UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended June 30, 2012
OR
¨ | 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 1-15477
MAXWELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 95-2390133 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
5271 Viewridge Court, Suite 100, San Diego, California | 92123 | |
(Address of principal executive offices) | (Zip Code) |
(858) 503-3200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark 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 x NO ¨
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 definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). YES ¨ NO x
The number of shares of the registrants Common Stock outstanding as of July 26, 2012 is 29,196,307 shares.
MAXWELL TECHNOLOGIES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the quarter ended June 30, 2012
Page | ||||||
3 | ||||||
Item 1. | 3 | |||||
Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 |
4 | |||||
Condensed Consolidated Statements of Operations Three and six months ended June 30, 2012 and 2011 |
5 | |||||
6 | ||||||
Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2012 and 2011 |
7 | |||||
8 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||||
Item 3. | 25 | |||||
Item 4. | 25 | |||||
26 | ||||||
Item 1. | 26 | |||||
Item 1A. | 26 | |||||
Item 6. | 26 | |||||
27 |
2
PART I Financial Information
Item 1. | Financial Statements |
The following condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements, consisting of the condensed consolidated balance sheet as of June 30, 2012, the condensed consolidated statements of operations and statements of other comprehensive income (loss) for the three and six months ended June 30, 2012 and 2011, and the condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
The following condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, does not include all of the information and footnotes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions 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 revenues and expenses during the reported period. Actual results could differ materially from those estimates.
In the opinion of management, these unaudited statements contain all adjustments (consisting of normal recurring adjustments, except as otherwise indicated) necessary for a fair presentation for the periods presented as required by Regulation S-X, Rule 10-01.
In addition, operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2012.
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
June 30, 2012 |
December 31, 2011 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 22,310 | $ | 29,289 | ||||
Trade and other accounts receivable, net of allowance for doubtful accounts of $216 and $577 at June 30, 2012 and December 31, 2011, respectively |
48,514 | 36,131 | ||||||
Inventories |
30,217 | 27,232 | ||||||
Prepaid expenses and other current assets |
3,299 | 3,125 | ||||||
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Total current assets |
104,340 | 95,777 | ||||||
Property and equipment, net |
33,275 | 28,541 | ||||||
Intangible assets, net |
854 | 1,111 | ||||||
Goodwill |
24,621 | 24,887 | ||||||
Pension asset |
6,685 | 6,359 | ||||||
Other non-current assets |
94 | 261 | ||||||
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Total assets |
$ | 169,869 | $ | 156,936 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
$ | 32,301 | $ | 37,145 | ||||
Accrued warranty |
265 | 258 | ||||||
Accrued employee compensation |
5,721 | 6,243 | ||||||
Short-term borrowings and current portion of long-term debt |
6,870 | 5,431 | ||||||
Deferred tax liability |
499 | 499 | ||||||
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Total current liabilities |
45,656 | 49,576 | ||||||
Deferred tax liability, long-term |
952 | 933 | ||||||
Long-term debt, excluding current portion |
3,389 | 68 | ||||||
Other long-term liabilities |
750 | 3,028 | ||||||
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Total liabilities |
50,747 | 53,605 | ||||||
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Commitments and contingencies (Note 10) |
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Stockholders equity: |
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Common stock, $0.10 par value per share, 40,000 shares authorized; 29,136 and 28,174 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively |
2,911 | 2,815 | ||||||
Additional paid-in capital |
266,225 | 252,907 | ||||||
Accumulated deficit |
(159,860 | ) | (163,021 | ) | ||||
Accumulated other comprehensive income |
9,846 | 10,630 | ||||||
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Total stockholders equity |
119,122 | 103,331 | ||||||
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Total liabilities and stockholders equity |
$ | 169,869 | $ | 156,936 | ||||
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See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenue |
$ | 40,856 | $ | 38,463 | $ | 80,086 | $ | 73,722 | ||||||||
Cost of revenue |
23,876 | 22,987 | 46,969 | 44,362 | ||||||||||||
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Gross profit |
16,980 | 15,476 | 33,117 | 29,360 | ||||||||||||
Operating expenses: |
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Selling, general and administrative |
8,187 | 11,747 | 17,422 | 19,681 | ||||||||||||
Research and development |
5,294 | 5,297 | 10,890 | 11,269 | ||||||||||||
Amortization of intangibles |
51 | 51 | 102 | 102 | ||||||||||||
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Total operating expenses |
