Edgar Filing: ADVANCED ENERGY INDUSTRIES INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the quarterly period ended June 30, 2018
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the transition period from to .

Commission file number: 000-26966

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



Delaware		84-0846841
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
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

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 26, 2018 there were 39,113,566 shares of the registrant's Common Stock, par value $0.001 per share, outstanding.

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS



	Page
PART I FINANCIAL STATEMENTS	3

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	3

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Comprehensive Income	5

Condensed Consolidated Statements of Cash Flows	6

Notes to Condensed Consolidated Financial Statements	7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32

ITEM 4. CONTROLS AND PROCEDURES	32

PART II OTHER INFORMATION	33

ITEM 1. LEGAL PROCEEDINGS	33

ITEM 1A. RISK FACTORS	33

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45

ITEM 6. EXHIBITS	45

SIGNATURES	46
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Table Of Contents

PART I FINANCIAL STATEMENTS


ITEM 1.	UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)



	June 30,			December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	432,999		$	407,283
Marketable securities	3,146			3,104
Accounts and other receivable, net of allowances of $1,799 and $1,748 respectively	106,302			87,429
Inventories	109,834			78,450
Income taxes receivable	3,290			1,295
Other current assets	7,263			8,129
Current assets from discontinued operations	7,979			9,535
Total current assets	670,813			595,225
Property and equipment, net	24,148			17,795
Deposits and other assets	3,670			3,051
Goodwill	54,256			53,812
Intangible assets, net	32,672			33,499
Deferred income tax assets	38,419			18,841
Non-current assets from discontinued operations	11,080			11,085
TOTAL ASSETS	$	835,058		$	733,308
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	58,028		$	48,177
Income taxes payable	14,898			5,365
Accrued payroll and employee benefits	17,206			18,412
Other accrued expenses	21,384			19,913
Customer deposits and other	14,335			6,402
Current liabilities from discontinued operations	6,478			7,850
Total current liabilities	132,329			106,119
Deferred income tax liabilities	6,527			4,556
Uncertain tax positions	19,173			17,031
Long term deferred revenue	31,185			33,402
Other long-term liabilities	37,590			36,282
Non-current liabilities from discontinued operations	12,738			15,277
Total liabilities	239,542			212,667
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding	—			—
Common stock, $0.001 par value, 70,000 shares authorized; 39,240 and 39,604 issued and outstanding, respectively	39			40
Additional paid-in capital	150,647			184,843
Accumulated other comprehensive (loss) income	(1,447		)	2,533
Retained earnings	445,771			333,225
Advanced Energy stockholders’ equity	595,010			520,641
Noncontrolling interest	506			—
Total stockholders’ equity	595,516			520,641
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	835,058		$	733,308

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017

Sales:
Product	$	169,235		$	143,288		$	340,444		$	272,115
Services	26,797			22,584			51,205			43,108
Total sales	196,032			165,872			391,649			315,223
Cost of sales:
Product	80,953			66,491			160,759			126,608
Services	13,844			12,240			26,010			22,643
Total cost of sales	94,797			78,731			186,769			149,251
Gross profit	101,235			87,141			204,880			165,972
Operating expenses:
Research and development	19,195			14,610			36,832			27,113
Selling, general and administrative	24,758			23,790			53,406			45,888
Amortization of intangible assets	1,264			974			2,521			1,936
Total operating expenses	45,217			39,374			92,759			74,937
Operating income	56,018			47,767			112,121			91,035
Other income (expense), net	(485		)	(83		)	(459		)	(3,291		)
Income from continuing operations, before income taxes	55,533			47,684			111,662			87,744
Provision for income taxes	9,133			1,811			18,892			6,430
Income from continuing operations	46,400			45,873			92,770			81,314
Income from discontinued operations, net of income taxes	5			179			145			2,273
Net income	$	46,405		$	46,052		$	92,915		$	83,587
Income from continuing operations attributable to noncontrolling interest	44			—			75			—
Net income attributable to Advanced Energy Industries, Inc.	$	46,361		$	46,052		$	92,840		$	83,587

Basic weighted-average common shares outstanding	39,349			39,849			39,484			39,793
Diluted weighted-average common shares outstanding	39,603			40,250			39,807			40,212

Earnings per share:
Continuing operations:
Basic earnings per share	$	1.18		$	1.15		$	2.35		$	2.04
Diluted earnings per share	$	1.17		$	1.14		$	2.33		$	2.02
Discontinued operations:
Basic earnings per share	$	—		$	—		$	—		$	0.06
Diluted earnings per share	$	—		$	—		$	—		$	0.06
Net income:
Basic earnings per share	$	1.18		$	1.16		$	2.35		$	2.10
Diluted earnings per share	$	1.17		$	1.14		$	2.33		$	2.08

