ADVANCED ENERGY INDUSTRIES INC - Quarter Report: 2012 June (Form 10-Q)

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, 2012
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 o	Accelerated filer þ	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company 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 31, 2012 there were 37,778,291 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	19

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	27

ITEM 4. CONTROLS AND PROCEDURES	27

PART II OTHER INFORMATION	29

ITEM 1. LEGAL PROCEEDINGS	29

ITEM 1A. RISK FACTORS	29

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	31

ITEM 4. MINE SAFETY DISCLOSURES	31

ITEM 5. OTHER INFORMATION	31

ITEM 6. EXHIBITS	31

SIGNATURES	32
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I FINANCIAL STATEMENTS


ITEM 1.	UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Condensed Consolidated Balance Sheets *

(In thousands, except per share amounts)



	June 30,		December 31,
	2012		2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	120,266	$	117,639
Marketable securities	28,754		25,567
Accounts receivable, net of allowances of $6,282 and $6,796, respectively	100,850		132,485
Inventories, net of reserves of $15,753 and $13,614, respectively	80,609		80,283
Deferred income tax assets	9,014		9,014
Income taxes receivable	7,712		13,826
Other current assets	10,626		11,672
Total current assets	357,831		390,486
Property and equipment, net	39,668		42,338
OTHER ASSETS:
Deposits and other	9,131		8,959
Goodwill	46,515		46,515
Other intangible assets, net	40,715		43,438
Deferred income tax assets	1,706		1,642
Total assets	$	495,566	$	533,378
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	42,031	$	44,828
Income taxes payable	7,172		3,310
Accrued payroll and employee benefits	10,411		9,184
Accrued warranty expense	8,581		8,433
Other accrued expenses	8,643		10,800
Customer deposits	6,071		14,689
Total current liabilities	82,909		91,244
LONG-TERM LIABILITIES:
Deferred income tax liabilities	5,920		6,475
Uncertain tax positions	16,404		16,404
Accrued warranty expense	5,476		6,286
Other long-term liabilities	17,098		5,630
Total liabilities	127,807		126,039
Commitments and contingencies (Note 16)
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; 37,679 and 41,956
issued and outstanding, respectively	38		42
Additional paid-in capital	205,285		254,003
Retained earnings	134,764		124,767
Accumulated other comprehensive income	27,672		28,527
Total stockholders’ equity	367,759		407,339
Total liabilities and stockholders’ equity	$	495,566	$	533,378

* Amounts as of June 30, 2012 are unaudited. Amounts as of December 31, 2011 are derived from the December 31, 2011 audited Consolidated Financial Statements.

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

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ADVANCED ENERGY INDUSTRIES, INC.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)



	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012		2011
SALES	$	115,658		$	138,154	$	221,445	$	275,806
COST OF SALES	71,929			82,777		137,972		158,384
GROSS PROFIT	43,729			55,377		83,473		117,422
OPERATING EXPENSES:
Research and development	14,502			17,137		29,617		32,999
Selling, general, and administrative	16,706			20,001		36,765		40,906
Amortization of intangible assets	1,351			921		2,723		1,842
Restructuring charges (benefit)	(144		)	—		2,431		—
Total operating expenses	32,415			38,059		71,536		75,747
OPERATING INCOME	11,314			17,318		11,937		41,675
OTHER INCOME, NET	1,775			92		2,186		755
Income from continuing operations before income taxes	13,089			17,410		14,123		42,430
Provision for income taxes	4,288			3,898		4,556		10,152
INCOME FROM CONTINUING OPERATIONS, NET OF INCOME TAXES	8,801			13,512		9,567		32,278
Income from discontinued operations, net of income taxes	127			74		430		214
NET INCOME	$	8,928		$	13,586	$	9,997	$	32,492

Basic weighted-average common shares outstanding	38,974			43,571		39,877		43,505
Diluted weighted-average common shares outstanding	39,583			44,187		40,460		44,156

EARNINGS PER SHARE:
CONTINUING OPERATIONS:
BASIC EARNINGS PER SHARE	$	0.23		$	0.31	$	0.24	$	0.74
DILUTED EARNINGS PER SHARE	$	0.22		$	0.31	$	0.24	$	0.73
DISCONTINUED OPERATIONS
BASIC EARNINGS PER SHARE	$	0.00		$	0.00	$	0.01	$	0.00
DILUTED EARNINGS PER SHARE	$	0.00		$	0.00	$	0.01	$	0.00
NET INCOME:
BASIC EARNINGS PER SHARE	$	0.23		$	0.31	$	0.25	$	0.75
DILUTED EARNINGS PER SHARE	$	0.23		$	0.31	$	0.25	$	0.74

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

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ADVANCED ENERGY INDUSTRIES, INC.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net income	$	8,928		$	13,586		$	9,997		$	32,492
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	929			2,055			(869		)	1,768
Unrealized gains (losses) on securities	(5		)	(10		)	14			(13		)
Comprehensive income	$	9,852		$	15,631		$	9,142		$	34,247

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

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ADVANCED ENERGY INDUSTRIES, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,997		$	32,492
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,618			6,813
Stock-based compensation expense	7,237			6,139
Provision (benefit) for deferred income taxes	(614		)	(181		)
Restructuring charges	2,431			—
Net (gain) loss on sale or disposal of assets	(1,223		)	57
Changes in operating assets and liabilities:
Accounts receivable	30,990			(7,056		)
Inventories	(522		)	(21,944		)
Other current assets	898			761
Accounts payable	(2,172		)	(7,483		)
Other current liabilities and accrued expenses	(547		)	482
Income taxes	9,710			3,333
Non-current assets	—			91
Net cash provided by operating activities	64,803			13,504
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(13,767		)	(7,449		)
Proceeds from sale of marketable securities	10,566			7,001
Proceeds from the sale of assets	2,200			—
Purchases of property and equipment	(4,209		)	(8,657		)
Net cash used in investing activities	(5,210		)	(9,105		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations	(47		)	(70		)
Purchase and retirement of treasury stock	(57,117		)	—
Proceeds from exercise of stock options	1,635			1,862
Excess tax from stock-based compensation deduction	(476		)	(564		)
Net cash provided by (used in) financing activities	(56,005		)	1,228
EFFECT OF CURRENCY TRANSLATION ON CASH	(961		)	(977		)
INCREASE IN CASH AND CASH EQUIVALENTS	2,627			4,650
CASH AND CASH EQUIVALENTS, beginning of period	117,639			130,914
CASH AND CASH EQUIVALENTS, end of period	$	120,266		$	135,564
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	15		$	47
Cash paid for income taxes	2,555			14,595
Cash received for refunds of income taxes	7,334			7,522
Cash held in banks outside the United States	30,249			49,399

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

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.BASIS OF PRESENTATION

We design, manufacture, sell, and support power conversion products that transform power into various usable forms. Our products enable manufacturing processes that use thin-film deposition for various products, such as semiconductor devices, flat panel displays, solar panels, and architectural glass. We also supply thermal instrumentation products for advanced temperature control in the thin-film process for these same markets. Our solar inverter products support renewable power generation solutions for residential, commercial, and utility-scale solar projects and installations. Our network of global service support centers offer repair services, conversions, upgrades, and refurbishments to companies using our products. We also offer a wide variety of operations and maintenance service plans that can be tailored for individual photovoltaic (“PV”) sites of all sizes.

We are organized into two strategic business units ("SBU") based on the products and services provided.

Thin Films Processing Power Conversion and Thermal Instrumentation (“Thin Films”) SBU offers our products for direct current (“DC”), pulsed DC mid frequency, and radio frequency (“RF”) power supplies, matching networks and RF instrumentation as well as thermal instrumentation products.

Solar Energy SBU offers both a transformer-based or transformerless advanced grid-tied PV inverter solution for residential, commercial and utility-scale system installations. Our PV inverters are designed to convert renewable solar power, drawn from large and small scale solar arrays, into high-quality, reliable electrical power.