13,532 | 17,095 | 28,414 | 31,052 | ||||||||||||
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Income (loss) from operations |
3,448 | (1,619 | ) | 4,703 | (1,692 | ) | ||||||||||
Interest expense, net |
(56 | ) | (25 | ) | (82 | ) | (61 | ) | ||||||||
Amortization of debt discount and prepaid debt costs |
(15 | ) | | (26 | ) | (55 | ) | |||||||||
Gain on embedded derivatives |
| | | 1,086 | ||||||||||||
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Income (loss) from operations before income taxes |
3,377 | (1,644 | ) | 4,595 | (722 | ) | ||||||||||
Income tax provision (benefit) |
719 | (427 | ) | 1,433 | 299 | |||||||||||
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Net income (loss) |
$ | 2,658 | $ | (1,217 | ) | $ | 3,162 | $ | (1,021 | ) | ||||||
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Net income (loss) per share: |
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Basic |
$ | 0.09 | $ | (0.04 | ) | $ | 0.11 | $ | (0.04 | ) | ||||||
Diluted |
$ | 0.09 | $ | (0.04 | ) | $ | 0.11 | $ | (0.04 | ) | ||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
28,672 | 27,669 | 28,397 | 27,478 | ||||||||||||
Diluted |
28,780 | 27,669 | 28,680 | 27,478 |
See accompanying notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income (loss) |
$ | 2,658 | $ | (1,217 | ) | $ | 3,162 | $ | (1,021 | ) | ||||||
Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustment |
(3,347 | ) | 5,308 | (894 | ) | 6,060 | ||||||||||
Defined benefit pension plan, net of tax: |
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Amortization of deferred loss, net of tax of $8 and $0 for the three months ended June 30, 2012 and 2011, respectively; net of tax of $16 and $0 for the six months ended June 30, 2012 and 2011, respectively |
46 | 79 | 92 | 152 | ||||||||||||
Amortization of prior service cost, net of tax of $2 and $0 for the three months ended June 30, 2012 and 2011, respectively; net of tax of $4 and $0 for the six months ended June 30, 2012 and 2011, respectively |
9 | 11 | 18 | 22 | ||||||||||||
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Other comprehensive income (loss), net of tax |
(3,292 | ) | 5,398 | (784 | ) | 6,234 | ||||||||||
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Comprehensive income (loss) |
$ | (634 | ) | $ | 4,181 | $ | 2,378 | $ | 5,213 | |||||||
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See accompanying notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended June 30, |
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2012 | 2011 | |||||||
OPERATING ACTIVITIES: |
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Net income (loss) |
$ | 3,162 | $ | (1,021 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation |
3,394 | 3,095 | ||||||
Amortization of intangible assets |
254 | 275 | ||||||
Amortization of debt discount and prepaid debt costs |
26 | 55 | ||||||
Gain on embedded derivatives and warrants |
| (1,086 | ) | |||||
Pension cost |
91 | 120 | ||||||
Stock-based compensation expense |
2,056 | 1,706 | ||||||
Provision for (recovery of) losses on accounts receivable |
(362 | ) | 203 | |||||
Changes in operating assets and liabilities: |
||||||||
Trade and other accounts receivable |
(12,160 | ) | (7,628 | ) | ||||
Inventories |
(3,031 | ) | (7,098 | ) | ||||
Prepaid expenses and other assets |
(32 | ) | 303 | |||||
Accounts payable and accrued liabilities |
(4,672 | ) | 3,167 | |||||
Accrued employee compensation |
(504 | ) | 688 | |||||
Deferred tax liability, long term |
19 | | ||||||
Other long-term liabilities |
(2,275 | ) | (5,567 | ) | ||||
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Net cash used in operating activities |
(14,034 | ) | (12,788 | ) | ||||
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INVESTING ACTIVITIES: |
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Purchases of property and equipment |
(8,288 | ) | (7,291 | ) | ||||
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Net cash used in investing activities |
(8,288 | ) | (7,291 | ) | ||||
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FINANCING ACTIVITIES: |
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Principal payments on long-term debt and short-term borrowings |
(3,363 | ) | (6,650 | ) | ||||
Proceeds from long-term and short-term borrowings |
8,161 | 6,472 | ||||||
Proceeds from sale of common stock, net of proceeds |
10,283 | | ||||||
Repurchase of shares |
(319 | ) | (121 | ) | ||||
Proceeds from issuance of common stock under equity compensation plans |
1,393 | 1,061 | ||||||
Release of restricted cash |
| 8,000 | ||||||
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Net cash provided by financing activities |
16,155 | 8,762 | ||||||
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Effect of exchange rate changes on cash and cash equivalents |
(812 | ) | 1,279 | |||||
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Decrease in cash and cash equivalents |
(6,979 | ) | (10,038 | ) | ||||
Cash and cash equivalents, beginning of period |
29,289 | 39,829 | ||||||
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Cash and cash equivalents, end of period |
$ | 22,310 | $ | 29,791 | ||||
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See accompanying notes to condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless the context otherwise requires, all references to Maxwell and the Company refer to Maxwell Technologies, Inc. and its subsidiaries; all references to Maxwell SA refer to the Companys Swiss subsidiary, Maxwell Technologies, SA.