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	46,405		$	46,052		$	92,915		$	83,587
Other comprehensive income:
Foreign currency translation	(6,416		)	1,498			(3,944		)	4,526
Unrealized gain on marketable securities	—			(21		)	—			(21		)
Minimum benefit retirement liability	132			(138		)	(36		)	(154		)
Comprehensive income	40,121			47,391			88,935			87,938
Comprehensive income attributable to noncontrolling interest	44			—			75			—
Comprehensive income attributable to Advanced Energy Industries, Inc.	$	40,077		$	47,391		$	88,860		$	87,938

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)



	Six Months Ended June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	92,915		$	83,587
Income from discontinued operations, net of income taxes	145			2,273
Income from continuing operations, net of income taxes	92,770			81,314
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,917			4,219
Stock-based compensation expense	6,437			7,254
Provision for deferred income taxes	(96		)	—
Loss on foreign exchange hedge	—			3,489
Net loss on disposal of assets	158			65
Changes in operating assets and liabilities, net of assets acquired:
Accounts and other receivable, net	(8,816		)	16,045
Inventories	(31,620		)	(18,593		)
Other current assets	1,739			(2,013		)
Accounts payable	8,555			4,596
Other liabilities and accrued expenses	5,029			8,183
Income taxes	7,831			2,054
Net cash provided by operating activities from continuing operations	87,904			106,613
Net cash used in operating activities from discontinued operations	(2,450		)	(6,396		)
Net cash provided by operating activities	85,454			100,217
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(91		)	(19		)
Proceeds from sale of marketable securities	4			723
Restricted cash, related to acquisition	—			(17,732		)
Acquisitions, net of cash acquired	(9,072		)	—
Purchase of foreign exchange hedge	—			(3,489		)
Purchases of property and equipment	(9,426		)	(3,408		)
Net cash used in investing activities from continuing operations	(18,585		)	(23,925		)
Net cash used in investing activities from discontinued operations	—			—
Net cash used in investing activities	(18,585		)	(23,925		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and retirement of common stock	(38,059		)	—
Net payments related to stock-based award activities	(2,576		)	(1,874		)
Net cash used in financing activities from continuing operations	(40,635		)	(1,874		)
Net cash used in financing activities from discontinued operations	—			—
Net cash used in financing activities	(40,635		)	(1,874		)
EFFECT OF CURRENCY TRANSLATION ON CASH	(1,160		)	1,216
INCREASE IN CASH AND CASH EQUIVALENTS	25,074			75,634
CASH AND CASH EQUIVALENTS, beginning of period	415,037			289,517
CASH AND CASH EQUIVALENTS, end of period	440,111			365,151
Less cash and cash equivalents from discontinued operations	7,112			6,214
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period	$	432,999		$	358,937
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	114		$	—
Cash paid for income taxes	12,216			3,131
Cash received for refunds of income taxes	703			856
Cash held in banks outside the United States	262,064			228,586

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)


NOTE 1.	BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-owned subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") design, manufacture, sell, and support power conversion products that transform electrical power into various usable forms. Our products enable manufacturing processes that use thin films for various products, such as semiconductor devices, flat panel displays, solar cells, architectural glass, optical coating and decorative and functional coating for consumer products. We also supply thermal instrumentation products for advanced temperature control in the thin film process for these same markets. Our power control modules provide power control solutions for industrial applications where heat treatment and processing are used such as glass manufacturing, metal fabrication and treatment, and material and chemical processing. Our high voltage power supplies and modules are used in applications such as semiconductor ion implantation, scanning electron microscopy, chemical analysis such as mass spectrometry and various applications using X-ray technology and electron guns for both analytical and processing applications. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, and refurbishments and sales of used equipment to companies using our products. As of December 31, 2015, we discontinued the production, engineering, and sales of our solar inverter product line. As such, all solar inverter revenues, costs, assets and liabilities, with the exception of service related activities which we continue to perform, are reported in Discontinued Operations for all periods presented herein. See Note 4. Discontinued Operations.

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 2018, and the results of our operations and cash flows for the three and six months ended June 30, 2018 and 2017.

The Unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and other financial information filed with the SEC.

Estimates and Assumptions

The preparation of our Unaudited Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We believe that the significant estimates, assumptions, and judgments when accounting for items and matters such as allowances for doubtful accounts, excess and obsolete inventory, warranty reserves, acquisitions, asset valuations, goodwill, asset life, depreciation, amortization, recoverability of assets, impairments, deferred revenue, stock option and restricted stock grants, taxes, and other provisions are reasonable, based upon information available at the time they are made. Actual results may differ from these estimates.

Critical Accounting Policies

Our accounting policies are described in our audited Consolidated Financial Statements and Notes contained in our Annual Report on Form 10-K for the year ended December 31, 2017. See Note 3. Revenue for the updated revenue recognition policy in accordance with ASU 2014-09, "Revenue from Contracts with Customers".