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 Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-owned subsidiaries (“we”, “us”, “our”, “Advanced Energy”, or the “Company”) at June 30, 2012, and the results of our operations and cash flows for the three months and six months ended June 30, 2012 and 2011.

The 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, 2011 and other financial information filed with the SEC.

ESTIMATES AND ASSUMPTIONS

The preparation of our 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, making it possible that a change in these estimates could occur in the near term.

REVENUE RECOGNITION

Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 Condensed Consolidated Financial Statements upon adoption.


NOTE 2.	BUSINESS DISPOSITION

On October 15, 2010, we completed the sale of our gas flow control business, which included the Aera^® mass flow control and related product lines to Hitachi Metals, Ltd. ("Hitachi"), for approximately $43.3 million. Assets and liabilities sold included, without limitation, inventories, real property in Hachioji, Japan, equipment, certain contracts, intellectual property rights related to the gas flow control business and certain warranty liability obligations.

In connection with the closing of this asset disposition, we entered into a Master Services Agreement and a Supplemental Transition Services Agreement pursuant to which we provided certain transition services until October 2011 and we became an authorized service provider for Hitachi in all countries other than Japan. In March 2012, we entered into an agreement to sell certain fixed assets to Hitachi and cease providing contract manufacturing services. As of May 31, 2012 we ceased providing contract manufacturing services to Hitachi and completed the sale of certain fixed assets related to that manufacturing. The sale of these assets resulted in a $1.9 million gain, which is recorded in Other income, net in our Condensed Consolidated Statements of Operations for the second quarter of 2012. As of June 30, 2012, all manufacturing activities and relationships with Hitachi related to the previously owned gas flow control business have ended. We do not anticipate any additional activity with Hitachi in respect of these assets that would materially impact our financial statements in the future.

In accordance with authoritative accounting guidance for reporting discontinued operations, for the periods reported in this Form 10-Q, the results of continuing operations were reduced by the revenue and costs associated with the gas flow control business, which are included in the income from discontinued operations, net of income taxes, in our Condensed Consolidated Statements of Operations.

Operating results of discontinued operations are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Sales	$	4,383		$	4,208		$	8,959		$	10,554
Cost of sales	4,044			3,974			9,189			10,660
Gross profit (loss)	339			234			(230		)	(106		)
Operating expenses:
Research and development	—			(3		)	—			5
Selling, general, and administrative	43			90			88			140
Total operating expenses	43			87			88			145
Operating income (loss) from discontinued operations	296			147			(318		)	(251		)
Other income (expense)	(142		)	157			881			768
Income from discontinued operations before income taxes	154			304			563			517
Provision for income taxes	27			230			133			303
Income from discontinued operations, net of income taxes	$	127		$	74		$	430		$	214


NOTE 3.	INCOME TAXES

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Provision for income taxes:
Income from continuing operations before income taxes	$	13,089		$	17,410		$	14,123		$	42,430
Provision for income taxes	4,288			3,898			4,556			10,152
Effective tax rate	32.8		%	22.4		%	32.3		%	23.9		%

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our effective tax rate is lower than the corporate statutory U.S. federal income tax rate primarily due to the benefit of earnings in foreign jurisdictions, which are subject to lower tax rates. Our effective tax rate increased from the three months and six months ended 2012 as compared to 2011 because 2012 projected earnings are being taxed in higher tax rate jurisdictions as compared to 2011.

We repatriated $30.0 million from Japan during the second quarter of 2012 for which a deferred tax liability of $2.1 million had been recorded in 2010. The deferred tax liability was reclassified into current taxes payable in the second quarter of 2012. Other than this repatriation, undistributed earnings of foreign subsidiaries are considered to be permanently reinvested and accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been made.

Our policy is to classify accrued penalties and interest related to unrecognized tax benefits in our income tax provision. For the three months and six months ended June 30, 2012 and 2011, the amount of interest and penalties accrued related to our unrecognized tax benefits was not significant.


NOTE 4.	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 diluted EPS is similar to the computation of basic EPS except that the numerator is increased to exclude charges that would not have been incurred, and 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 securities containing potentially dilutive common shares (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 (in thousands, except per share data):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Income from continuing operations, net of income taxes	$	8,801	$	13,512	$	9,567	$	32,278
Basic weighted-average common shares outstanding	38,974		43,571		39,877		43,505
Assumed exercise of dilutive stock options and restricted stock units	609		616		583		651
Diluted weighted-average common shares outstanding	39,583		44,187		40,460		44,156
Income from Continuing Operations:
Basic earnings per share	$	0.23	$	0.31	$	0.24	$	0.74
Diluted earnings per share	$	0.22	$	0.31	$	0.24	$	0.73

The following stock options and restricted 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,
	2012	2011	2012	2011
Stock options	4,875	3,831	5,303	3,690
Restricted stock units	1	4	—	3

Share Repurchases

In November 2011, our Board of Directors authorized a program to repurchase up to $75.0 million of our common stock over a twelve-month period. Under this program, during the three months and six months ended June 30, 2012, we repurchased and retired 2.7 million and 4.7 million shares of our common stock for a total of $35.2 million and $57.1 million, respectively. As of June 30, 2012, we have completed this repurchase program. Total shares repurchased are 6.4 million shares of our common stock for $75.0 million.

All share repurchases were executed in the open market and no shares were repurchased from related parties. Repurchased shares were retired and assumed the status of authorized and unissued shares.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 5.	MARKETABLE SECURITIES

Our investments with original maturities of more than three months at time of purchase are considered marketable securities available for sale.

The composition of our marketable securities is as follows (in thousands):



	June 30,				December 31,
	2012				2011
	Cost		Fair Value		Cost		Fair Value
Commercial paper	$	1,200	$	1,200	$	2,395	$	2,395
Certificates of deposit	10,457		10,457		8,333		8,326
Corporate bonds/notes	9,717		9,716		7,534		7,523
Municipal bonds/notes	289		289		—		—
Agency bonds/notes	7,093		7,092		7,320		7,323
Total marketable securities	$	28,756	$	28,754	$	25,582	$	25,567

The maturities of our marketable securities available for sale as of June 30, 2012 are as follows:



	Earliest		Latest
Commercial paper	7/2/2012	to	7/23/2012
Certificates of deposit	7/20/2012	to	2/14/2014
Corporate bonds/notes	7/2/2012	to	6/17/2013
Municipal bonds/notes	9/1/2013	to	9/1/2013
Agency bonds/notes	7/15/2012	to	7/3/2013

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. Our current investments in marketable securities are expected to be liquidated during the next twelve months.

As of June 30, 2012, we do not believe any of the underlying issuers of our marketable securities are presently at risk of default.


NOTE 6.	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. During the three months and six months ended June 30, 2012 and June 30, 2011, 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.

The notional amount of foreign currency exchange contracts at June 30, 2012 and 2011 was $31.2 million and $14.5 million, respectively, and the fair value of these contracts was not significant at June 30, 2012 and 2011. During the three months ended June 30, 2012 and 2011 we recognized a gain of $1.5 million and a loss of $0.1 million, respectively, on our foreign currency exchange contracts. During the six months ended June 30, 2012 and 2011, we recognized a gain of $0.5 million and a loss $0.1 million, respectively. These gains and losses were offset by corresponding gains and losses on the related intercompany debt and both are included as a component of other income, net, in our Condensed Consolidated Statements of Operations.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 7.	ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

The following tables present information about our financial assets measured at fair value, on a recurring basis, as of June 30, 2012, and December 31, 2011. The tables indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value. We did not have any financial liabilities measured at fair value, on a recurring basis, as of June 30, 2012, and December 31, 2011.