Note 1 Description of Business and Basis of Presentation
Description of Business
Maxwell Technologies, Inc. is a Delaware corporation originally incorporated in 1965 under the name Maxwell Laboratories, Inc. In 1983, the Company completed an initial public offering, and in 1996, changed its name to Maxwell Technologies, Inc. The Company is headquartered in San Diego, California and has two manufacturing locations, in San Diego, California and Rossens, Switzerland, and is in the process of opening a manufacturing facility in Peoria, Arizona. In addition, the Company has two contract manufacturers located in China. Maxwell operates as one operating segment called High Reliability, which is comprised of three product lines:
| Ultracapacitors: The Companys primary focus, ultracapacitors, are energy storage devices that possess a unique combination of high power density, extremely long operational life and the ability to charge and discharge very rapidly. The Companys ultracapacitor cells and multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including transportation, automotive, information technology, renewable energy and consumer and industrial electronics. |
| High-Voltage Capacitors: The Companys CONDIS® high-voltage capacitors are extremely robust devices that are designed and manufactured to perform reliably for decades. These products include grading and coupling capacitors and capacitive voltage dividers that are used to ensure the safety and reliability of electric utility infrastructure and other applications involving transport, distribution and measurement of high-voltage electrical energy. |
| Radiation-Hardened Microelectronic Products: The Companys radiation-hardened microelectronic products include high-performance, high-density power modules, memory modules and single board computers that incorporate our proprietary RADPAK® packaging and shielding technology and novel architectures that enable them to withstand environmental radiation effects and perform reliably in space. |
The Companys products are designed to perform reliably for the life of the products and systems into which they are integrated. The Company achieves high reliability through the application of proprietary technologies and rigorously controlled design, development, manufacturing and test processes.
Financial Statement Presentation
The accompanying condensed consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries. All significant intercompany transactions and account balances have been eliminated in consolidation. The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the standards of accounting measurement set forth in the Interim Reporting Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Consequently, the Company has not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In the opinion of the Companys management, the accompanying unaudited condensed consolidated financial statements in this Form 10-Q contain all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary to present fairly the financial position, results of operations, and cash flows of Maxwell Technologies, Inc. for all periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire year. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Companys audited financial statements and the notes thereto included in the Companys latest Annual Report on Form 10-K. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted in the accompanying interim consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. These estimates include, but are not limited to, assessing the collectability of accounts receivable, applied and unapplied production costs, production capacities, the usage and recoverability of inventories and long-lived assets, including deferred income taxes, the incurrence of warranty obligations, impairment of goodwill and other intangible assets, estimation of the cost to complete certain projects, accruals for estimated losses from legal matters, and estimation of the value of stock-based compensation awards, including the probability that the performance criteria of restricted stock awards will be met.
8
Warranty Obligation
The Company provides warranties on all product sales. The majority of the Companys warranties are for one to two years in the normal course of business. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure.
Net Income (Loss) per Share
In accordance with the Earnings Per Share Topic of the FASB ASC, basic net income (loss) per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share includes the impact of additional common shares that would have been outstanding if potentially dilutive common shares were issued. Potentially dilutive securities are not considered in the calculation of diluted net loss per share, as their inclusion would be anti-dilutive. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Numerator |
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Net income (loss) |
$ | 2,658 | $ | (1,217 | ) | $ | 3,162 | $ | (1,021 | ) | ||||||
Denominator |
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Weighted-average common shares outstanding |
28,672 | 27,669 | 28,397 | 27,478 | ||||||||||||
Effect of potentially dilutive securities: |
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Options to purchase common stock |
85 | | 223 | | ||||||||||||
Restricted stock awards |
5 | | 23 | | ||||||||||||
Restricted stock unit awards |
| | 4 | | ||||||||||||
Employee stock purchase plan |
18 | | 33 | | ||||||||||||
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Weighted-average common shares outstanding, assuming dilution |
28,780 | 27,669 | 28,680 | 27,478 | ||||||||||||
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Net income (loss) per share |
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Basic |
$ | 0.09 | $ | (0.04 | ) | $ | 0.11 | $ | (0.04 | ) | ||||||
Diluted |
$ | 0.09 | $ | (0.04 | ) | $ | 0.11 | $ | (0.04 | ) |
The following table summarizes instruments that may be convertible into common shares that are not included in the denominator used in the diluted net income (loss) per share calculation because to do so would be anti-dilutive (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Outstanding options to purchase common stock |
637 | 1,404 | 318 | 1,404 | ||||||||||||
Restricted stock awards |
340 | 259 | 238 | 259 | ||||||||||||
Restricted stock unit awards |
21 | 22 | | 22 | ||||||||||||
Employee stock purchase plan |
| 19 | | 19 |
Change in Additional Paid in Capital
For the six months ended June 30, 2012, additional paid in capital increased $13.3 million. This increase includes $10.2 million related to proceeds from shares of common stock sold pursuant to the Companys shelf registration statement, net of offering costs, and $3.4 million associated with the Companys stock-based compensation plans, offset by $318,000 for the repurchase of shares that were withheld by the Company to satisfy employee tax liabilities upon the vesting of restricted stock awards.
Pending Accounting Pronouncements
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities, which requires companies to disclose information about financial instruments that have been offset and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial
9
position. Companies will be required to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset. This standard will be effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The Company does not expect the adoption of the standard update to impact its financial position or results of operations, as it only requires additional disclosure in the Companys financial statements.
