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Advanced Energy Industries Inc. has a market cap of $577.6 million; its shares were traded at around $13.72 with and P/S ratio of 3.2. AEIS is in the portfolios of RS Investment Management, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: In response to the challenging economic environment that was pervasive in 2009, we implemented cost reduction efforts to better align our cost structure with our revenue expectations. Some of the cost reductions were permanent in nature, such as consolidation of facilities on a worldwide basis. Overall in 2009, we reduced our global workforce by approximately 363 people, or 22% of total headcount, driving a cost savings of $15.1 million during the year. The cost savings included approximately $6.5 million as a reduction in cost of goods sold, approximately $5.7 million as a reduction of research and development costs and approximately $2.7 million as a reduction of selling, general and administrative costs.
The cost of the acquisition may increase or decrease based on the final amount payable to the former shareholders of PV Powered related to the financial targets to be met during the year ending December 31, 2010. If PV Powered’s commercial revenue exceeds $10 million during 2010 and PV Powered maintains a related commercial gross profit margin of at least 28%, the former shareholders will be entitled to receive an additional $1 of consideration for each $1 of commercial revenue over $10 million up to $40 million. We have not determined the probability of our payment of the additional consideration to PV Powered’s former shareholders. Advanced Energy is in the process of finalizing valuations of property, plant, and equipment, other intangibles, and estimates of liabilities associated with the acquisition and expects to complete the acquisition accounting and required disclosures prior to December 31, 2010.
Net cash flows provided by (used in) investing activities decreased by $8.0 million to $5.2 million used in investing activities for the three month period ended March 31, 2010 compared to $2.9 million provided by investing activities for the same period of 2009. During the three months ended March 31, 2010, we purchased $4.4 million, net, of marketable securities. During the three months ended March 31, 2009 we sold $3.5 million of marketable securities, net.
Capital expenditures increased by $0.2 million during the three months ended March 31, 2010 to $0.8 million compared to $0.6 million during the same period in 2009. We intend to continue to acquire testing equipment to sustain our engineering and new product development efforts as well as capacity expansion for the production of inverters, which will increase as a result of our acquisition of PV Powered. Future capital expenditures are expected to be funded through cash flows from operations and borrowings under our Credit Line agreement.
Net cash flows provided by (used in) financing activities increased by $0.5 million to $0.5 million during the three months ended March 31, 2010 compared to the same period in 2009. During the three months ended March 31, 2010, $0.5 million of stock options were exercised. There was no exercise of stock options in the same period last year.
We face market risk exposure associated with our investments in auction rate securities (“ARS”). Our investments in auction rate securities are classified as trading securities and were recorded at fair value of $18.3 million at March 31, 2010. The underlying securities related to these investments are student loans, which accounted for $16.6 million of the recorded fair value, and other municipal holdings, which accounted for the remaining $1.7 million of the recorded fair value. These ARS were intended to provide liquidity via an auction process that resets the applicable interest rate approximately every 30 days and allows investors to either roll over their holdings or gain immediate liquidity by selling such investments at par. As a result of current negative conditions in the global credit markets, since February 2008, the large majority of the auctions for our investment in these securities have failed to settle, causing us to continue to hold the securities. Based on the estimated fair value of the ARS, during the three months ended March 31, 2010, we recorded an unrealized gain on these securities of approximately $0.1 million, reflecting the increase in the estimated fair value of these securities. We continue to monitor the market for auction rate securities and consider its impact, if any, on the fair value of these investments. If current market conditions deteriorate further, we may be required to record additional losses.
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