreign currency gains and losses under the above
arrangements are not deferred. The Company generally enters into foreign
currency forward contracts with maturities ranging from 1 to 4 months, with
contracts outstanding at December 31, 1999, maturing through April 2000. At
December 31, 1999, the Company held foreign forward exchange contracts with
nominal amounts of $4,500,000 and market settlement amounts of $4,498,000 for an
unrealized gain position of $2,000.
(18) STOCK PLANS
EMPLOYEE STOCK OPTION PLAN -- During 1993 the Company adopted an Employee Stock
Option Plan (the "Employee Option Plan") which was amended and restated in
September 1995, February 1998 and February 1999. The Employee Option Plan allows
issuance of incentive stock options, non-qualified options, and stock purchase
rights. The exercise price of incentive stock options shall not be less than
100% of the stock's fair market value on the date of grant. The exercise price
of non-qualified stock options shall not be less than 50% of the stock's fair
market value on the date of grant. Options issued in 1999, 1998 and 1997 were
issued at 100% of fair market value with typical vesting over three to five
years. Under the Employee Option Plan, the Company has the discretion to
accelerate the vesting period. The options are exercisable for ten years from
the date of grant. The Company has reserved 5,625,000 shares of common stock for
the issuance of stock under the Employee Option Plan, which terminates in June
2003.
In connection with the grant of certain stock options on June 30, 1995, the
Company recorded $142,000 of deferred compensation for the difference between
the deemed fair value for accounting purposes and the option price as determined
by the Company at the date of grant. This amount is presented as a reduction of
stockholders' equity and has been amortized over the 3-year vesting period of
the related stock options.
EMPLOYEE STOCK PURCHASE PLAN -- In September 1995 stockholders approved an
Employee Stock Purchase Plan (the "Stock Purchase Plan") covering an aggregate
of 200,000 shares of common stock. Employees are eligible to participate in the
Stock Purchase Plan if employed by the Company for at least 20 hours per week
during at least five months per calendar year. Participating employees may have
up to 15% (subject to a 5% limitation set by the Company) of their earnings or a
maximum of $1,250 per six month period withheld pursuant to the Stock Purchase
Plan. Common stock purchased under the Stock Purchase Plan will be equal to 85%
of the lower of the fair market value on the commencement date of each offering
period or the relevant purchase date. During 1999, 1998 and 1997, employees
purchased an aggregate of
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22,390, 20,264 and 8,186 shares under the Stock Purchase Plan, respectively.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN -- In September 1995 the Company
adopted the 1995 Non-Employee Directors Stock Option Plan (the "Directors Plan")
covering 50,000 shares of common stock. In February 1999 the plan was amended to
increase the number of shares of common stock issuable under such plan to
100,000 shares of common stock. The Directors Plan provides for automatic grants
of non-qualified stock options to directors of the Company who are not employees
of the Company ("Outside Directors"). Pursuant to the Directors Plan, upon
becoming a director of the Company, each Outside Director will be granted an
option to purchase 7,500 shares of common stock. Such options will be
immediately exercisable as to 2,500 shares of common stock, and will vest as to
2,500 shares of common stock on each of the second and third anniversaries of
the grant date. On each anniversary of the date on which a person became an
Outside Director, an option for an additional 2,500 shares is granted. Such
additional options vest on the third anniversary of the date of grant. Options
will expire ten years after the grant date, and the exercise price of the
options will be equal to the fair market value of the common stock on the grant
date. The Directors Plan terminates September 2005.