June 30, 2012	Level 1		Level 2		Level 3		Total
	(In thousands)
Commercial paper	$	—	$	1,200	$	—	$	1,200
Certificates of deposit	—		10,457		—		10,457
Corporate bonds/notes	9,716		—		—		9,716
Municipal bonds/notes	289		—		—		289
Agency bonds/notes	7,092		—		—		7,092
Total	$	17,097	$	11,657	$	—	$	28,754

December 31, 2011	Level 1		Level 2		Level 3		Total
	(In thousands)
Commercial paper	$	—	$	2,395	$	—	$	2,395
Certificates of deposit	—		8,326		—		8,326
Corporate bonds/notes	7,523		—		—		7,523
Agency bonds/notes	7,323		—		—		7,323
Total	$	14,846	$	10,721	$	—	$	25,567

There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the three months or six months ended June 30, 2012.


NOTE 8.	INVENTORIES

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



	June 30,		December 31,
	2012		2011
Parts and raw materials	$	56,308	$	57,962
Work in process	6,240		3,708
Finished goods	18,061		18,613
	$	80,609	$	80,283

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 9.	PROPERTY AND EQUIPMENT

Details of property and equipment are as follows (in thousands):



	June 30,			December 31,
	2012			2011
Buildings and land	$	1,667		$	1,647
Machinery and equipment	41,747			40,126
Computer and communication equipment	24,878			24,097
Furniture and fixtures	2,286			2,648
Vehicles	430			464
Leasehold improvements	29,190			29,680
Construction in process	2,119			6,352
	102,317			105,014
Less: Accumulated depreciation	(62,649		)	(62,676		)
	$	39,668		$	42,338

Depreciation expense recorded in continuing operations is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Depreciation expense	$	3,054	$	2,630	$	5,895	$	4,971


NOTE 10.	GOODWILL

The following summarizes the changes in goodwill during the three months and six months ended June 30, 2012 and 2011 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011
Gross carrying amount, beginning of period	$	46,515	$	48,360		$	46,515	$	48,360
Additions and adjustments	—		(1,845		)	—		(1,845		)
Impairments	—		—			—		—
Gross carrying amount, end of period	$	46,515	$	46,515		$	46,515	$	46,515


NOTE 11.	INTANGIBLE ASSETS

Included in our other intangible assets are assets acquired in a business combination that are used in research and development activities. These assets are considered to have indefinite lives until the completion or abandonment of the associated research and development efforts. As of December 31, 2011, one project remained as in-process research and development and is presented as non-amortizable intangibles in the table below. All in-process research and development projects were complete as of June 30, 2012 and are classified as amortizing intangibles.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other intangible assets consisted of the following as of June 30, 2012 (in thousands, except weighted-average useful life):



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted-Average Useful Life in Years
Amortizable intangibles:
Technology-based	$	41,944	$	(8,228	)	$	33,716	7
Trademarks and other	8,210		(1,211		)	6,999		8
Total intangible assets	$	50,154	$	(9,439	)	$	40,715

Other intangible assets consisted of the following as of December 31, 2011 (in thousands, except weighted-average useful life):



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted-Average Useful Life in Years
Amortizable intangibles:
Technology-based	$	37,922	$	(5,841	)	$	32,081	7
Trademarks and other	8,210		(875		)	7,335		8
Total amortizable intangibles	46,132		(6,716		)	39,416
Non-amortizing intangibles	4,022					4,022
Total intangible assets	$	50,154	$	(6,716	)	$	43,438

Amortization expense relating to other intangible assets included in our income from continuing operations is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Amortization expense	$	1,351	$	921	$	2,723	$	1,842

Estimated amortization expense related to intangibles for each of the five years 2012 through 2016 and thereafter is as follows (in thousands):



Year Ending December 31,
2012 (remaining)	$	2,831
2013	8,069
2014	8,854
2015	8,407
2016	6,239
Thereafter	6,315
	$	40,715


NOTE 12.	RESTRUCTURING COSTS

In September 2011, we approved and committed to several initiatives to realign our manufacturing and research and development activities in order to foster growth and enhance profitability. These initiatives are designed to align research and development activities with the location of our customers and reduce product costs. Under this plan, we have reduced our global headcount by approximately 218 people or 13.0% of our total headcount, consolidated our facilities by terminating or exiting several leases, and recorded impairments for assets no longer in use due to the restructuring of our business.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Over the next 3 to 9 months, we will implement the remainder of the restructuring plan as we close facilities and relocate certain functions and expect to incur an additional $4.0 to $9.0 million of restructuring costs during this period. Estimated total expenses to be incurred under this plan are between $13.0 and $18.0 million including the amounts recognized in 2011 and those noted below. Of this total, approximately $5.0 to $6.0 million relates to severance costs, $2.5 million relates to asset impairments, and $5.5 to $9.5 million relates to costs to close facilities and relocate portions of our manufacturing.

The following table summarizes the components of our restructuring costs incurred under this plan (in thousands):



	Three months ended			Six months ended		Cumulative costs through
	June 30, 2012			June 30, 2012		June 30, 2012
Severance and related costs	$	74		447		$	4,068
Property and equipment impairments	(300		)	512		2,251
Facility closure costs	82			1,472		3,460
Total restructuring charges	$	(144	)	$	2,431	$	9,779

The gain on property and equipment in the current quarter is due to an adjustment of an estimate of lease impairments that was recognized in the first quarter of 2012.

The following table summarizes our restructuring liabilities under the plan (in thousands):



	Balances at December 31, 2011		Costs incurred and charged to expense		Cost paid or otherwise settled			Effect of change in exchange rates			Balances at June 30, 2012
Severance and related costs	$	800	$	447	$	(902	)	$	(20	)	$	325
Property and equipment impairments	—		512		(512		)	—			—
Facility closure costs	1,019		1,472		(1,698		)	—			793
Total restructuring liabilities	$	1,819	$	2,431	$	(3,112	)	$	(20	)	$	1,118


NOTE 13.	WARRANTIES

Provisions of our sales agreements include product warranties customary to these types of agreements, ranging from 18 months to 24 months following installation for Thin Films products and 5 years to 10 years following installation for Solar Energy products. Our provision for the estimated cost of warranties is recorded when revenue is recognized. The warranty provision is based on historical experience by product, configuration and geographic region.

We establish accruals for warranty issues that are probable to result in future costs. Changes in product warranty accruals are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balances at beginning of period	$	14,319		$	13,428		$	14,719		$	12,949
Increases to accruals related to sales during the period	1,865			2,493			3,700			5,044
Warranty expenditures	(2,127		)	(1,625		)	(4,362		)	(3,697		)
Balances at end of period	$	14,057		$	14,296		$	14,057		$	14,296

We also offer our Solar Energy customers the option to purchase additional warranty coverage up to 20 years after the base warranty period expires. Deferred revenue related to such extended warranty contracts was $16.9 million as of June 30, 2012, of which $0.5 million is classified in Customer deposits and $16.4 million is classified in Other long-term liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2012. At December 31, 2011, deferred revenue related to extended warranty contracts was $12.9 million, of which $8.0 million is classified in Customer deposits and $4.9 million is classified in Other long-term liabilities.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 14.	STOCK-BASED COMPENSATION

We recognize stock-based compensation expense based on the fair value of the awards issued. Stock-based compensation for the three months and six months ended June 30, 2012 and 2011 is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Stock-based compensation expense	$	2,228	$	3,399	$	7,237	$	6,139

Stock Options

Stock option awards, other than awards under our 2012-2014 Long Term Incentive Plan ("LTI Plan"), are generally granted with an exercise price equal to the market price of our stock at the date of grant, a four-year vesting schedule, and a term of 10 years.

Under the LTI Plan, we made grants of performance based options and awards during the first quarter of 2012, which will vest annually over a three year period based on the Company's achievement of return on net assets targets established by our Board of Directors at the time the grants were made. The fair value of each grant was estimated on the date of grant using the Black-Scholes-Merton option pricing model utilizing an expected volatility of 61.5%, a risk-free rate of 1.2%, a dividend yield of zero, and an expected term of 5.9 years. The weighted-average grant date fair value of the options is $6.19 per share. The weighted average grant date fair value of the awards is $11.03 per share.