Note 2 Balance Sheet Details (in thousands)
Inventories
June 30, 2012 |
December 31, 2011 |
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Raw material and purchased parts |
$ | 12,159 | $ | 10,361 | ||||
Work-in-process |
3,014 | 3,552 | ||||||
Finished goods |
15,044 | 13,319 | ||||||
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Total inventories |
$ | 30,217 | $ | 27,232 | ||||
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Intangible Assets
Intangible assets consisted of the following:
Gross Carrying Value |
Accumulated Amortization |
Foreign Currency Adjustment |
Net Carrying Value |
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As of June 30, 2012: |
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Patents |
$ | 2,476 | $ | (1,802 | ) | $ | | $ | 674 | |||||||
Developed core technology |
1,100 | (1,393 | ) | 299 | 6 | |||||||||||
Patent license agreement |
741 | (572 | ) | 5 | 174 | |||||||||||
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Total intangible assets at June 30, 2012 |
$ | 4,317 | $ | (3,767 | ) | $ | 304 | $ | 854 | |||||||
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Gross Carrying Value |
Accumulated Amortization |
Foreign Currency Adjustment |
Net Carrying Value |
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As of December 31, 2011: |
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Patents |
$ | 2,476 | $ | (1,699 | ) | $ | | $ | 777 | |||||||
Developed core technology |
1,100 | (1,325 | ) | 304 | 79 | |||||||||||
Patent license agreement |
741 | (494 | ) | 8 | 255 | |||||||||||
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Total intangible assets at December 31, 2011 |
$ | 4,317 | $ | (3,518 | ) | $ | 312 | $ | 1,111 | |||||||
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Goodwill
The change in the carrying amount of goodwill from December 31, 2011 to June 30, 2012 is as follows:
Balance at December 31, 2011 |
$ | 24,887 | ||
Foreign currency translation adjustments |
(266 | ) | ||
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Balance at June 30, 2012 |
$ | 24,621 | ||
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10
Accrued Warranty
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Beginning balance |
$ | 258 | $ | 449 | ||||
Product warranties issued |
170 | 86 | ||||||
Settlement of warranties |
(120 | ) | (155 | ) | ||||
Change related to preexisting warranties |
(42 | ) | | |||||
Other changes/adjustments |
(1 | ) | (76 | ) | ||||
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Ending balance |
$ | 265 | $ | 304 | ||||
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Accumulated Other Comprehensive Income
Foreign Currency Translation Adjustment |
Defined Benefit Pension Plan |
Accumulated Other Comprehensive Income |
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Balance as of December 31, 2011 |
$ | 14,580 | $ | (3,950 | ) | $ | 10,630 | |||||
Current period change |
(894 | ) | 110 | (784 | ) | |||||||
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Balance as of June 30, 2012 |
$ | 13,686 | $ | (3,840 | ) | $ | 9,846 | |||||
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Note 3 Convertible Debentures
On December 20, 2005, the Company issued $25 million in aggregate principal amount of senior subordinated convertible debentures (the Debentures) due and payable in quarterly installments of $2.8 million which commenced December 2008. However, the holder, at its election, could defer each quarterly payment one time, for a 24 month period. As the holder had elected to defer some quarterly installments, the outstanding principal of the Debentures at December 31, 2010 was $8.3 million. In February 2011, the holder of the Debentures converted the remaining $8.3 million principal balance into 514,086 shares of the Companys common stock at a conversion price of $16.21 per share. On the conversion date, the common stock had a fair value of $9.3 million, which was based on the closing market price. This conversion resulted in a gain of $1.0 million, which is included in gain on embedded derivatives in the consolidated statement of operations for the six months ended June 30, 2011.
Interest paid with cash and principal converted into shares of common stock are as follows (in thousands):
Six Months Ended June 30, 2011 |
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Value | Shares | |||||||
Conversion of principal into shares of common stock |
$ | 8,333 | 514 | |||||
Interest paid with cash |
17 | | ||||||
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Total debenture payments |
$ | 8,350 | 514 | |||||
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Until the conversion of the remaining principal balance in February 2011, the principal balance was convertible by the holder at any time into common shares. In addition, after eighteen months from the issue date, the Company could have required that a specified amount of the principal of the Debentures be converted if certain conditions were satisfied for a period of 20 consecutive trading days. The Company accounted for the conversion options in the Debentures as derivative liabilities in accordance with the Derivatives and Hedging Topic of the FASB ASC. The discount at the issuance date of $9.2 million related to the fair value of the conversion options and embedded warrants issued in connection with the Debentures, and debt issuance costs, were amortized using the effective interest method over the term of the Debentures. For the six months ended June, 2011, $6,000 of the discount and prepaid fees were amortized. Upon conversion of the remaining principal balance of the Debentures into shares of the Companys common stock in February 2011, the remaining unamortized discount was written off and is included in amortization of debt discount and prepaid debt costs in the consolidated statement of operations.
For the six months ended June 30, 2011, the change in fair value on revaluation of the conversion rights was the difference between the fair value on the conversion date in February 2011 and the fair value at the beginning of the period using the value calculated by the Black-Scholes pricing model. The effect of the fair market value adjustment for six months ended June 30, 2011 was a $78,000 gain, which is recorded as gain on embedded derivatives in the consolidated statement of operations.
11
As long as the Debentures were outstanding, the Company was required to maintain a minimum cash balance of $8.0 million. The cash restriction was released in February 2011 when the outstanding principal amount of the convertible debentures was converted to shares of the Companys common stock.