The following summarizes the activity relating to options for the years ended
December 31, 1999, 1998 and 1997:
1999 1998 1997
--------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE PRICES)
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Stock options:
Incentive stock options --
Options outstanding at beginning
of period ............................ 1,987 $ 9.01 1,475 $ 7.02 1,017 $ 3.57
Granted ................................ 377 31.69 937 10.23 731 11.60
Exercised .............................. (487) 8.44 (219) 3.35 (225) 3.25
Terminated ............................. (67) 10.44 (206) 6.35 (48) 4.96
------ ------ ------
Options outstanding at end of period ... 1,810 13.82 1,987 9.01 1,475 7.02
====== ====== ======
Options exercisable at end of period ... 801 9.10 651 6.89 489 4.35
====== ====== ======
Weighted-average fair value of
options granted during the period .... $ 19.26 $ 6.71 $ 7.41
========= ====== ======
Price range of outstanding options ..... $0.67-$44.97 $0.67-$31.63 $0.67-$31.63
============ ============ ============
Price range of options terminated ...... $3.88-$28.16 $0.83-$12.75 $ 3.40-$9.00
============ ============ ============
Non-employee directors stock options--
Options outstanding at beginning
of period ............................ 45 $ 12.18 25 $ 14.67 20 $ 9.82
Granted ................................. 18 32.94 20 7.55 17 16.64
Exercised ............................... (3) 11.05 -- -- (2) 7.13
Terminated .............................. -- -- -- -- (10) 9.82
------ ------ ------
Options outstanding at end of period .... 60 18.34 45 11.61 25 14.67
====== ====== ======
Options exercisable at end of period .... 22 17.27 15 11.40 8 14.62
====== ====== ======
Weighted-average fair value of options
granted during the period .............. $ 20.11 $ 4.93 $ 11.43
========= ====== =======
Price range of outstanding options ...... $6.13- $36.94 $8.63-$29.88 $8.63-$31.63
============= ============ ============
Price range of options terminated ....... $ -- $ -- $6.13-$11.05
====== ===== ============
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), defines a fair value based method of accounting
for employee stock options or similar equity instruments. However, SFAS No. 123
allows the continued measurement of compensation cost for such plans using the
intrinsic value based method prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), provided that pro forma disclosures
are made of net income or loss and net income or loss per share, assuming the
fair value based method of SFAS No. 123 had been applied. The Company has
elected to account for stock-based compensation plans under APB No. 25, under
which no compensation expense is recognized.
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For SFAS No. 123 purposes, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
1999 1998 1997
---- ---- ----
Risk-free interest rates 5.92% 5.06% 6.17%
Expected dividend yield rates 0.0% 0.0% 0.0%
Expected lives 4 years 4 years 4 years
Expected volatility 77.33% 87.48% 101.16%
The total fair value of options granted was computed to be approximately
$7,605,000, $6,056,000 and $4,912,000 for the years ended December 31, 1999,
1998 and 1997, respectively. These amounts are amortized ratably over the
vesting period of the options. Cumulative compensation cost recognized in pro
forma net income or loss with respect to options that are forfeited prior to
vesting is adjusted as a reduction of pro forma compensation expense in the
period of forfeiture. Pro forma stock-based compensation, net of the effect of
forfeitures and tax, was approximately $2,999,000, $2,033,000 and $906,000 for
1999, 1998 and 1997, respectively.
Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income would have been reduced to the following pro forma
amounts:
1999 1998 1997
------------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net Income (Loss):
As reported $16,838 $ (9,517) $ 12,056
Pro forma 13,839 (11,550) 11,150
Diluted Earnings (Loss) Per Share:
As reported $ 0.59 $ (0.36) $ 0.46
Pro forma 0.49 (0.43) 0.42
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The following table summarizes information about the stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
-------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Year Range of Number Contractual Exercise Number Exercise
Granted Exercise Prices Outstanding Life Price Exercisable Price
- ----------- ----------------- ----------- ----------- --------- ----------- --------------
1993 - 1994 $ 0.67 to $ 8.76 43,000 4.0 years $ 2.69 43,000 $ 2.69
1995 $ 2.57 to $11.05 40,000 5.0 years $ 6.42 39,000 $ 6.42
1996 $ 3.88 to $11.05 176,000 6.6 years $ 4.97 165,000 $ 4.99
1997 $ 7.13 to $31.63 468,000 6.9 years $11.46 320,000 $ 11.16
1998 $ 6.75 to $17.32 756,000 8.5 years $10.03 241,000 $ 10.27
1999 $26.63 to $44.97 387,000 9.3 years $31.80 15,000 $ 33.06
--------- --------- ------ ------- -------
1,870,000 7.9 years $14.15 823,000 $ 9.39
========= ========= ====== ======= =======
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ADVANCED ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT
BEGINNING OF ADDITIONS CHARGED BALANCE AT
PERIOD TO EXPENSE DEDUCTIONS END OF PERIOD
------ ---------- ---------- -------------
(IN THOUSANDS)
Year ended December 31, 1997:
Inventory obsolescence reserve.... $ 2,077 $ 4,526 $ 3,322 $ 3,281
Allowance for doubtful accounts... 382 263 58 587
------- ------- ------- -------
$ 2,459 $ 4,789 $ 3,380 $ 3,868
======= ======= ======= =======
Year ended December 31, 1998:
Inventory obsolescence reserve.... $ 3,281 $ 6,712 $ 7,367 $ 2,626
Allowance for doubtful accounts... 587 77 82 582
------- ------- ------- -------
$ 3,868 $ 6,789 $ 7,449 $ 3,208
======= ======= ======= =======
Year ended December 31, 1999:
Inventory obsolescence reserve.... $ 2,626 $ 4,867 $ 5,576 $ 1,917
Allowance for doubtful accounts... 582 39 84 537
------- ------- ------- -------
$ 3,208 $ 4,906 $ 5,660 $ 2,454
======= ======= ======= =======
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
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PART III
In accordance with General Instruction G(3) of Form 10-K, the information
required by this Part III is incorporated by reference to the Advanced Energy's
definitive proxy statement relating to its 2000 Annual Meeting of Stockholders
(the "Proxy Statement"), as set forth below. The Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days after the end of
1999.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the Proxy Statement under the captions
"Proposal 1/ Election of Directors--Nominees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" and in Part I of this Form 10-K under the
caption "Executive Officers of the Company" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the Proxy Statement under the caption "Common
Stock Ownership by Management and Other Stockholders" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Proxy Statement under the caption "Certain
Transactions with Management" is incorporated herein by reference.
69
70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
page
----
(a) (i) Financial Statements:
Reports of Independent Public Accountants 48
Consolidated Financial Statements:
Balance Sheets at December 31, 1999 and 1998 50
Statement of Operations for each of the three years
in the period ended December 31, 1999 52
Statement of Stockholders' Equity for each of the
three years in the period ended December 31, 1999 53
Statement of Cash Flows for each of the three years
in the period ended December 31, 1999 54
Notes to Consolidated Financial Statements 55
(ii) Financial Statement Schedules for each of the three years
in the period ended December 31, 1999
Schedule II--Valuation and Qualifying Accounts 68
(iii)Exhibits:
2.1 Agreement and Plan of Reorganization, dated as of June 1, 1998,
by and among the Company, Warpspeed, Inc., a wholly owned
subsidiary of the Company, and RF Power Products, Inc.(1)
3.1 The Company's Restated Certificate of Incorporation, as
amended(2)
3.2 The Company's By-laws(3)
4.1 Form of Specimen Certificate for the Company's Common Stock(3)
4.2 Indenture dated November 1, 1999 between State Street Bank and
Trust Company of California, N.A., as trustee, and the Company
(including form of 5 1/4% Convertible Subordinated Note due
2006)
4.3 The Company hereby agrees to furnish to the SEC, upon request, a
copy of the instruments which define the rights of holders of
long-term debt of the Company. None of such instruments not
included as exhibits herein represents long-term debt in excess
of 10% of the consolidated total assets of the Company.
10.1 Comprehensive Supplier Agreement, dated May 18, 1998, between
Applied Materials Inc. and the Company(1)+
10.2 Purchase Order and Sales Agreement, dated October 12, 1999,
between Lam Research Corporation and the Company
10.3 Purchase Agreement, dated November 1, 1995, between Eaton
Corporation and the Company(4)+
10.4 Loan and Security Agreement, dated August 15, 1997, among
Silicon Valley Bank, Bank of Hawaii and the Company(5)
10.5 Loan Agreement dated December 8, 1997, by and among Silicon
Valley Bank, as Servicing Agent and a Bank, and Bank of Hawaii,
as a Bank, and the Company, as borrower(6)
10.6 Lease, dated June 12, 1984, amended June 11, 1992, between
Prospect Park East Partnership and the Company for property in
Fort Collins, Colorado(3)
10.7 Lease, dated March 14, 1994, as amended, between Sharp Point
Properties, L.L.C., and the Company for property in Fort
Collins, Colorado(3)
70
71
10.8 Lease, dated May 19, 1995, between Sharp Point Properties,
L.L.C. and the Company for a building in Fort Collins,
Colorado(3)
10.9 Lease agreement, dated March 18, 1996, and amendments dated June
21, 1996 and August 30, 1996, between RF Power Products, Inc.,
and Laurel Oak Road, L.L.C. for property in Voorhees, New
Jersey(7)
10.10 Form of Indemnification Agreement(3)
10.11 Employment Agreement, dated June 1, 1998, between RF Power
Products, Inc., and Joseph Stach(8)
10.12 1995 Stock Option Plan, as amended and restated(8)*
10.13 1995 Non-Employee Directors' Stock Option Plan(8)*
10.14 License Agreement, dated May 13, 1992 between RF Power Products