A summary of our stock option activity for the six months ended June 30, 2012 is as follows (in thousands):



	Shares
Options outstanding at December 31, 2011	5,821
Options granted	1,621
Options exercised	(204	)
Options forfeited	(572	)
Options expired	(154	)
Options outstanding at June 30, 2012	6,512

Restricted Stock Units

A summary of our non-vested Restricted Stock Units ("RSU") activity for the six months ended June 30, 2012 is as follows (in thousands):



	Shares
Balance at December 31, 2011	764
RSUs granted	13
RSUs vested	(178	)
RSUs forfeited	(87	)
Balance at June 30, 2012	512

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 15.	ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income consisted of the following (in thousands):



	Foreign Currency Adjustments			Unrealized Gains (Losses) on Securities			Total Accumulated Other Comprehensive Income
Balances at December 31, 2011	$	28,542		$	(15	)	$	28,527
Current period other comprehensive income (loss)	(869		)	14			(855		)
Balances at June 30, 2012	$	27,673		$	(1	)	$	27,672


NOTE 16.	COMMITMENTS AND CONTINGENCIES

We have firm purchase commitments and agreements with various suppliers to ensure the availability of components. The obligation as of June 30, 2012 is approximately $69.4 million. Our policy with respect to all purchase commitments, is to record losses, if any, when they are probable and reasonably estimable. We continuously monitor these commitments for exposure to potential losses and will record a provision for losses when it is deemed necessary.


NOTE 17.	RELATED PARTY TRANSACTIONS

During the three months and six months ended June 30, 2012 and 2011, we engaged in the following transactions with companies related to members of our Board of Directors, as described below (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Sales - related parties	$	323	$	1,544	$	477	$	2,554
Rent expense - related parties	477		545		937		1,157

Sales - Related Parties

Members of our Board of Directors hold various executive positions and serve as directors at other companies, including companies that are our customers. During the three months and six months ended June 30, 2012 we had sales to two such companies as noted above and aggregate accounts receivable from one such customer totaled $16,000 at June 30, 2012. During the three months and six months ended June 30, 2011 we had sales to three such companies as noted above and aggregate accounts receivable from two such customers totaled $48,000 at December 31, 2011.

Rent Expense - Related Parties

We lease our executive offices, research and development, and manufacturing facilities in Fort Collins, Colorado from a limited liability partnership in which Douglas Schatz, our Chairman of the Board and former Chief Executive Officer, holds an interest. The leases relating to these spaces expire during 2021 and obligate us to total annual payments of approximately $1.4 million, which includes facilities rent and common area maintenance costs.


NOTE 18.	SIGNIFICANT CUSTOMER INFORMATION

Applied Materials, Inc. is our largest customer and our only customer that accounted for 10% or more of our sales during the three months and six months ended June 30, 2012 and 2011. Sales to Applied Materials as a percent of total sales were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Applied Materials	15.4	%	14.0	%	16.1	%	15.0	%

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Applied Materials accounted for 10.8% of our accounts receivable as of June 30, 2012. No other customer accounted for 10% or more of our gross accounts receivable as of June 30, 2012 or December 31, 2011.


NOTE 19.	SEGMENT INFORMATION

Our Thin Films SBU offers power conversion products for direct current, pulsed DC mid frequency, and radio frequency power supplies, matching networks, and RF instrumentation, as well as, thermal instrumentation products. Our power conversion systems refine, modify, and control the raw electrical power from a utility and convert it into power that may be customized and is predictable and repeatable. Our thermal instrumentation products provide temperature measurement solutions for applications in which time-temperature cycles affect material properties, productivity, and yield. These products are used in rapid thermal processing, chemical vapor deposition, and other semiconductor and solar applications requiring non-contact temperature measurement. Our network of global service support centers offer repair services, conversions, upgrades, and refurbishments to companies using our products. Our Thin Films SBU principally serves original equipment manufacturers (“OEMs”) and end customers in the semiconductor, flat panel display, solar panel, and other capital equipment markets.

Our Solar Energy SBU offers both a transformer-based and a transformerless advanced grid-tied PV inverter solution for residential, commercial, and utility-scale system installations. Our PV inverters are designed to convert renewable solar power, drawn from large and small scale solar arrays, into high-quality, reliable electrical power. Our Solar Energy SBU focuses on residential, commercial, and utility-scale solar projects and installations, selling primarily to distributors, engineering, procurement, and construction contractors, developers, and utility companies. Our Solar Energy revenue has seasonal variations. Installations of inverters are normally lowest during the first quarter as a result of typically poor weather and installation scheduling by our customers.

Our chief operating decision maker, who is our Chief Executive Officer, and other management personnel regularly review our performance and make resource allocation decisions by reviewing the results of our two business segments separately. Revenue and operating profit is reviewed by our chief operating decision maker. We have also divided inventory and property and equipment based on business segment.

Sales with respect to our operating segments is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Thin Films	$	64,843	$	97,331	$	125,233	$	197,430
Solar Energy	50,815		40,823		96,212		78,376
Total	$	115,658	$	138,154	$	221,445	$	275,806

Income from continuing operations before income taxes by operating segment is as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Thin Films	$	8,881		$	20,042		$	12,048		$	44,866
Solar Energy	2,740			321			3,233			2,833
Total segment operating income	11,621			20,363			15,281			47,699
Corporate expenses	(451		)	(3,045		)	(913		)	(6,024		)
Restructuring charges (benefit)	144			—			(2,431		)	—
Other income	1,775			92			2,186			755
Income from continuing operations before income taxes	$	13,089		$	17,410		$	14,123		$	42,430

Beginning in 2012, we are allocating "Corporate Expenses" in full to our business units. These expenses, which include certain support functions such as legal, human resources, information technology, accounting and finance, are now allocated in full to the business units based on sales contribution. This change was implemented in an effort to provide investors with a clearer understanding of the business unit's operating performance. The remaining Corporate Expenses consist of intangible amortization from past acquisitions that management determined should not be charged to either business unit.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Segment assets consist of inventories, net and property and equipment, net. A summary of consolidated total assets by segment follows (in thousands):



	June 30, 2012		December 31, 2011
Thin Films	$	50,815	$	59,025
Solar Energy	65,339		62,605
Total segment assets	116,154		121,630
Unallocated corporate property and equipment	4,124		991
Unallocated Corporate assets	375,288		410,757
Consolidated total assets	$	495,566	$	533,378

Unallocated corporate assets include accounts receivable, deferred income taxes and intangible assets.

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no ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note on Forward-Looking Statements

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. Statements in this report that are not historical information are forward-looking statements. 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. The inclusion of words such as “anticipate,” “expect,” “estimate,” “can,” “may,” “continue,” “enables,” “plan,” “intend,” or “believe,” as well as statements that events or circumstances “will” occur or continue, indicate forward-looking statements. Forward-looking statements involve risks and uncertainties, which are difficult to predict and many of which are beyond our control. Therefore, actual results could differ materially and adversely from those expressed in any forward-looking statements.

For additional information regarding factors that may affect our actual financial condition, results of operations and accuracy of our forward-looking statements, see the information under the caption “Risk Factors” in Part II Item 1A of this Quarterly Report on Form 10-Q and, in our Annual Report on Form 10-K for the year ended December 31, 2011. We undertake no obligation to revise or update any forward-looking statements for any reason.

BUSINESS OVERVIEW

We design, manufacture, sell and support power conversion products that transform power into various usable forms. Our products enable manufacturing processes that use thin-film processing and etching for various products as well as grid-tied power conversion. We also supply thermal instrumentation products used for temperature control in the thin-film process. Our network of global service support centers provides local repair and field service capability in key regions.


•	Our power conversion products refine, modify and control the raw electrical power from a utility and converts it into power that is predictable, repeatable and customizable. Our power conversion products are primarily used by semiconductor, solar panel and similar thin-film manufacturers including flat panel display, data storage and architectural glass manufacturers.