New Accounting Standards

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Consolidated Financial Statements upon adoption.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within the year of adoption. Early adoption is permitted.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

Advanced Energy has established a cross-functional implementation team to analyze its current portfolio of lease contracts. We are currently in the process of aggregating lease agreements and completing the individual lease analysis in accordance with ASU 2016-02. The implementation team is also responsible for identifiyting and implementing changes to existing business processes, controls, and systems in order to support lease accounting and disclosure under the new standard. Advanced Energy has not yet completed its evaluation and has not yet determined the impact ASU 2016-02 may have on its Consolidated Financial Statements.

In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income" to give companies the option to reclassify the income tax effects on items within accumulated other comprehensive income resulting from U.S. tax reform to retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. Advanced Energy is currently assessing and has not yet determined the impact ASU 2018-02 may have on its Consolidated Financial Statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718)", Improvements to Nonemployee Share-based Payments (“ASU 2018-07”). This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. Advanced Energy is currently assessing and has not yet determined the impact ASU 2018-07 may have on its Consolidated Financial Statements.

Recently adopted accounting pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" and has subsequently issued several supplemental and/or clarifying ASUs (collectively known as "ASC 606"). ASC 606 implements a five-step model for how an entity should recognize revenue in order to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 is effective for fiscal periods beginning after December 15, 2017 and for the interim periods within that year. We adopted ASC 606 during the first quarter of fiscal year 2018 using the modified retrospective approach and recorded an adjustment to reflect the cumulative-effect of its adoption on all contracts with customers. See Note 3. Revenue for further details.

In October 2016, the FASB issued ASU 2016-16, "Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory." ASU 2016-16 changes the timing of income tax recognition for an intercompany sale of assets. ASU 2016-16 requires the seller’s tax effects and the buyer’s deferred taxes to be recognized immediately upon the sale instead of deferring accounting for the income tax implications until the assets are sold to a third party or recovered through use. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017 including interim periods within the year of adoption. We adopted ASU 2016-16 during the first quarter of fiscal year 2018 using the modified retrospective approach and recorded an adjustment to reflect the cumulative-effect of its adoption.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

Cumulative-effect of recently adopted accounting pronouncements

The following table reflects the cumulative-effect of the adoption of ASC 606 and ASU 2016-16 using the modified retrospective approach for:



	December 31, 2017		Impact of			Impact of		January 1, 2018
	as reported		ASC 606			ASU 2016-16		as adjusted
Accounts and other receivable, net	$	87,429	$	8,251		$	—	$	95,680
Inventories	78,450		(3,561		)	—		74,889
Total current assets	595,225		4,690			—		599,915
Deferred income tax assets	18,841		—			17,080		35,921
Total assets	733,308		4,690			17,080		755,078

Income taxes payable	5,365		—			921		6,286
Deferred income tax liabilities	4,556		1,143			—		5,699
Total liabilities	212,667		1,143			921		214,731
Retained earnings	333,225		3,547			16,159		352,931
Total stockholders’ equity	520,641		3,547			16,159		540,347
Total liabilities and stockholders' equity	733,308		4,690			17,080		755,078


NOTE 2.	BUSINESS ACQUISITIONS

Electrostatic Technology and Product Line

In May 2018, Advanced Energy acquired the electrostatic technology and product line from Monroe Electronics, a privately held electronics manufacturer in Lyndonville, New York for $3.0 million in cash.

Trek Holding Co., LTD

In February 2018, Advanced Energy acquired Trek Holding Co., LTD ("Trek"), a privately held company with operations in Tokyo, Japan and Lockport, New York for $11.7 million in cash. Trek has a 95% ownership interest in its U.S. subsidiary which is also its primary operation.

The components of the fair value of the total consideration transferred for our acquisitions are as follows:



	Trek			Electrostatic Product Line
Cash paid for acquisition	$	11,723		$	3,000
Cash acquired	(5,651		)	—
Total fair value of consideration transferred	$	6,072		$	3,000

The following table summarizes estimated fair values of the assets acquired and liabilities assumed from our acquisitions:



	Trek		Electrostatic Product Line
Assets acquired and liabilities assumed, net	$	5,284	$	380
Total amortizable intangible assets	788		1,400
Total identifiable net assets	6,072		1,780
Goodwill	—		1,220
Total fair value of consideration transferred	$	6,072	$	3,000

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

A summary of the intangible assets acquired, amortization method and estimated useful lives are as follows:



	Trek		Electrostatic Product Line		Amortization Method	Useful Life
Technology	$	671	$	1,200	Straight-line	10
Customer relationships	117		200		Straight-line	10
Total	$	788	$	1,400

Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation at each balance sheet date. Advanced Energy is in the process of finalizing the assessment of fair value for the assets acquired and liabilities assumed.