Note 4 Credit Facility
In December 2011, the Company obtained a secured credit facility in the form of a revolving line of credit up to a maximum of $15.0 million (the Revolving Line of Credit) and an equipment term loan up to a maximum of $12.5 million (the Equipment Term Loan) (together, the Credit Facility). In general, amounts borrowed under the Credit Facility are secured by a lien on all of the Companys assets other than its intellectual property. The agreement also contains certain restrictive covenants and certain financial covenants that the Company must meet on a quarterly basis during the term of the credit agreement. Borrowings under the Credit Facility bear interest, payable monthly, at either (i) the banks prime rate or (ii) LIBOR plus 2.25%, at the Companys option subject to certain limitations. The Revolving Line of Credit matures on December 5, 2013, and may be prepaid in whole or in part at any time without penalty. On April 30, 2012, the principal amount outstanding under the Equipment Term Loan became payable in 36 equal monthly installments beginning in May 2012 such that the Equipment Term Loan is to be fully repaid by the maturity date of April 30, 2015, but may be prepaid in whole or in part at any time. In March 2012, the Company drew down $5.0 million from the Equipment Term Loan to fund capital expenditures. As of June 30, 2012, $4.9 million was outstanding under the Equipment Term Loan and the applicable interest rate was LIBOR plus 2.25% (2.5% as of June 30, 2012). As of April 30, 2012, the Equipment Term Loan is no longer available for new borrowings. As of June 30, 2012, no amounts were outstanding under the Revolving Line of Credit, therefore, the full amount was available to the Company.
Note 5 Fair Value Measurements
The Company records certain financial instruments at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC. As of June 30, 2012, the financial instruments to which this topic applied were foreign currency forward contracts. As of June 30, 2012, the fair value of these foreign currency forward contracts was a liability of $51,000 which is recorded in accounts payable and accrued liabilities in the consolidated balance sheet. The fair value of these derivative instruments is measured using quoted market prices in active markets for identical instruments, which is a Level 1 input under the fair value hierarchy of the Fair Value Measurements and Disclosures Topic of the FASB ASC.
The carrying value of short-term and long-term borrowings approximates fair value because of the relative short maturity of these instruments and the interest rates the Company could currently obtain.
Note 6 Foreign Currency Derivative Instruments
Maxwell uses forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables, denominated in a foreign currency. The change in fair value of these instruments represents a natural hedge as gains and losses offset the changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. These contracts generally expire in one month. These contracts are considered economic hedges and are not designated as hedges under the Derivatives and Hedging Topic of the FASB ASC, therefore, the change in the fair value of the instrument is recognized currently in the consolidated statement of operations.
The net gains and losses on foreign currency forward contracts included in cost of revenue and selling, general and administrative expense are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Cost of revenue |
$ | | $ | (122 | ) | $ | | $ | (238 | ) | ||||||
Selling, general and administrative |
(1,984 | ) | 1,958 | (1,232 | ) | 2,015 | ||||||||||
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Total gain (loss) |
$ | (1,984 | ) | $ | 1,836 | $ | (1,232 | ) | $ | 1,777 | ||||||
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As of June 30, 2012, the total notional amount of foreign currency forward contracts not designated as hedges was $17.3 million. The fair value of these derivatives was a $51,000 liability as of June 30, 2012. For additional information, refer to Note 5 Fair Value Measurements.
12
The net gains and losses on foreign currency forward contracts were partially offset by net gains and losses on the underlying monetary assets and liabilities. Foreign currency gains and losses on those underlying monetary assets and liabilities included in cost of revenue and selling, general and administrative expense are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Cost of revenue |
$ | (17 | ) | $ | 138 | $ | (1 | ) | $ | 223 | ||||||
Selling, general and administrative |
1,993 | (2,088 | ) | 1,125 | (2,189 | ) | ||||||||||
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Total gain (loss) |
$ | 1,976 | $ | (1,950 | ) | $ | 1,124 | $ | (1,966 | ) | ||||||
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Note 7 Stock Plans
The Company has two active stock-based compensation plans as of June 30, 2012: the 2004 Employee Stock Purchase Plan and the 2005 Omnibus Equity Incentive Plan under which incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units can be granted to employees and non-employee directors.
Stock Options
Compensation expense recognized from employee stock options for the three months ended June 30, 2012 and 2011 was $167,000 and $336,000, respectively, and $712,000 and $815,000 for the six months ended June 30, 2012 and 2011, respectively. Beginning in 2011, the Company ceased granting stock options and began granting restricted stock awards to employees as part of its annual equity incentive award program. The Company may determine to grant stock options in the future under the Incentive Plan.
Restricted Stock Awards
During the three months ended June 30, 2012 and 2011, the Company granted 1,700 and 2,900 shares, respectively, subject to restricted stock awards with an average grant date fair value per share of $8.90 and $16.46, respectively. During the six months ended June 30, 2012 and 2011, the Company granted 251,066 and 215,916 shares, respectively, subject to restricted stock awards with an average grant date fair value per share of $ 20.81 and $18.94, respectively. The following table summarizes the amount of compensation expense recognized for restricted stock awards for the three and six months ended June 30, 2012 and 2011 (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Service-based restricted stock |
$ | 368 | $ | 234 | $ | 847 | $ | 465 | ||||||||
Performance-based restricted stock |
97 | 90 | 160 | 150 | ||||||||||||
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Total compensation expense recognized for restricted stock awards |
$ | 465 | $ | 324 | $ | 1,007 | $ | 615 | ||||||||
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Restricted Stock Units
Beginning in 2011, non-employee directors receive an annual restricted stock unit award as part of their annual retainer compensation, which vests one year from the date of grant. During the three months ended June 30, 2012 and 2011, no restricted stock units were granted. During the six months ended June 30, 2012 and 2011, non-employee directors were granted a total of 20,342 and 22,036 restricted stock units, respectively, with an average grant date fair value per share of $20.65 and $19.06, respectively.