•	Our thermal instrumentation products provide temperature measurement solutions for applications in which time-temperature cycles affect material properties, productivity and yield. These products are used in rapid thermal processing, chemical vapor deposition, and other semiconductor and solar applications requiring non-contact temperature measurement.

•

Our grid-tied power conversion products offer both an advanced transformer-based or transformerless grid-tied PV solutions for residential, commercial and utility-scale system installations. Our PV inverters are designed to convert renewable solar power, drawn from large and small scale solar arrays, into high-quality, reliable electrical power. These products are used for residential, commercial and utility-scale solar projects and installations, and are sold primarily to distributors; engineering, procurement, and construction contractors; developers; and utility companies. These product revenues have seasonal variations. Installations of inverters are normally lowest during the first quarter of the year due to less favorable weather conditions and installation scheduling by our customers.


•	Our network of global service support centers offer repair services, conversions, upgrades and refurbishments to businesses that use our products.

On October 15, 2010, we sold our gas flow control business, which includes the Aera® mass flow control and related product lines, to Hitachi Metals, Ltd. Consequently, the results of operations from our gas flow control business have been excluded from our discussions relating to continuing operations.

Our analysis presented below is organized to provide the information we believe will be helpful for understanding our historical performance and relevant trends going forward. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements in Part I, Item 1 of this report, including the notes thereto.

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Results of Operations

The following table sets forth, for the periods indicated, certain data derived from our Condensed Consolidated Statements of Operations (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Sales	$	115,658	$	138,154	$	221,445	$	275,806
Gross profit	43,729		55,377		83,473		117,422
Operating expenses	32,415		38,059		71,536		75,747
Operating income	11,314		17,318		11,937		41,675
Other income, net	1,775		92		2,186		755
Income from continuing operations before income taxes	13,089		17,410		14,123		42,430
Provision for income taxes	4,288		3,898		4,556		10,152
Income from continuing operations, net of income taxes	$	8,801	$	13,512	$	9,567	$	32,278

The following table sets forth, for the periods indicated, the percentage of sales represented by certain items reflected in our Condensed Consolidated Statements of Operations:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Sales	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	37.8	%	40.0	%	37.7	%	42.6	%
Operating expenses	28.0	%	27.4	%	32.3	%	27.5	%
Operating income	9.8	%	12.6	%	5.4	%	15.1	%
Other income, net	1.5	%	0.1	%	1.0	%	0.3	%
Income from continuing operations before income taxes	11.3	%	12.7	%	6.4	%	15.4	%
Provision for income taxes	3.7	%	2.8	%	2.1	%	3.7	%
Income from continuing operations, net of income taxes	7.6	%	9.9	%	4.3	%	11.7	%

SALES

The following tables summarize annual net sales, and percentages of net sales, by segment for the three months and six months ended June 30, 2012 and 2011 (in thousands):



	Three Months Ended June 30,
	2012		% of Total Sales		2011		% of Total Sales		Increase/ (Decrease)			Percent Change
Thin Films:
Semiconductor capital equipment market	$	36,641	31.7	%	$	43,694	31.6	%	$	(7,053	)	(16.1	)%
Non-semiconductor capital equipment	15,292		13.2	%	40,505		29.4	%	(25,213		)	(62.2	)%
Global support	12,910		11.2	%	13,132		9.5	%	(222		)	(1.7	)%
Total Thin Films	64,843		56.1	%	97,331		70.5	%	(32,488		)	(33.4	)%
Solar Energy	50,815		43.9	%	40,823		29.5	%	9,992			24.5	%
Total sales	$	115,658	100.0	%	$	138,154	100.0	%	$	(22,496	)	(16.3	)%

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	Six Months Ended June 30,
	2012		% of Total Sales		2011		% of Total Sales		Increase/ (Decrease)			Percent Change
Thin Films:
Semiconductor capital equipment market	$	74,989	33.9	%	$	89,649	32.5	%	$	(14,660	)	(16.4	)%
Non-semiconductor capital equipment	25,360		11.5	%	80,953		29.4	%	(55,593		)	(68.7	)%
Global support	24,884		11.2	%	26,828		9.7	%	(1,944		)	(7.2	)%
Total Thin Films	125,233		56.6	%	197,430		71.6	%	(72,197		)	(36.6	)%
Solar Energy	96,212		43.4	%	78,376		28.4	%	17,836			22.8	%
Total sales	$	221,445	100.0	%	$	275,806	100.0	%	$	(54,361	)	(19.7	)%

Total Sales

Overall, our sales decreased $22.5 million, or 16.3%, to $115.7 million for the three months ended June 30, 2012 from $138.2 million for the three months ended June 30, 2011. Sales decreased $54.4 million, or 19.7%, to $221.4 million for the six months ended June 30, 2012 from $275.8 million for the six months ended June 30, 2011. The decrease in sales during these time periods is a result of decreases over the course of the past 12 months in our customers' capital spending in all thin-film markets in which we compete. Our semiconductor sales for the second quarter in 2012 decreased 16.1% from the same quarter a year ago as the markets could not sustain the elevated spending levels and capacity expansion that marked the second half of 2010 and early 2011; however a more significant impact was felt in our non-semiconductor capital equipment markets, which for the second quarter in 2012 declined 62.2% from the same quarter in 2011. Of particular note were the decreases in both the solar panel and flat panel display markets, for which more detail is provided below. Although our Solar Energy SBU saw an increase of 24.5% for the second quarter in 2012 from the same quarter a year ago, the increase did not offset the large decrease in Thin Films sales.

Thin Films

Results for our Thin Films SBU for the three months and six months ended June 30, 2012 and 2011 were as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011

Sales	$	64,843	$	97,331	$	125,233	$	197,430
Operating Income	8,881		20,042		12,048		44,866

Thin Films sales dipped 33.4% to $64.8 million, or 56.1% of sales, for the three months ended June 30, 2012 versus $97.3 million, or 70.5% of sales, for the three months ended June 30, 2011. Thin Films sales dipped 36.6% to $125.2 million, or 56.6% of sales, for the six months ended June 30, 2012 versus $197.4 million, or 71.6% of sales, for the six months ended June 30, 2011. This decline reflects the impact of the lower levels of capital investment in thin film markets described above.

In the three months ended June 30, 2012, sales in the thin film semiconductor market decreased 16.1% to $36.6 million, or 31.7% of sales, from $43.7 million, or 31.6% of sales for the three months ended June 30, 2011. In the six months ended June 30, 2012, sales in the thin film semiconductor market decreased 16.4% to $75.0 million, or 33.9% of sales, from $89.6 million or 32.5% of sales for the six months ended June 30, 2011. As mentioned above, end user capital expansion has reverted to more modest levels when compared to the elevated spending levels of 2010 and early 2011 and utilization rates at semiconductor foundries remain down. Additionally, it appears that slower adoption rates for larger capacity tablet PCs is driving slower demand for investment in solid state drive production. Given the current market dynamics and the general perception that semiconductor investment will be soft in the near term, we expect our semiconductor revenue to be lower in the third quarter of 2012 compared to the second quarter of 2012.

Sales in the thin film non-semiconductor capital equipment markets decreased 62.2% to $15.3 million, or 13.2% of sales, for the three months ended June 30, 2012 compared to $40.5 million, or 29.4% of sales, for the three months ended June 30, 2011. Sales in the thin film non-semiconductor capital equipment markets decreased 68.7% to $25.4 million, or 11.5%

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of sales, for the three months ended June 30, 2012 compared to $81.0 million, or 29.4% of sales, for the six months ended June 30, 2011. The markets that comprise the thin-film non-semiconductor capital equipment markets include solar panel, flat panel display, data storage, architectural glass and other industrial thin-film manufacturing equipment markets. Our customers in these markets are primarily global OEMs. The decrease in these markets for the three months and six months ended June 30, 2012, as compared to the same period a year ago, was driven primarily by a worldwide oversupply of solar panels as well as overcapacity for production of flat panel displays due to the anticipation of technology changes.