and Plasma-Therm, Inc.(9)
10.15 Lease Agreement dated March 18, 1996 and amendments dated June
21, 1996 and August 30, 1996 between RF Power Products, Inc. and
Laurel Oak Road, L.L.C. for office, manufacturing and warehouse
space at 1007 Laurel Oak Road, Voorhees, New Jersey(7)
10.16 Direct Loan Agreement dated December 20, 1996 between RF Power
Products, Inc. and the New Jersey Economic Development
Authority(7)
10.17 Lease, dated April 15, 1998, between Cross Park Investors, Ltd.,
and the Company for property in Austin, Texas(1)
10.18 Lease, dated April 15, 1998, between Cameron Technology
Investors, Ltd., and the Company for property in Austin,
Texas(1)
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP, Independent Accountants
23.2 Consent of KPMG LLP, Independent Accountants
24.1 Power of Attorney (included on the signature pages to this
Annual Report on Form 10-K)
27.1 Financial Data Schedule for the year ended December 31, 1999
(b) The Company filed a report on Form 8-K on November 8, 1999. The report
contains the Company's press release, dated October 11, 1999, announcing
the Company's financial results for the third fiscal quarter of 1999 and
nine-month period ended September 30, 1999.
- ---------------
(1) Incorporated by reference to the Company's quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No.
0-26966), filed August 7, 1998.
(2) Incorporated by reference to the Company's quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (File No.
0-26966), filed July 28, 1999.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-97188), filed September 20,
1995, as amended.
(4) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 0-26966),
filed March 28, 1996, as amended.
71
72
(5) Incorporated by reference to the Company's Registration
Statement on Form S-3 (File No. 333-34039), filed August 21,
1997, as amended.
(6) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (File No. 0-26966),
filed March 24, 1998.
(7) Incorporated by reference to RF Power Products' Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 (File No.
0-20229), filed February 25, 1997.
(8) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 0-26966),
filed March 24, 1999.
(9) Incorporated by reference to RF Power Products' Registration
Statement on Form 10 (File No. 0-020229), filed May 19, 1992 as
amended.
* Compensation Plan
+ Confidential treatment has been granted for portions of this
agreement.
72
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ADVANCED ENERGY INDUSTRIES, INC.
-------------------------------------
(Registrant)
/s/ Douglas S. Schatz
-------------------------------------
Douglas S. Schatz
Chief Executive Officer and Chairman
of the Board
Each person whose signature appears below hereby appoints Douglas S. Schatz
and Richard P. Beck, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report on Form 10-K necessary or advisable
to enable the registrant to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, which amendments may make such other
changes in the Annual Report on Form 10-K as the aforesaid attorney-in-fact
deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
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/ Douglas S. Schatz Chief Executive Officer and March 20, 2000
--------------------------------- Chairman of the Board
Douglas S. Schatz (Principal Executive Officer)
/s/ Hollis L. Caswell President, Chief Operating Officer March 20, 2000
--------------------------------- and Director
Hollis L. Caswell
/s/ Richard P. Beck Senior Vice President, Chief Financial March 20, 2000
--------------------------------- Officer, Assistant Secretary and
Richard P. Beck Director (Principal Financial Officer
and Principal Accounting Officer)
/s/ G. Brent Backman Director March 20, 2000
---------------------------------
G. Brent Backman
/s/ Elwood Spedden Director March 20, 2000
---------------------------------
Elwood Spedden
/s/ Arthur A. Noeth Director March 20, 2000
---------------------------------
Arthur A. Noeth
/s/ Gerald Starek Director March 20, 2000
---------------------------------
Gerald Starek
/s/ Arthur W. Zafiropoulo Director March 20, 2000
---------------------------------
Arthur W. Zafiropoulo
73
74
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization, dated as of June 1, 1998,
by and among the Company, Warpspeed, Inc., a wholly owned
subsidiary of the Company, and RF Power Products, Inc.(1)
3.1 The Company's Restated Certificate of Incorporation, as
amended(2)
3.2 The Company's By-laws(3)
4.1 Form of Specimen Certificate for the Company's Common Stock(3)
4.2 Indenture dated November 1, 1999 between State Street Bank and
Trust Company of California, N.A., as trustee, and the Company
(including form of 5 1/4% Convertible Subordinated Note due
2006)
4.3 The Company hereby agrees to furnish to the SEC, upon request, a
copy of the instruments which define the rights of holders of
long-term debt of the Company. None of such instruments not
included as exhibits herein represents long-term debt in excess
of 10% of the consolidated total assets of the Company.