NOTE 3.	REVENUE

Adoption of ASC 606, "Revenue from Contract with Customers"

Advanced Energy adopted ASC 606 using the modified retrospective method by recognizing the cumulative effect of the adoption of ASC 606, for all contracts with customers, to the opening balance of equity at January 1, 2018. Therefore, our comparative financial information for the three and six months ended June 30, 2017 has not been adjusted and continues to be reported under ASC Topic 605. The cumulative effect adjustment was based on the timing difference of revenue recognition between ASC Topic 605 and ASC 606 related to our inventory stocking agreements. Under ASC 606, revenue related to our inventory stocking agreements are recognized when inventory is shipped to our customers. Under ASC Topic 605, revenue was recognized when the inventory was consumed by our customers. The tables below show the quantitative impact of ASC 606 on our consolidated financial statements.



	June 30, 2018
						Balances without
						adoption of
	As Reported		Adjustments			ASC 606
Accounts and other receivable, net	$	106,302	$	(13,889	)	$	92,413
Inventories	109,834		5,604			115,438
Total current assets	670,813		(8,285		)	662,528
TOTAL ASSETS	835,058		(8,285		)	826,773

Income taxes payable	14,898		(807		)	14,091
Total current liabilities	132,329		(807		)	131,522
Deferred income tax liabilities	6,527		(1,143		)	5,384
Total liabilities	239,542		(1,950		)	237,592

Retained earnings	445,771		(6,335		)	439,436
Advanced Energy stockholders’ equity	595,010		(6,335		)	588,675
Total stockholders’ equity	595,516		(6,335		)	589,181
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	835,058		(8,285		)	826,773

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)



	Three Months Ended June 30, 2018
						Balances without
						adoption of
	As Reported		Adjustments			ASC 606
Product sales	$	169,235	$	(4,179	)	$	165,056
Total sales	196,032		(4,179		)	191,853
Product cost of sales	80,953		(1,518		)	79,435
Total cost of sales	94,797		(1,518		)	93,279
Gross profit	101,235		(2,661		)	98,574
Operating income	56,018		(2,661		)	53,357
Income from continuing operations, before income taxes	55,533		(2,661		)	52,872
Provision for income taxes	9,133		(577		)	8,556
Income from continuing operations	46,400		(2,084		)	44,316
Net income	46,405		(2,084		)	44,321
Net income attributable to Advanced Energy Industries, Inc.	46,361		(2,084		)	44,277



	Six Months Ended June 30, 2018
						Balances without
						adoption of
	As Reported		Adjustments			ASC 606
Product sales	$	340,444	$	(5,639	)	$	334,805
Total sales	391,649		(5,639		)	386,010
Product cost of sales	160,759		(2,044		)	158,715
Total cost of sales	186,769		(2,044		)	184,725
Gross profit	204,880		(3,595		)	201,285
Operating income	112,121		(3,595		)	108,526
Income from continuing operations, before income taxes	111,662		(3,595		)	108,067
Provision for income taxes	18,892		(807		)	18,085
Income from continuing operations	92,770		(2,788		)	89,982
Net income	92,915		(2,788		)	90,127
Net income attributable to Advanced Energy Industries, Inc.	92,840		(2,788		)	90,052



	Six Months Ended June 30, 2018
							Balances without
							adoption of
	As Reported			Adjustments			ASC 606
Net income	$	92,915		$	(2,788	)	$	90,127
Income from continuing operations, net of income taxes	$	92,770		$	(2,788	)	$	89,982
Changes in operating assets and liabilities, net of assets acquired:
Accounts and other receivable, net	(8,816		)	5,639			(3,177		)
Inventories	(31,620		)	(2,044		)	(33,664		)
Income taxes	7,831			(807		)	7,024
Net cash provided by operating activities from continuing operations	87,904			—			87,904

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

Revenue Recognition

We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services have been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue.

Practical Expedients

We expense incremental costs of obtaining contracts when the amortization period of the costs is less than 1 year. These costs are included in selling, general, and administrative expenses.

Nature of goods and services

Products

Advanced Energy provides highly-engineered, mission-critical, precision power conversion, measurement and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform electrical power into various usable forms. Our power conversion products refine, modify and control the raw electrical power from a utility and convert it into power that is predictable, repeatable and customizable. Our products enable thin film manufacturing processes such as plasma enhanced chemical and physical deposition and etch for various semiconductor and industrial products, industrial thermal applications for material and chemical processes, and specialty power for critical industrial applications. We also supply thermal instrumentation products for advanced temperature measurement and control in these markets.

Our products are designed to enable new process technologies, improve productivity, and lower the cost of ownership for our customers. We also provide repair and maintenance services for all of our products. We principally serve original equipment manufacturers ("OEM") and end customers in the semiconductor, flat panel display, high voltage, solar panel, and other industrial capital equipment markets. Our products are used in diverse markets, applications, and processes including the manufacture of capital equipment for semiconductor device manufacturing, thin film applications for thin film renewables and architectural glass, and for other thin film applications including flat panel displays, and industrial coatings.