Sales to customers in the thin film solar panel market decreased to $1.9 million, or 1.7% of total sales, for the three months ended June 30, 2012 as compared to $15.8 million, or 11.4% of total sales, for the three months ended June 30, 2011. Sales to customers in the thin film solar panel market decreased to $3.9 million, or 1.9% of total sales, for the six months ended June 30, 2012 as compared to $36.1 million, or 13.1% of total sales, for the six months ended June 30, 2011. This decrease is a result of a worldwide excess of panel capacity and inventory, particularly in the People's Republic of China (the “PRC”). There is currently not enough marketplace demand to absorb the levels of worldwide inventory on hand. As a result, competitive consolidation has begun as a number of solar panels manufacturing, both domestic and international, have been acquired or have gone insolvent. We currently do not anticipate new investment in the foreseeable future as these market dynamics continue to play out and, as a result, we expect sales to the solar panel market to remain at historically low levels in the third quarter of 2012.

We experienced an 82.7% decline in flat panel market sales this quarter as compared to the same quarter in 2011, as a drop in demand for flat panel televisions has resulted in production overcapacity. This development, coupled with upcoming technology transitions, has resulted in an investment pause in the flat panel display market. While we are optimistic that these new technology investments will occur late this year, we expect sales to the flat panel display market to be flat to lower in the third quarter of 2012.

Our global support revenue decreased to $12.9 million, or 11.2% of total sales, for the three months ended June 30, 2012, compared to $13.1 million, representing 9.5% of sales, for the three months ended June 30, 2011. Our global support revenue decreased to $24.9 million, or 11.2% of total sales, for the six months ended June 30, 2012, compared to $26.8 million, representing 9.7% of sales, for the six months ended June 30, 2011. Although service activity levels were relatively stable in most of our geographic regions, reduced factory utilization in both the thin film solar panel and flat panel display markets negatively impacted our customers' maintenance budgets and the need for repairs. The outlook for our service business continues to be strong, as our product offerings to include maintenance contracts in the growing solar array market gain traction and we ramp up our efforts to sell spare parts and used equipment in our Thin Film service business.

Operating income for Thin Films was $8.9 million for the three months ended June 30, 2012, a decline of $11.2 million from the same period of 2011. Operating income for Thin Films was $12.0 million for the six months ended June 30, 2012, a decline of $32.8 million from the same period of 2011. This decrease is primarily the result of the significant reduction in sales discussed above coupled with an increase in operating expenses that resulted from a change in our methodology for allocating corporate expenses to our business units. Corporate expenses, which include certain support functions such as legal, human resources, information technology, accounting and finance, are now allocated in full to the business units in 2012 based on sales contribution. This change was implemented in an effort to provide investors with a clearer understanding of the business unit's operating performance.

Solar Energy

Results for Solar Energy for the three months and six months ended June 30, 2012 and 2011 are as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011

Sales	$	50,815	$	40,823	$	96,212	$	78,376
Operating income	2,740		321		3,233		2,833

Solar Energy sales were $50.8 million, or 43.9% of sales, for the three months ended June 30, 2012 as compared to $40.8 million, or 29.5% of sales, for the three months ended June 30, 2011. Solar Energy sales were $96.2 million, or 43.4% of sales, for the six months ended June 30, 2012 as compared to $78.4 million, or 28.4% of sales, for the six months ended June 30, 2011.

Sales for the second quarter of 2012 were up from the comparable quarter a year ago due to an increase in large utility-

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scale projects in North America. We continue to gain traction in the utility space as we introduce new products to the market and provide our customers with high-efficiency inverters at the highest power ranges. We expect Solar Energy sales to increase in the third quarter of 2012 as a result of large utility project wins in North America and a developing pipeline of installation in Asia.

Operating income for Solar Energy was $2.7 million for the three months ended June 30, 2012 as compared to $0.3 million for the three months ended June 30, 2011. Operating income for Solar Energy was $3.2 million for the six months ended June 30, 2012 as compared to $2.8 million for the six months ended June 30, 2011. The increase in operating income for the three months ended June 30, 2012 as compared to the same period in 2011 is due to higher sales partially offset by an increase in operating expenses that resulted from the change in our methodology for allocating corporate expenses to our business units as discussed above. The decrease in operating income for the six month period of 2012 as compared to the same period of 2011 is due to the increase in operating expenses resulting from corporate expenses allocations which more than offset gains in gross margins from higher sales.

Backlog

Our overall backlog was $107.9 million at June 30, 2012 as compared to $76.9 million at December 31, 2011. The increase from the prior year-end is due primarily to increased orders in the utility scale markets of our Solar Energy business.

GROSS PROFIT

Our gross profit was $43.7 million, or 37.8% of sales, for the three months ended June 30, 2012, as compared to $55.4 million, or 40.0% of sales for the three months ended June 30, 2011. Our gross profit was $83.5 million, or 37.7% of sales, for the six months ended June 30, 2012, as compared to $117.4 million, or 42.6% of sales for the six months ended June 30, 2011. The year-over-year decrease in terms of absolute dollars was due to the overall decline in sales in our Thin Films business in all of the markets we serve.

The decrease in gross profit in terms of percent of sales was caused by an overall product mix shift to a much higher percentage of revenue from our Solar Energy product line, which has significantly lower gross margins than our Thin Film products.

OPERATING EXPENSE

The following table summarizes our operating expenses as a percentage of sales for the three months and six months ended June 30, 2012 and 2011 (in thousands):



	Three Months Ended June 30,									Six Months Ended June 30,
	2012					2011				2012				2011
Research and development	$	14,502		12.5	%	$	17,137	12.4	%	$	29,617	13.4	%	$	32,999	12.0	%
Selling, general, and administrative	16,706			14.4	%	20,001		14.5	%	36,765		16.6	%	40,906		14.8	%
Amortization of intangible assets	1,351			1.2	%	921		0.6	%	2,723		1.2	%	1,842		0.7	%
Restructuring charges (benefit)	(144		)	(0.1	)%	—		—	%	2,431		1.1	%	—		—	%
Total operating expenses	$	32,415		28.0	%	$	38,059	27.5	%	$	71,536	32.3	%	$	75,747	27.5	%

As a result of declines in the markets we serve, we initiated a plan in September 2011 to re-align our manufacturing and research and development activities to be closer to our customers and reduce product costs. These initiatives include headcount reductions, facilities closures, and asset impairments. Once complete, the plan is expected to result in annual savings in excess of $30.0 million.

Research and Development

The markets we serve constantly present opportunities to develop products for new or emerging applications and require technological changes driving for higher performance, lower cost, and other attributes that we expect may advance our customers’ products. We believe that continued and timely development of new and differentiated products, as well as enhancements to existing products to support customer requirements, are critical for us to compete in the markets we serve. Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products, and we expect these investments to continue. All of our research and development costs have been

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expensed as incurred, except those incurred as a result of a business acquisition.

Research and development expenses for the three months ended June 30, 2012 were $14.5 million, or 12.5% of sales, as compared to $17.1 million, or 12.4% of sales, for the three months ended June 30, 2011. Research and development expenses for the six months ended June 30, 2012 were $29.6 million, or 13.4% of sales, as compared to $33 million, or 12.0% of sales, for the six months ended June 30, 2011. The decrease in research and development expenses of $2.6 million or 15.4%, in the three months ended June 30, 2012 and the decrease of $3.4 million or 10.2%, in the six months ended June 30, 2012 as compared to the same periods in 2011 was driven primarily by decreased personnel costs resulting from headcount reductions that occurred in late 2011 under our restructuring plan.

Selling, General and Administrative

Our selling expenses support domestic and international sales and marketing activities that include personnel, trade shows, advertising, third-party sales representative commissions, and other selling and marketing activities. Our general and administrative expenses support our worldwide corporate, legal, tax, financial, governance, administrative, information systems, and human resource functions in addition to our general management.