10.1 Comprehensive Supplier Agreement, dated May 18, 1998, between
Applied Materials Inc. and the Company(1)+
10.2 Purchase Order and Sales Agreement, dated October 12, 1999,
between Lam Research Corporation and the Company
10.3 Purchase Agreement, dated November 1, 1995, between Eaton
Corporation and the Company(4)+
10.4 Loan and Security Agreement, dated August 15, 1997, among
Silicon Valley Bank, Bank of Hawaii and the Company(5)
10.5 Loan Agreement dated December 8, 1997, by and among Silicon
Valley Bank, as Servicing Agent and a Bank, and Bank of Hawaii,
as a Bank, and the Company, as borrower(6)
10.6 Lease, dated June 12, 1984, amended June 11, 1992, between
Prospect Park East Partnership and the Company for property in
Fort Collins, Colorado(3)
10.7 Lease, dated March 14, 1994, as amended, between Sharp Point
Properties, L.L.C., and the Company for property in Fort
Collins, Colorado(3)
10.8 Lease, dated May 19, 1995, between Sharp Point Properties,
L.L.C. and the Company for a building in Fort Collins,
Colorado(3)
10.9 Lease agreement, dated March 18, 1996, and amendments dated June
21, 1996 and August 30, 1996, between RF Power Products, Inc.,
and Laurel Oak Road, L.L.C. for property in Voorhees, New
Jersey(7)
10.10 Form of Indemnification Agreement(3)
10.11 Employment Agreement, dated June 1, 1998, between RF Power
Products, Inc., and Joseph Stach(8)
10.12 1995 Stock Option Plan, as amended and restated(8)*
10.13 1995 Non-Employee Directors' Stock Option Plan(8)*
10.14 License Agreement, dated May 13, 1992 between RF Power Products
and Plasma-Therm, Inc.(9)
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10.15 Lease Agreement dated March, 1996 and amendments dated June 21,
1996 and August 30, 1996 between RF Power Products, Inc. and
Laurel Oak Road, L.L.C. for office, manufacturing and warehouse
space at 1007 Laurel Oak Road, Voorhees, New Jersey(7)
10.16 Direct Loan Agreement dated December 20, 1996, between RF Power
Products, Inc. and the New Jersey Economic Development
Authority(7)
10.17 Lease, dated April 15, 1998, between Cross Park Investors, Ltd.,
and the Company for property in Austin, Texas(1)
10.18 Lease, dated April 15, 1998, between Cameron Technology
Investors, Ltd., and the Company for property in Austin,
Texas(1)
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP, Independent Accountants
23.2 Consent of KPMG LLP, Independent Accountants
24.1 Power of Attorney (included on the signature pages to this
Annual Report on Form 10-K)
27.1 Financial Data Schedule for the year ended December 31, 1999
---------------
(1) Incorporated by reference to the Company's quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No.
0-26966), filed August 7, 1998.
(2) Incorporated by reference to the Company's quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (File No.
0-26966), filed July 28, 1999.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-97188), filed September 20,
1995, as amended.
(4) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 0-26966),
filed March 28, 1996, as amended.
(5) Incorporated by reference to the Company's Registration
Statement on Form S-3 (File No. 333-34039), filed August 21,
1997, as amended.
(6) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (File No. 0-26966),
filed March 24, 1998.
(7) Incorporated by reference to RF Power Products' Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 (File No.
0-20229), filed February 25, 1997.
(8) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 0-26966),
filed March 24, 1999.
(9) Incorporated by reference to RF Power Products' Registration
Statement on Form 10 (File No. 0-020229), filed May 19, 1992 as
amended.
* Compensation Plan
+ Confidential treatment has been granted for portions of this
agreement.
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