Total compensation expense recognized for service-based restricted stock unit awards was $104,000 and $105,000 during the three months ended June 30, 2012 and 2011, respectively, and $210,000 and $163,000 for the six months ended June 30, 2012 and 2011, respectively.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (ESPP) permits substantially all employees to purchase common stock through payroll deductions, at 85% of the lower of the trading price of the stock at the beginning or at the end of each six month offering period commencing on January 1 and July 1. The number of shares purchased is based on participants contributions made during the offering period.
Compensation expense recognized for the ESPP for the three months ended June 30, 2012 and 2011 was $34,000 and $24,000, respectively, and $128,000 and $113,000 for the six months ended June 30, 2012 and 2011, respectively. The fair value of the ESPP shares was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:
Three and Six Months Ended June 30, |
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2012 | 2011 | |||||||
Expected dividends |
$ | | $ | | ||||
Exercise price |
$ | 16.24 | $ | 18.89 | ||||
Expected volatility |
63 | % | 48 | % | ||||
Average risk-free interest rate |
0.06 | % | 0.19 | % | ||||
Expected life/term (in years) |
0.5 | 0.5 | ||||||
Fair value per share |
$ | 5.26 | $ | 5.51 |
13
Stock-based Compensation Expense
Compensation cost for restricted stock, restricted stock units, employee stock options and the ESPP included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Cost of revenue |
$ | 238 | $ | 84 | $ | 380 | $ | 203 | ||||||||
Selling, general and administrative |
411 | 597 | 1,374 | 1,242 | ||||||||||||
Research and development |
121 | 108 | 302 | 261 | ||||||||||||
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Total stock-based compensation expense |
$ | 770 | $ | 789 | $ | 2,056 | $ | 1,706 | ||||||||
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Note 8 Stock Offering
In April 2011, the Company filed a shelf registration statement on Form S-3 with the SEC to, from time to time, sell up to an aggregate of $125 million of our common stock, warrants or debt securities. On August 19, 2011, the registration statement was declared effective by the SEC, which will allow the Company to access the capital markets for the three year period following this effective date. In February 2012, the Company entered into an At-the-Market Equity Offering Sales Agreement (Sales Agreement) with Citadel Securities LLC (Citadel) pursuant to which the Company may sell, at its option, up to an aggregate of $30.0 million in shares of common stock through Citadel, as sales agent. The Company will pay Citadel a commission equal to 2% of the gross proceeds from the sale of shares of the Companys common stock under the Sales Agreement. During the three months ended March 31, 2012, 572,510 shares of the Companys common stock were sold under this Sales Agreement for net proceeds to the Company of $10.3 million. No shares were sold under this Sales Agreement during the three months ended June 30, 2012.
Note 9 Defined Benefit Plan
Maxwell SA, a subsidiary of the Company, has a retirement plan that is classified as a defined benefit pension plan. The employee pension benefit is based on compensation, length of service and credited investment earnings. The plan guarantees both a minimum rate of return as well as minimum annuity purchase rates. The Companys funding policy with respect to the pension plan is to contribute the amount required by Swiss law, using the required percentage applied to the employees compensation. In addition, participating employees are required to contribute to the pension plan. This plan has a measurement date of December 31.
Components of net periodic pension cost are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | 168 | $ | 202 | $ | 339 | $ | 388 | ||||||||
Interest cost |
163 | 182 | 329 | 351 | ||||||||||||
Expected return on plan assets |
(351 | ) | (412 | ) | (709 | ) | (793 | ) | ||||||||
Prior service cost amortization |
11 | 11 | 22 | 22 | ||||||||||||
Deferred loss amortization |
54 | 79 | 110 | 152 | ||||||||||||
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Net periodic pension cost |
$ | 45 | $ | 62 | $ | 91 | $ | 120 | ||||||||
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Employer contributions of $183,000 and $200,000 were paid during the three months ended June 30, 2012 and 2011, respectively. Employer contributions of $370,000 and $385,000 were paid during the six months ended June 30, 2012 and 2011, respectively. Additional employer contributions of approximately $311,000 are expected to be paid during the remainder of fiscal 2012.
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Note 10 Legal Proceedings
Although the Company expects to incur significant legal costs in connection with the below legal proceedings, the Company is unable to estimate the amount of such legal costs and therefore, such costs will be expensed in the period the legal services are performed.