Selling general and administrative ("SG&A") expenses decreased $3.3 million in the three months ended June 30, 2012 as compared to the same period in 2011. SG&A expenses decreased $4.1 million in the six months ended June 30, 2012 as compared to the same period in 2011.The decreases for the three months ended June 30, 2012 as compared to the same period in 2011 are primarily due to headcount reductions as part of our restructuring plan coupled with reductions in purchased services including information technology and legal expenses.

Amortization Expense

Amortization expense was $1.4 million for the three months ended June 30, 2012, compared to $0.9 million for the same period ending June 30, 2011. Amortization expense was $2.7 million for the six months ended June 30, 2012, compared to $1.8 million for the same period ending June 30, 2011. The increase in amortization is due to in process research and development projects that were placed in service throughout 2011 and the first quarter of 2012. These projects were in process at the acquisition date of PV Powered and were recorded as non-amortizing intangible assets at the acquisition date. As the projects are completed they begin amortizing over their estimated useful lives.

Restructuring Charges

In September 2011, we announced several initiatives designed to realign our manufacturing and research and development activities in order to foster growth and enhance profitability. These initiatives are designed to align research and development activities with the location of our customers and reduce product costs. As part of this plan, we have reduced our global headcount by approximately 218 people or 13.0% of our total headcount, started the consolidation of our facilities by terminating a lease and exiting several additional leases, and recorded impairments for assets no longer in use due to the restructuring of our business. These activities resulted in $(0.1) million and $2.4 million of charges in the three months and six months ended June 30, 2012, respectively. Over the next 3 to 9 months, we will implement the remainder of the restructuring plan as we close facilities and relocate certain functions. We expect these initiatives to result in additional charges of approximately $4.0 million to $9.0 million.

Other Income, net

Other income, net consists primarily of interest income and expense, foreign exchange gains and losses, gains and losses on sales of fixed assets, and other miscellaneous items.

Other income, net was $1.8 million for the three months ended June 30, 2012 as compared to $0.1 million in the same period of 2011. Other income, net was $2.2 million for the six months ended June 30, 2012 as compared to $0.8 million in the same period of 2011. The increase in 2012 as compared to 2011 for both the three and six month periods is due to gains on our sale of fixed assets of $1.9 million recognized in the three months ended June 30, 2012.

Provision for Income Taxes

We recorded an income tax provision from continuing operations for the three months ended June 30, 2012 of $4.3 million compared to $3.9 million for the three months ended June 30, 2011, resulting in effective tax rates of 32.8% and 22.4%, respectively. For the six months ended June 30, 2012, we recorded an income tax provision of $4.6 million compared to $10.2 million for the six months ended June 30, 2011, resulting in effective tax rates of 32.3% and 23.9%, respectively.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting

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principles, or interpretations thereof and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

Discontinued Operations

On October 15, 2010, we completed the sale of our gas flow control business, which includes the Aera^® mass flow control and related product lines to Hitachi, for $43.3 million. Assets and liabilities sold include, without limitation, inventory, real property in Hachioji, Japan, equipment, certain contracts, intellectual property rights related to the gas flow control business, and certain warranty liability obligations. The results of continuing operations were reduced by the revenue and costs associated with the gas flow control business which are included in the Income from discontinued operations, net of income taxes, in our Condensed Consolidated Statements of Operations.

Impact of Inflation

In recent years, inflation has not had a significant impact on our operations. However, we continuously monitor operating price increases, particularly in connection with the supply of component parts used in our manufacturing process. To the extent permitted by competition, we pass increased costs on to our customers by increasing sales prices over time. Sales price increases, however, were not significant in any of the years presented herein.

Liquidity and Capital Resources

LIQUIDITY

We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our primary sources of liquidity are our available cash, investments, and cash generated from current operations. We currently have no line of credit or other external sources of liquidity although we may seek external sources of liquidity from time to time.

At June 30, 2012, we had $149.0 million in cash, cash equivalents, and marketable securities. We believe that our current cash levels and our cash flows from future operations will be adequate to meet anticipated working capital needs, anticipated levels of capital expenditures, and contractual obligations for the next twelve months.

CASH FLOWS

A summary of our cash provided by and used in operating, investing and financing, activities is as follows (in thousands):



	Six Months Ended June 30,
	2012			2011
Net cash provided by operating activities	$	64,803		$	13,504
Net cash used in investing activities	(5,210		)	(9,105		)
Net cash provided by (used in) financing activities	(56,005		)	1,228
Effect of currency translation on cash	(961		)	(977		)
Increase in cash and cash equivalents	2,627			4,650
Cash and cash equivalents, beginning of the period	117,639			130,914
Cash and cash equivalents, end of the period	$	120,266		$	135,564

2012 CASH FLOWS COMPARED TO 2011

Net cash provided by operating activities

Net cash provided by operating activities for the six months ended June 30, 2012 was $64.8 million, compared to $13.5 million for the same period ended June 30, 2011. The increase of $51.3 million in net cash flows from operating activities is primarily due to collection of accounts receivable during 2012 coupled with a smaller increase in inventory levels in 2012 as compared to the same period in 2011.

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Net cash provided by investing activities

Net cash used in investing activities for the six months ended June 30, 2012 was $5.2 million. an decrease in cash used of $3.9 million from the prior year. The reduction in cash used for investing activities in 2012 is the result of lower capital expenditures as compared to the same period in 2011. Capital expenditures for the six months ended June 30, 2012 were down $4.4 million compared to the same period in 2011. Prior year expenditures included the expansion of production capacity for solar inverters and additions for test equipment related to research and development activities. We expect to fund future capital expenditures with cash generated from operations. The reduction in capital expenditures was partially offset by an increase in purchases of marketable securities based on cash availability and proceeds from the sale of manufacturing assets to Hitachi. Investments in marketable securities used $3.2 million in 2012 as compared to $0.5 million in 2011.

Net cash provided by (used in) financing activities

Net cash used in financing activities in the six months ended June 30, 2012 was $56.0 million, a $57.2 million change from the cash provided by financing activities of $1.2 million in the same period of 2011. In November 2011 we announced a $75.0 million share repurchase program, of which $57.1 million of cash was used to repurchase 4.7 million shares in the six months ended June 30, 2012. The repurchase program was completed during the second quarter of 2012. The exercise of stock options provided $1.6 million of cash in 2012 as compared to $1.9 million in 2011.

Effect of currency translation on cash

The effect of foreign currency translations on cash was unchanged in 2012 as compared to the same period in the prior year.

The functional currencies of our worldwide operations primarily include U.S. dollar ("USD"), Japanese Yen ("JPY"), Chinese Yuan ("CNY"), New Taiwan Dollar ("TWD"), South Korean Won ("KRW"), British Pound ("GBP") and Euro ("EUR"). Our purchasing and sales activities are primarily denominated in USD, JPY, CNY and EUR. The change in these key currency rates during the six months ended June 30, 2012 and 2011 are as follows:



		Six Months Ended June 30,
From	To	2012		2011
CNY	USD	(0.8	)%	3.4	%
EUR	USD	(2.7	)%	1.0	%
JPY	USD	(2.6	)%	5.8	%
KRW	USD	1.6	%	(4.5	)%
TWD	USD	1.9	%	(4.3	)%
GBP	USD	0.7	%	0.4	%

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements or variable interest entities.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2011 describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. Our critical accounting estimates, discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011, include estimates for allowances for doubtful accounts, determining useful lives for depreciation and amortization, the valuation of assets and liabilities acquired in business combinations, assessing the need for impairment charges for identifiable intangible assets and goodwill, establishing warranty reserves, accounting for income taxes, and assessing excess and obsolete inventories. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statements and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.