Services

Our global support services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime. They expect that suppliers offer comprehensive local repair service and customer support. To meet these market requirements, we maintain a worldwide support organization comprising of both direct and indirect activities, through partnership with local distributors, primarily in the United States ("U.S."), the People’s Republic of China ("PRC"), Japan, South Korea, Taiwan, Germany, and United Kingdom.

As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information which would allow us to project the estimated service usage pattern at this time. We have deferred revenue related to our extended warranties and service contracts totaling $34.5 million as of June 30, 2018 and $37.5 million as of December 31, 2017.

Disaggregation of Revenue

The following table presents our net sales by product line:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Semiconductor capital market	$	127,291	$	117,020	$	263,301	$	221,668
Industrial power capital market	41,944		26,268		77,143		50,447
Global support	26,797		22,584		51,205		43,108
Total	$	196,032	$	165,872	$	391,649	$	315,223

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

The following table presents our net sales by geographic region:



	Three Months Ended June 30,
	2018				2017
Sales to external customers:
United States	$	122,904	62.7	%	$	114,268	69.0	%
Canada	42		—		16		—
North America	122,946		62.7		114,284		69.0

People's Republic of China	12,668		6.5		8,371		5.0
Republic of Korea	15,775		8.0		13,628		8.2
Other Asian countries	17,502		8.9		11,995		7.2
Asia	45,945		23.4		33,994		20.4

Germany	21,663		11.1		14,828		8.9
United Kingdom	1,611		0.8		2,766		1.7
Other European countries	3,867		2.0		—		—
Europe	27,141		13.9		17,594		10.6
Total	$	196,032	100.0	%	$	165,872	100.0	%



	Six Months Ended June 30,
	2018				2017
Sales to external customers:
United States	$	253,273	64.6	%	$	218,982	69.5	%
Canada	154		—		32		—
North America	253,427		64.6		219,014		69.5

People's Republic of China	22,219		5.7		16,504		5.2
Republic of Korea	31,639		8.1		25,886		8.2
Other Asian countries	31,945		8.2		21,173		6.7
Asia	85,803		22.0		63,563		20.1

Germany	40,948		10.5		26,682		8.5
United Kingdom	3,559		0.9		5,964		1.9
Other European countries	7,912		2.0		—		—
Europe	52,419		13.4		32,646		10.4
Total	$	391,649	100.0	%	$	315,223	100.0	%

The following table presents our net sales by extended warranty and service contracts recognized over time and our product and service revenue recognized at a point in time:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Product and service revenue recognized at point in time	$	195,089	$	165,002	$	389,772	$	313,532
Extended warranty and service contracts recognized over time	943		870		1,877		1,691
Total	$	196,032	$	165,872	$	391,649	$	315,223


NOTE 4.	DISCONTINUED OPERATIONS

In December 2015, we completed the wind down of engineering, manufacturing and sales of our solar inverter product line (the "inverter business"). Accordingly, the results of our inverter business have been reflected as "Income from discontinued operations, net of income taxes" on our Consolidated Statements of Operations for all periods presented herein.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

The effect of our sales of extended inverter warranties to our customers continues to be reflected in deferred revenue in our Consolidated Balance Sheets. Deferred revenue for extended inverter warranties and the associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing operations in future periods in our Consolidated Statement of Operations, as the deferred revenue, is earned and the associated services are rendered. Extended warranties related to the inverter product line are no longer offered.

The significant items included in "Income from discontinued operations, net of income taxes" are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Sales	$	—		$	—		$	—		$	—
Cost of sales	(200		)	(69		)	(88		)	(897		)
Total operating expense (benefit)	92			(26		)	31			(1,146		)
Operating income from discontinued operations	108			95			57			2,043
Other income (expense)	(127		)	214			(3		)	377
Income (loss) from discontinued operations before income taxes	(19		)	309			54			2,420
Provision (benefit) for income taxes	(24		)	130			(91		)	147
Income from discontinued operations, net of income taxes	$	5		$	179		$	145		$	2,273

Assets and Liabilities of discontinued operations within the Condensed Consolidated Balance Sheets are comprised of the following:



	June 30,		December 31,
	2018		2017
Cash and cash equivalents	$	7,112	$	7,754
Accounts and other receivables, net	406		1,363
Inventories	461		418
Current assets of discontinued operations	$	7,979	$	9,535

Other assets	$	68	$	72
Deferred income tax assets	11,012		11,013
Non-current assets of discontinued operations	$	11,080	$	11,085

Accounts payable and other accrued expenses	$	477	$	545
Accrued warranty	6,001		7,305
Current liabilities of discontinued operations	$	6,478	$	7,850