FCPA Matter
As a result of being a publicly traded company in the U.S., the Company is subject to the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits companies from making improper payments to foreign officials for the purpose of obtaining or keeping business. Beginning in 2009, the Company conducted an internal review into payments made to its former independent sales agent in China with respect to sales of the Companys high voltage capacitor products produced by the Companys Swiss subsidiary. In January 2011, the Company reached settlements with the SEC and the U.S. Department of Justice (DOJ) with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the FCPA and other securities law violations. The Company settled civil charges with the SEC, agreeing to an injunction against further violations of the FCPA. Under the terms of the settlement with the SEC, the Company agreed to pay a total of $6.4 million in profit disgorgement and prejudgment interest, in two installments, with $3.2 million paid in each of the first quarters of 2011 and 2012. Under the terms of the settlement with the DOJ, the Company agreed to pay a total of $8.0 million in penalties in three installments, with $3.5 million paid in the first quarter of 2011, $2.3 million paid in the first quarter of 2012, and $2.3 million payable in the first quarter of 2013. As part of the settlement, the Company entered into a three-year deferred prosecution agreement (DPA) with the DOJ. If the Company remains in compliance with the terms of the DPA, at the conclusion of the term, the charges against the Company asserted by the DOJ will be dismissed with prejudice. Further, under the terms of the agreements, the Company will periodically report to the SEC and DOJ on the Companys internal compliance program concerning anti-bribery. As of June 30, 2012, the Company has accrued a liability of $2.3 million for this matter, which is included in accounts payable and accrued liabilities on the accompanying consolidated balance sheet.
Customer Bankruptcy Matter
In January 2011, the Company attended a bankruptcy proceeding for a previous customer in order to bid on certain intellectual property and physical assets that were being auctioned. During this proceeding, an offer for sale was presented for any and all potential claims held by the previous customer against the Company. These potential claims related primarily to payments made to the Company prior to the previous customer filing bankruptcy, as well as a potential intellectual property dispute between the Company and the previous customer. At the January 2011 bankruptcy proceeding, the Company bid $250,000 to purchase the right to any and all future claims against the Company stemming from rights held by the previous customer. However, following the auction, the previous customer essentially declined this offer for settlement. Since this time, in the interest of a more expedient resolution to this matter, the Company recently increased its settlement offer to $750,000. However, this settlement offer was rejected by the previous customer. The Company believes that it has strong legal defenses against any and all potential claims related to this matter, and does not believe a settlement amount in excess of $750,000 is likely. The Companys current estimate of the range of loss on this matter is $750,000 to $1,100,000, with the low end of this range based on the Companys recent settlement offer, and the high end of the range based on the amount the Company expects that the previous customer would immediately accept without further negotiation. The Company has accrued a total of $750,000 as the estimated loss on this matter, which is included in accounts payable and accrued liabilities in the consolidated balance sheet as of June 30, 2012.
15
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q (this Quarterly Report) to Maxwell, the Company, we, us, and our refer to Maxwell Technologies, Inc. and its subsidiaries; all references to Maxwell SA refer to our Swiss subsidiary, Maxwell Technologies, SA.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this document and incorporated herein by reference discuss our plans and strategies for our business or make other forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act. The words anticipates, believes, estimates, expects, plans, intends, may, could, will, continue, seek, should, would and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views and beliefs of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, our statements. Such risks, uncertainties and contingencies include, but are not limited to, the following:
| risks related to our international operations including, but not limited to, our ability to adequately comply with the changing rules and regulations in countries where our business is conducted, our ability to oversee and control our foreign subsidiaries and their operations, our ability to effectively manage foreign currency exchange rate fluctuations arising from our international operations, and our ability to continue to comply with the U.S. Foreign Corrupt Practices Act as well as the anti-bribery laws of foreign jurisdictions and the terms and conditions of our settlement agreements with the Securities and Exchange Commission and the Department of Justice. |
| our ability to remain competitive and stimulate customer demand through successful introduction of new products, and to educate our prospective customers on the products we offer; |
| dependence upon the sale of products to a small number of customers and vertical markets, some of which are heavily dependent on government funding or government subsidies which may or may not continue in the future; |
| dependence upon the sale of products into China and Europe, where macroeconomic factors outside our control may adversely affect our sales; |
| successful acquisition, development and retention of key personnel; |
| our ability to effectively manage our reliance upon certain suppliers of key component parts and specialty equipment and logistical services; |
| our ability to match production volume to actual customer demand; |
| our ability to manage product quality problems; |
| our ability to protect our intellectual property rights and to defend claims against us; |
| our ability to effectively identify, enter into, manage and benefit from strategic alliances; |
| occurrence of a catastrophic event at any of our facilities; |
| occurrence of a technology systems failure, network disruptions, or breach in data security; and |
| our ability to obtain sufficient capital to meet our operating or other needs. |
Many of these factors are beyond our control. Additionally, there can be no assurance that we will not incur new or additional unforeseen costs in connection with the ongoing conduct of our business. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized.
