For more information, contact:

Cathy Kawakami,
Advanced Energy Industries, Inc.
970.407.6732
cathy.kawakami@aei.com
 

Advanced Energy Reports Fourth Quarter and Year-End 2005 Results
FORT COLLINS, Colo., Feb. 16-Advanced Energy Industries, Inc. (Nasdaq: AEIS) today reported financial results for the fourth quarter and year ended December 31, 2005.

(Logo: http://www.newscom.com/cgi-bin/prnh/20030825/AEISLOGO)

For the 2005 fourth quarter, sales were $80.4 million, up 2.1 percent compared to $78.8 million in the third quarter of 2005, and down 5.2 percent compared to $84.8 million in the fourth quarter of 2004. Gross profit was $30.2 million, or 37.6 percent of sales for the fourth quarter of 2005, compared to $28.9 million, or 36.7 percent of sales in the third quarter of 2005, and $13.3 million, or 15.7 percent of sales in the fourth quarter of 2004.

Income from continuing operations was $5.0 million, or $0.11 per diluted share, in the fourth quarter of 2005, compared to a loss from continuing operations of $4.2 million, or $0.11 per share, in the third quarter of 2005, and a loss from continuing operations of $23.3 million, or $0.71 per share, in the fourth quarter of 2004. Fourth quarter 2005 income from continuing operations reflects a tax rate of 21 percent, which is lower than the Company's anticipated tax rate of 40 percent due to the mix of foreign and domestic income in the respective taxing jurisdictions, allowing the utilization of the net operating loss carryforwards.

During the fourth quarter 2005, the Company sold its IKOR technology assets, resulting in income from discontinued operations of $5.0 million, or $0.11 per diluted share. Net income from discontinued operations in the third quarter of 2005 was $312,000, or $0.01 per diluted share, and $340,000, or $0.01 per diluted share in the fourth quarter of 2004.

Fourth quarter 2005 net income was $10.0 million, or $0.22 per diluted share, compared to a net loss of $3.9 million, or $0.10 per share in the third quarter of 2005, and a net loss of $23.0 million, or $0.70 per share in the fourth quarter of 2004.

The third quarter 2005 net loss included a $3.0 million litigation settlement, $2.1 million related to the early retirement of the convertible debt, and a non-cash charge of $1.1 million related to the write-off of deferred debt issuance costs. Included in the fourth quarter 2004 net loss were $19.8 million in pre-tax charges primarily attributable to increased excess and obsolete inventory reserves, a change in an accounting estimate related to demonstration equipment, employee severance and termination costs, and intangible asset impairments.

Dr. Hans Betz, president and chief executive officer of Advanced Energy, said, "We continue to improve our gross margin even on relatively flat sequential sales volumes," said Dr. Betz. "Incremental operating margin above our $66 million break even level was approximately 44 percent, and we expect additional improvements throughout the year as we continue to benefit from the increasing capability of our worldwide manufacturing operations."

Sales for the 2005 fiscal year were $325.5 million, a 14.5 percent decrease compared to net sales of $380.5 million in fiscal year 2004. Net income for the year was $12.8 million, or $0.34 per diluted share, compared to net loss of $12.7 million, or $0.39 per share in fiscal year 2004. Net income from continuing operations was $3.6 million, or $0.10 per diluted share, in fiscal year 2005, compared to a loss from continuing operations of $14.7 million, or $0.45 per share, in fiscal year 2004.

"We are currently experiencing increased demand for our innovative portfolio of solutions that enable advanced processing," said Dr. Betz. "During the fourth quarter, we made progress in further penetrating emerging opportunities in the solar market with both our DC and RF power platforms, and in flat panel display with our RF technology for a new etch application. We are well-positioned to apply our technology leadership and worldwide manufacturing excellence to a diverse set of high-growth, high-profitability opportunities."

Dr. Betz continued, "Based on improving order trends, we currently expect first quarter 2006 sales to be $88 million to $91 million. We anticipate earnings per share in the $0.17 to $0.19 range, including estimated stock-based compensation expense of $600,000, or $0.01 per diluted share after tax, due to our adoption of SFAS 123(R) in the first quarter of 2006."

Fourth Quarter and Year-End 2005 Conference Call

Management will host a conference call today, Thursday, February 16, 2006 at 5:00 pm Eastern time to discuss Advanced Energy's financial results. You may access this conference call by dialing 888-713-4717. International callers may access the call by dialing 706-679-7720. For a replay of this teleconference, please call 706-645-9291, and enter the pass code 4199312. The replay will be available through Thursday, February 23, 2006. There will also be a webcast available at www.advanced-energy.com, and on the investor relations page at http://ir.advanced-energy.com.

About Advanced Energy

Advanced Energy is a global leader in the development and support of technologies critical to high-technology, high-growth manufacturing processes used in the production of semiconductors, flat panel displays, data storage products, solar cells, architectural glass, and other advanced product applications.

Leveraging a diverse product portfolio and technology leadership, Advanced Energy creates solutions that maximize process impact, improve productivity and lower the cost of ownership for its customers. This portfolio includes a comprehensive line of technology solutions in power, flow, thermal management, and plasma and ion beam sources for original equipment manufacturers (OEMs) and end-users around the world.

Advanced Energy operates in regional centers in North America, Asia and Europe and offers global sales and support through direct offices, representatives and distributors. Founded in 1981, Advanced Energy is a publicly held company traded on the Nasdaq National Market under the symbol AEIS. For more information, please visit our corporate website: www.advanced-energy.com.