Accrued warranty	$	12,576	$	15,112
Other liabilities	162		165
Non-current liabilities of discontinued operations	$	12,738	$	15,277


NOTE 5.	INCOME TAXES

The following table sets out the tax expense and the effective tax rate for our income from continuing operations:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Income from continuing operations, before income taxes	$	55,533		$	47,684		$	111,662		$	87,744
Provision for income taxes	9,133			1,811			18,892			6,430
Effective tax rate	16.4		%	3.8		%	16.9		%	7.3		%

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

On December 22, 2017, the U.S. enacted the 2017 Tax Cuts and Jobs Act (“Tax Act”), which contains several key tax provisions that affected our financial results for 2017, including a one-time mandatory transition tax on our accumulated foreign earnings and the reduction of the corporate income tax rate from 35% to 21%, effective January 1, 2018, which required a revaluation of our U.S. deferred tax assets and liabilities. The Tax Act also contains several key tax provisions that will affect our financial results for 2018, including reduction of the corporate income tax rate from 35% to 21% and application of the global intangible low-taxed income of foreign subsidiaries (“GILTI tax”), among others.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation is expected over the next 12 months, we consider the accounting for the transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118.

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ended June 30, 2018, respectively, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates. Our effective tax rate for the three and six months ended June 30, 2018 was also impacted by the effect of the recently enacted Tax Act, with the benefit from the corporate income tax rate reduction to 21% offset by additional GILTI tax, and entry into additional foreign taxable jurisdictions.

Our effective tax rates differ from the U.S. federal statutory rate of 35% for the three and six months ended June 30, 2017, respectively, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates. Additionally, in accordance with the adoption of ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” in December 2016, the excess tax benefit attributable to stock-based compensation of $3.8 million and $4.2 million, for the three and six months ended June 30, 2017, respectively, was recognized as a component of tax expense.

Our policy is to classify accrued interest and penalties related to unrecognized tax benefits in our income tax provision. The amount of interest and penalties accrued related to our unrecognized tax benefits for the three and six months ended June 30, 2018 and 2017 was not significant.


NOTE 6.	EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of our diluted EPS is similar to the computation of our basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods), if our outstanding stock options and restricted stock units had been converted to common shares, and if such assumed conversion is dilutive.

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted EPS for the three and six months ended June 30, 2018 and 2017:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Income from continuing operations	$	46,400	$	45,873	$	92,770	$	81,314
Income from continuing operations attributable to noncontrolling interest	44		—		75		—
Income from continuing operations attributable to Advanced Energy Industries, Inc.	$	46,356	$	45,873	$	92,695	$	81,314

Basic weighted-average common shares outstanding	39,349		39,849		39,484		39,793
Assumed exercise of dilutive stock options and restricted stock units	254		401		323		419
Diluted weighted-average common shares outstanding	39,603		40,250		39,807		40,212
Continuing operations:
Basic earnings per share	$	1.18	$	1.15	$	2.35	$	2.04
Diluted earnings per share	$	1.17	$	1.14	$	2.33	$	2.02

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

The following restricted stock units were excluded in the computation of diluted earnings per share because they were anti-dilutive:



	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
Restricted stock units	6	—	2	1

Stock Buyback

In September 2015, our Board of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. In November 2017, our Board of Directors approved an extension of the share repurchase program to December 2019 from its original maturity of March 2018. In May 2018 our Board of Directors approved a $50 million increase in its authorization to repurchase shares of Company common stock under this same program. As of June 30, 2018, we had $82.0 million remaining for the future repurchase of shares of our common stock.

In order to execute the repurchase of shares of our common stock, the company periodically enters into stock repurchase agreements. During the three and six months ended June 30, 2018 and 2017 the company has repurchased the following shares of common stock:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Amount paid to repurchase shares	$	25,309	$	—	$	38,059	$	—
Number of shares repurchased	407		—		588		—
Average repurchase price per share	$	62.13	$	—	$	64.70	$	—

There were no shares repurchased from related parties. All shares repurchased were recognized as a reduction to Additional paid-in capital. Repurchased shares were retired and assumed the status of authorized and unissued shares.

Subsequent to June 30, 2018, we repurchased an additional $8.8 million of shares of our common stock in the open market under a Stock Repurchase Plan and Agreement. A total of 148,510 shares of our common stock was repurchased subsequent to June 30, 2018 at an average price of $59.53 per share.


NOTE 7.	MARKETABLE SECURITIES AND ASSETS MEASURED AT FAIR VALUE

Our investments with original maturities of more than three months at the time of purchase and that are intended to be held for no more than 12 months, are considered marketable securities available for sale.