Our management discusses the development and selection of our critical accounting policies and estimates with the

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Audit Committee of our Board of Directors at least annually. Our management also internally discusses the adoption of new accounting policies or changes to existing policies at interim dates, as it deems necessary or appropriate.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our market risk exposure relates to changes in interest rates in our investment portfolio. 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 June 30, 2012, our investments consisted primarily of commercial paper, certificates of deposit, corporate bonds/notes, municipal bonds/notes, and agency bonds/notes, all with maturity of less than 2 years.

As a measurement of the sensitivity of our portfolio and assuming that our investment portfolio balances remain constant, a hypothetical decrease of 100 basis points (1%) in interest rates would decrease annual pre-tax earnings by approximately $0.3 million.

Foreign Currency Exchange Rate Risk

We are impacted by changes in foreign currency exchange rates through sales and purchasing transactions when we sell products and purchase materials in currencies different from the currency in which product and manufacturing costs were incurred. Our purchasing and sales activities are primarily denominated in the USD, JPY, CNY and EUR. As these currencies fluctuate against each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing transactions and labor.

Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted by changes in foreign currency exchange rates. Assets and liabilities of many of our subsidiaries outside the U.S. are translated at period end rates of exchange for each reporting period. Operating results and cash flow statements are translated at weighted-average rates of exchange during each reporting period. Although these translation changes have no immediate cash impact, the translation changes may impact future borrowing capacity, and overall value of our net assets.

From time to time, we enter into foreign currency exchange rate contracts to hedge against changes in foreign currency exchange rates on assets and liabilities expected to be settled at a future date. Market risk arises from the potential adverse effects on the value of derivative instruments that result from a change in foreign currency exchange rates. We minimize our market risk applicable to foreign currency exchange rate contracts by establishing and monitoring parameters that limit the types and degree of our derivative contract instruments. We enter into derivative contract instruments for risk management purposes only. We do not enter into or issue derivatives for trading or speculative purposes.

Currency exchange rates vary daily and often one currency strengthens against the USD while another currency weakens. Because of the complex interrelationship of the worldwide supply chains and distribution channels, it is difficult to quantify the impact of a change in one or more particular exchange rates.

See the “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for more information about the market risks to which we are exposed. There have been no material changes in our exposure to market risk from December 31, 2011.


ITEM 4	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Act is accumulated and communicated to management, including our Principal Executive Officer (Garry Rogerson, Chief Executive Officer) and Principal Financial Officer (Danny C. Herron, Executive Vice President & Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon this evaluation,

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the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2012. The conclusions of the Chief Executive Officer and Chief Financial Officer from this evaluation were communicated to the Audit Committee. We intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are involved in disputes and legal actions arising in the normal course of our business.

There have been no material developments in legal proceedings in which we are involved during the quarter ended June 30, 2012. For a description of previously reported legal proceedings refer to Part I, Item 3, “Legal Proceedings” of our Annual Report on Form 10-K for the year ended December 31, 2011.


ITEM 1A.	RISK FACTORS

Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2011 describes some of the risks and uncertainties associated with our business. The risk factors set forth below update such disclosures. Other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows and future results. Such risks and uncertainties also may impact the accuracy of forward-looking statements included in this Form 10-Q and other reports we file with the Securities and Exchange Commission.

We are exposed to risks as a result of ongoing changes specific to the solar inverter industry.

A significant portion of our business is in the emerging solar inverter market, which, in addition to the general industry changes described above in the risk factor “The industries in which we compete are subject to volatile and unpredictable cycles,” is also characterized by ongoing changes particular to the solar inverter industry. Our business is subject to changes in technology or demand for solar products arising from, among other things, adoption of our inverter products by our customers, compatibility of our solar inverter technology with our customers' products or certain solar panel providers, customers' and end-users' access to affordable financial capital, the cost and performance of solar technology compared to other energy sources, the adequacy of or changes in government energy policies, including the availability and amount of government incentives for solar power (such as feed-in tariffs and tax credits), the continuation of renewable portfolio standards, and the extent of investment or participation in solar by utilities or other companies that generate, transmit, or distribute power to end users. The current debt crisis in Europe and the resulting economic uncertainty and instability in the region could result in limited access to capital for our customers or changes to government incentives for renewable energy which could cause the delay or cancellation of current projects in the solar industry. Moreover, as European solar incentives continue to decline and the Euro devalues, European competitors will likely compete more aggressively in the United States against us. There is also increased market volatility as the size of utility scale solar projects is increasing to hundreds of megawatts of capacity. Such large-scale solar projects require significant financial resources on our part should we be selected as the supplier for solar inverters. We are continuing to see ever increasing requirements in the solar industry for delivery and performance guarantees related to solar inverters and associated liquidated damages provisions. This, combined with long product warranty periods, could result in financial exposure for our business if our solar inverters do not meet delivery, reliability or uptime requirements. Lastly, customers using our solar inverters are beginning to evaluate multi-year service agreements from us for onsite maintenance and support of our inverters and even the solar site. These agreements, however, are subject to annual renewal and may not be renewed by the customers.

If we do not successfully manage the risks resulting from these ongoing changes occurring in the solar industry, we may miss out on substantial opportunities for revenue and our business, financial condition, and results of operations could be materially and adversely affected.

We conduct manufacturing at only a few sites and our sites are not generally interchangeable.

Our power products for the semiconductor industry are manufactured in Shenzhen, PRC and Seoul, South Korea. Our thermal instrumentation products that are used in the semiconductor industry are manufactured in Vancouver, Washington. Each facility manufactures different products, and therefore, is not interchangeable. Labor disruptions, supply difficulties or natural or other uncontrollable occurrences at any of our manufacturing facilities could significantly reduce our productivity at such site and could prevent us from meeting our customers' requirements in a timely manner, or at all. Our losses from any such occurrence could significantly affect our operations and results of operations for a prolonged period of time.

Our PV Powered solar inverters are manufactured in Bend, Oregon and we have entered into a contract manufacturing relationship in Canada. Our Solaron inverter products are manufactured at our Fort Collins, Colorado facility and we have entered into contract manufacturing relationships in the PRC and Canada, as well. While manufacturing could be

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shifted to a different manufacturing location for the Solaron and PV Powered inverters if a labor disruption, supply difficulty or natural or other uncontrollable occurrence occurred, it may take significant time to transition to another site, and delivery times and costs would likely increase, preventing us from meeting our customers' requirements in a timely manner, or at all. To the extent that local content requirements exist, we may also be limited in such transitions.

Our restructuring and other cost-reduction efforts have included transitioning manufacturing operations to our facility in Shenzhen from other manufacturing facilities, such as Fort Collins and Bend, which renders us increasingly reliant upon our Shenzhen facility. A disruption in manufacturing at our Shenzhen facility, from whatever cause, could have a significantly adverse effect on our ability to fulfill customer orders, our ability to maintain customer relationships, our costs to manufacture our products and, as a result, our results of operations and financial condition.

We maintain significant amounts of cash in international locations.

Given the global nature of our business, we have both domestic and international concentrations of cash and investments. The value of our cash, cash equivalents, and marketable securities can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, we could incur a significant impairment of our cash, cash equivalents, and marketable securities, which could materially adversely affect our financial condition and results of operations.

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

Share Repurchases

In November 2011, the Board of Directors authorized a program to repurchase up to $75.0 million of our common stock over a twelve month period. As of June 30, 2012, we have completed this repurchase program. Share repurchases are as follows (in thousands, except for average price per share):



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plan or Program
April 1, 2012 to April 30, 2012	430	$	11.91	430	$	30,052
May 1, 2012 to May 31, 2012	2,010	$	13.39	2,010	$	3,136
June 1, 2012 to June 30, 2012	240	$	13.14	240	$	—
Total	2,680	$	13.13	2,680


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

None.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS




31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements 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.

Dated:	August 7, 2012	/s/ Danny Herron
		Danny C. Herron
		Executive Vice President and Chief Financial Officer

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INDEX TO EXHIBITS



31.1			Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.