Safe Harbor Statement

This press release contains certain forward-looking statements, including the company's expectations with respect to Advanced Energy's financial results for the first quarter of 2006. Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to: the volatility and cyclicality of the semiconductor, semiconductor capital equipment and flat panel display industries, Advanced Energy's ongoing ability to develop new products in a highly competitive industry characterized by increasingly rapid technological changes, and other risks described in Advanced Energy's Form 10-K, Forms 10-Q and other reports and statements, as filed with the Securities and Exchange Commission. These reports and statements are available on the SEC's website at www.sec.gov . Copies may also be obtained from Advanced Energy's website at www.advanced-energy.com or by contacting Advanced Energy's investor relations at 970-221-4670. The company assumes no obligation to update the information in this press release.

 

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
    (in thousands, except per share data)

                                Three Months Ended             Years Ended
                            December 31,    September 30,      December 31,
                          2005       2004       2005         2005       2004

    Sales               $80,387    $84,811    $78,756     $325,482   $380,537
    Cost of sales        50,196     71,536     49,834      208,401    265,911
    Gross profit         30,191     13,275     28,922      117,081    114,626

    Operating
     expenses:
      Research and
       development        9,635     11,987      9,610       39,720     49,004
      Selling,
       general and
       administrative    13,671     12,305     13,421       53,631     54,174
      Amortization of
       intangible
       assets               481        538        504        2,050      3,925
      Restructuring
       charges              166      3,670        210        2,706      3,912
      Litigation
       settlement            --         --      3,000        3,000         --
      Demonstration
       equipment
       charge                --      3,752         --           --      3,752
      Impairment of
       intangible
       assets                --      3,326         --           --      3,326
        Total
         operating
         expenses        23,953     35,578     26,745      101,107    118,093

    Income (loss)
     from operations      6,238    (22,303)     2,177       15,974     (3,467)

    Other income
     (expense), net         123     (1,690)    (4,796)      (7,479)    (7,256)
    Income (loss)
     from continuing
     operations before
     income taxes         6,361    (23,993)    (2,619)       8,495    (10,723)
    Provision
     (benefit) for
     income taxes        (1,330)       648     (1,584)      (4,873)    (3,947)
      Income (loss)
       from continuing
       operations         5,031    (23,345)    (4,203)       3,622    (14,670)

    Gain on sale of
     discontinued
     assets               5,210         --         --        7,855         --
    Results of
     discontinued
     operations            (216)       340        312        1,340      1,923
    Provision for
     income taxes            --         --         --           --         --

      Income from
       discontinued
       operations         4,994        340        312        9,195      1,923

    Net income (loss)   $10,025   $(23,005)   $(3,891)     $12,817   $(12,747)

    Net income (loss)
     per basic share
      Income (loss)
       from continuing
       operations         $0.11     $(0.71)    $(0.11)       $0.10     $(0.45)
      Income from
       discontinued
       operations         $0.11      $0.01      $0.01        $0.25      $0.06
      Basic earnings
       (loss) per share   $0.23     $(0.70)    $(0.10)       $0.35     $(0.39)

    Net income (loss)
     per diluted share
      Income (loss)
       from continuing
       operations         $0.11     $(0.71)    $(0.11)       $0.10     $(0.45)
      Income from
       discontinued
       operations         $0.11      $0.01      $0.01        $0.25      $0.06
      Diluted earnings
       (loss) per share   $0.22     $(0.70)    $(0.10)       $0.34     $(0.39)

    Basic
     weighted-average
     common shares
     outstanding         44,416     32,698     38,366       37,084     32,649

    Diluted
     weighted-average
     common shares
     outstanding         44,902     32,698     38,366       37,434     32,649



    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (in thousands)

                                                   December 31,   December 31,
                                                       2005           2004

    ASSETS

    Current assets:
      Cash and cash equivalents                      $52,874        $38,404
      Marketable securities                            6,811         69,578
      Accounts receivable, net                        68,992         72,053
      Inventories, net                                56,199         73,224
      Other current assets                             6,773          6,140
    Total current assets                             191,649        259,399

    Property and equipment, net                       39,294         44,746

    Deposits and other                                 3,808          6,468
    Goodwill and intangibles, net                     69,843         80,308
    Customer service equipment, net                    2,407          2,968
    Deferred debt issuance costs, net                     --          2,086
    Deferred income tax assets, net                    3,116             --

    Total assets                                    $310,117       $395,975


    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Trade accounts payable                         $22,028        $17,683
      Other accrued expenses                          23,977         28,615
      Current portion of capital leases and
       senior borrowings                               1,216          3,726
      Accrued interest payable on
       convertible subordinated notes                     --          2,460
    Total current liabilities                         47,221         52,484

    Long-term liabilities:
      Capital leases and senior borrowings             2,974          4,679
      Deferred income tax liabilities, net                --          3,709
      Convertible subordinated notes payable              --        187,718
      Other long-term liabilities                      2,492          2,407
    Total long-term liabilities                        5,466        198,513

    Total liabilities                                 52,687        250,997

    Stockholders' equity                             257,430        144,978
    Total liabilities and stockholders' equity      $310,117       $395,975



    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (in thousands)

                                                     Years Ended  December 31,
                                                        2005          2004

    NET CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES                             $36,051      $(11,378)

    NET CASH PROVIDED BY INVESTING ACTIVITIES          67,032        12,329

    NET CASH USED IN FINANCING ACTIVITIES             (85,972)       (5,191)

    EFFECT OF CURRENCY TRANSLATION ON CASH             (2,641)        1,122
    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   14,470        (3,118)
    CASH AND EQUIVALENTS, beginning of period          38,404        41,522
    CASH AND EQUIVALENTS, end of period               $52,874       $38,404