Our marketable securities consist of certificates of deposit as follows:



	June 30, 2018				December 31, 2017
	Cost		Fair Value		Cost		Fair Value
Total marketable securities	$	3,143	$	3,146	$	3,103	$	3,104

The maturities of our marketable securities available for sale as of June 30, 2018 are as follows:

The value and liquidity of the marketable securities we hold are affected by market conditions, as well as the ability of the issuers of such securities to make principal and interest payments when due, and the functioning of the markets in which these securities are traded. As of June 30, 2018, we do not believe any of the underlying issuers of our marketable securities are at risk of default.

The following tables present information about our marketable securities measured at fair value, on a recurring basis, as of June 30, 2018 and December 31, 2017. The tables indicate the fair value hierarchy of the valuation techniques utilized to determine fair value. We did not have any financial liabilities measured at fair value, on a recurring basis, as of June 30, 2018

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

and December 31, 2017.



June 30, 2018	Level 1		Level 2		Level 3		Total
Total marketable securities	$	—	$	3,146	$	—	$	3,146

December 31, 2017	Level 1		Level 2		Level 3		Total
Total marketable securities	$	—	$	3,104	$	—	$	3,104

There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the three and six months ended June 30, 2018.


NOTE 8.	DERIVATIVE FINANCIAL INSTRUMENTS

We are impacted by changes in foreign currency exchange rates. We manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. We did not enter into any new foreign currency exchange forward contracts during the three and six months ended June 30, 2018. During the three and six months ended June 30, 2017, we entered into foreign currency exchange forward contracts to manage the exchange rate risk associated with intercompany debt denominated in nonfunctional currencies. These derivative instruments are not designated as hedges; however, they do offset the fluctuations of our intercompany debt due to foreign exchange rate changes. These forward contracts are typically for one-month periods. We did not have any currency exchange rate contracts outstanding as of June 30, 2018. At December 31, 2017 we had outstanding Euro and Pound Sterling forward contracts.

The notional amount of foreign currency exchange contracts outstanding at December 31, 2017 was $16.3 million and the fair value of these contracts was not significant at December 31, 2017.

During the three and six months ended June 30, 2018 and 2017 the gains and losses recorded related to the foreign currency exchange contracts are as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
Foreign currency (loss) gain from foreign currency exchange contracts	$	—	$	(666	)	$	(750	)	$	(627	)

These gains and losses were offset by corresponding gains and losses on the revaluation of the underlying intercompany debt and both are included as a component of Other income (expense), net, in our Unaudited Condensed Consolidated Statements of Operations.

During the first quarter of 2017 we entered into a foreign currency exchange rate forward contract at a cost of $3.5 million, to mitigate the exchange rate risk associated with a planned offshore acquisition which was not consummated. The hedge expired upon maturity in the first quarter of 2017. The cost of the forward contract is recorded as a component of Other income (expense), net in our Condensed Consolidated Statement of Operations.


NOTE 9.	ACCOUNTS AND OTHER RECEIVABLE

Accounts and other receivable are recorded at net realizable value. Components of accounts and other receivable, net of reserves, are as follows:



	June 30,		December 31,
	2018		2017
Amounts billed, net	$	92,413	$	87,429
Unbilled receivables	13,889		—
Total receivables, net	$	106,302	$	87,429

Amounts billed, net consist of amounts that have been invoiced to our customers in accordance with our terms and conditions and are shown net of an allowance for doubtful accounts.

Unbilled receivables consist of amounts where we have satisfied our contractual obligations related to inventory stocking contracts with customers. Such amounts typically become billable to the customer upon their consumption of the

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

inventory managed under the stocking contracts. We anticipate that substantially all unbilled receivables will be invoiced and collected over the next twelve months.


NOTE 10.	INVENTORIES

Our inventories are valued at the lower of cost or net realizable value and computed on a first-in, first-out (FIFO) basis. Components of inventories, net of reserves, are as follows:



	June 30,		December 31,
	2018		2017
Parts and raw materials	$	84,911	$	58,567
Work in process	10,219		7,986
Finished goods	14,704		11,897
Total	$	109,834	$	78,450


NOTE 11.	PROPERTY AND EQUIPMENT

Property and equipment, net is comprised of the following:



	June 30,			December 31,
	2018			2017
Buildings and land	$	1,756		$	1,788
Machinery and equipment	38,882			36,579
Computer and communication equipment	25,721			26,819
Furniture and fixtures	1,583			1,568
Vehicles	271			341
Leasehold improvements	15,232			17,286
Construction in process	2,720			802
	86,165			85,183
Less: Accumulated depreciation	(62,017		)	(67,388		)
Property and equipment, net	$	24,148		$	17,795

Depreciation expense recorded in continuing operations and included in selling, general and administrative expense is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Depreciation expense	$	1,792	$	1,258	$	3,396	$	2,283


NOTE 12.	GOODWILL

The following summarizes the changes in goodwill during the six months ended June 30, 2018:



	Beginning Balance		Additions		Effect of Changes in Exchange Rates			Ending Balance
June 30, 2018	$	53,812	$	1,220	$	(776	)	$	54,256

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

NOTE 13.INTANGIBLE ASSETS

Intangible assets consisted of the following as of June 30, 2018 and December 31, 2017:



June 30, 2018	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	29,898	$	(12,025	)	$	17,873
Technology	20,201		(6,428		)	13,773
Trademarks and other	2,570		(1,544		)	1,026
Total	$	52,669	$	(19,997	)	$	32,672



December 31, 2017	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	30,034	$	(10,787	)	$	19,247
Technology	18,702		(5,559		)	13,143
Trademarks and other	2,623		(1,514		)	1,109
Total	$	51,359	$	(17,860	)	$	33,499

Amortization expense related to intangible assets is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Amortization expense	$	1,264	$	974	$	2,521	$	1,936

Estimated amortization expense related to intangibles is as follows:



Year Ending December 31,
2018 (remaining)	$	2,506
2019	4,994
2020	4,323
2021	4,222
2022	3,963
Thereafter	12,664
Total	$	32,672


NOTE 14.	WARRANTIES

Provisions of our sales agreements include customary product warranties, ranging from 12 months to 24 months following installation. The estimated cost of our warranty obligation is recorded when revenue is recognized and is based upon our historical experience by product, configuration and geographic region.

Our estimated warranty obligation is included in Other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Balances at beginning of period	$	2,084		$	4,126		$	2,312		$	2,329
Warranty liabilities acquired	—			—			92			—
Increases to accruals	306			208			484			2,389
Warranty expenditures	(396		)	(408		)	(902		)	(797		)
Effect of changes in exchange rates	(13		)	7			(5		)	12
Balances at end of period	$	1,981		$	3,933		$	1,981		$	3,933

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)


NOTE 15.	PENSION LIABILITY

In connection with the acquisition of HiTek Power Group, a privately-held provider of high voltage power solutions, in 2014, we acquired the HiTek Power Limited Pension Scheme (the "HiTek Plan"). The HiTek Plan has been closed to new participants since April 1, 2002 and to additional accruals since April 5, 2005. To measure the expense and related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. We are committed to make annual fixed payments of $0.9 million into the HiTek Plan through April 30, 2024, and then $1.8 million from May 1, 2024 through November 30, 2033.

The net pension liability is included in Other long-term liabilities in our balance sheet as follows:



	June 30,		December 31,
	2018		2017
Pension liability	$	19,247	$	19,797

The following table sets forth the components of net periodic pension cost for the three and six months ended June 30, 2018 and 2017:



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Interest cost	$	214		$	236		$	432		$	500
Expected return on plan assets	(158		)	(126		)	(319		)	(266		)
Amortization of actuarial gains and losses	133			63			269			133
Net periodic pension cost	$	189		$	173		$	382		$	367


NOTE 16.	STOCK-BASED COMPENSATION

On May 4, 2017, the shareholders approved the Company's 2017 Omnibus Incentive Plan ("the 2017 Plan") and all shares that were then available for issuance under the 2008 Omnibus Incentive Plan are now available for issuance under the 2017 Plan. The 2017 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of the awards issued under the 2017 Plan may be issued as performance-based awards to align compensation awards to the attainment of annual or long-term performance goals. As of June 30, 2018, there were 3.2 million shares reserved and 2.7 million shares available for grant under the 2017 Plan.

Restricted stock units ("RSU’s") are generally granted with a grant date fair value equal to the market price of our stock at the date of grant and with generally a three or four-year vesting schedule or performance-based vesting as determined at the time of grant.

Stock option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance-based vesting as determined at the time of grant. Stock option awards generally have a term of 10 years.

We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. Stock-based compensation for the three and six months ended June 30, 2018 and 2017 was as

follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Stock-based compensation expense	$	1,943	$	3,856	$	6,437	$	7,254

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

Changes in the outstanding RSU awards during the three and six months ended June 30, 2018 were as follows:



	Three Months Ended June 30, 2018				Six Months Ended June 30, 2018
	Number of RSUs		Weighted-Average Grant Date Fair Value		Number of RSUs		Weighted- Average Grant Date Fair Value
RSUs outstanding at beginning of period	336		$	59.64	386		$	51.06
RSUs granted	65		$	61.35	225		$	67.00
RSUs vested	(44	)	$	66.78	(199	)	$	55.71
RSUs forfeited	(5	)	$	48.03	(60	)	$	47.56
RSUs outstanding at end of period	352		$	59.25	352		$	59.25

Changes in the outstanding stock option awards during the three and six months ended June 30, 2018 were as follows:

Three Months Ended June 30, 2018

Six Months Ended June 30, 2018

Number of Options

Weighted-Average Exercise Price per Share

Number of Options

Weighted-Average Exercise Price per Share