For a discussion of important risks associated with an investment in our securities, including factors that could cause actual results to differ materially from expectations referred to in the forward-looking statements, see Risk Factors in Part II, Item 1A, of this document and Part I, Item 1A, of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011. We do not have any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
| Executive Overview |
16
| Highlights of the Six Months ended June 30, 2012 |
| Results of Operations |
| Liquidity and Capital Resources |
| Critical Accounting Policies and Estimates |
| Off Balance Sheet Arrangements |
Executive Overview
Maxwell is a global leader in developing, manufacturing and marketing advanced energy storage and power delivery products for transportation, industrial, information technology and other applications, and microelectronic products for space and satellite applications. Our strategy is to establish a compelling value proposition for our products by designing and manufacturing them to perform reliably with minimal maintenance over long operational lifetimes. We have three product lines: ultracapacitors with applications in multiple industries, including transportation, automotive, information technology, renewable energy and consumer and industrial electronics; high-voltage capacitors applied mainly in electrical utility infrastructure; and radiation-hardened microelectronic products for space and satellite applications.
Our primary objective is to grow revenue and profit margins by creating and satisfying demand for our ultracapacitor-based energy storage and power delivery solutions. We are focusing on establishing and expanding market opportunities for ultracapacitors and being the preferred supplier for ultracapacitor products worldwide. We believe that the transportation industry represents the largest market opportunity for ultracapacitors, primarily for applications related to engine starting, electrical system augmentation, and braking energy recuperation and hybrid electric drive systems for transit buses, trucks and autos, and electric rail vehicles. Various backup power applications, including instantly available power for uninterruptible power supply and wind turbine blade pitch systems, also represent a significant market opportunity.
We also seek to expand market opportunities for our high-voltage capacitor and radiation-hardened microelectronic products. The market for high-voltage capacitors consists mainly of expansion, upgrading and maintenance of existing electrical utility infrastructure and new infrastructure installations in developing countries. Such installations are capital-intensive and frequently are subject to regulation, availability of government funding and general economic conditions. Although the market for microelectronics products for space and satellite applications is relatively small, the specialized nature of these products and the requirement for failure-free reliability allows us to generate profit margins significantly higher than those for commodity electronic components.
In Q2 2012, revenues were $40.9 million, representing an increase of 6% compared with the same period one year ago. This growth is more modest when compared with the 20 to 30% annual growth rate achieved in the two most recent fiscal years, and is attributable to a slower pace of growth for sales of our ultracapacitor products, which declined by 1% compared with Q2 2011. Significant factors affecting the disparity between our previous annual growth rate and this quarters decline in ultracapcitor product sales are limited funding for public transit vehicle procurements in Europe, a slowdown in the global wind energy market, and slower growth in sales for certain backup power applications. Revenue growth in Q2 2012 is primarily attributable to increased sales of high voltage products, which grew by 20% compared with Q2 2011. Overall gross profit in Q2 2012 was 42% compared with 40% in Q2 2011. The increase in gross profit is due mainly to a shift in revenue mix toward higher margin products.
As of June 30, 2012, we had cash and cash equivalents of $22.3 million. We also have access to a $15.0 million line of credit available to fund operations. During the quarter ended March 31, 2012, we generated $10.3 million in net proceeds from the sale of stock under our shelf registration statement, and continue to have access to the capital markets to raise additional funds until August 2014 through this shelf registration statement. In the future, we may decide to supplement existing cash and planned cash flow from operations by accessing additional funds from our credit facility, or by issuing additional debt or equity.
Going forward, we will continue to focus on growing our business and strengthening our market leadership and brand recognition through further penetration of existing markets, entry into new markets and development of new products. Our primary focus will be to grow our ultracapacitor business through continued market penetration in primary applications, including automotive, transportation, renewable energy and backup power. In order to achieve our growth objectives, we will need to overcome risks and challenges facing our business. A significant challenge we face is our ability to manage dependence on a small number of vertical markets, including those that are highly dependent on government subsidy programs. A large portion of our business has historically been dependent on the Chinese wind energy and hybrid transit bus markets, which are heavily dependent on government regulation and subsidy. Other significant risks and challenges we face include the ability to maintain profitability; the ability to develop our management team, product development infrastructure and manufacturing capacity to facilitate growth; competing technologies that
17
may capture market share and interfere with our planned growth; and hiring, developing and retaining key personnel critical to the execution of our strategy. We will be attentive to these risks and will focus on growing our revenues and profits, and on developing new products and promoting the value proposition of our products over competing technologies. In addition, we are in the process of augmenting current manufacturing capacity and infrastructure, which we believe will be sufficient to accommodate our planned growth. We believe that the Company is well positioned to continue achieving financial and operational progress.
Highlights of the Six Months Ended June 30, 2012
During the six months ended June 30, 2012, we continued to focus on developing strategic alliances, introducing new products, increasing production capacity to meet anticipated future demand, reducing product costs, making capital investments to facilitate growth, and improving production processes. Some of these efforts are described below:
| In January, we announced that Bombardier Transportation, a leading producer of rail vehicles and rail transportation equipment, systems and services, has selected Maxwell ultracapacitors as the energy storage element of the BOMBARDIER EnerGstor® braking energy recuperation system. |
| Also in January, we announced that we have entered into a one-year agreement with Pana-Pacific, a preferred integrator and engineering partner in the commercial vehicle market, to distribute our new ultracapacitor-based Engine Start Module (ESM) in the United States, Canada and Mexico. |
| In February, we announced that our Swiss subsidiary is participating in a program of the Swiss government to accelerate our initiatives to improve manufacturing processes and enhance performance of our CONDIS® high-voltage capacitor products for electric utility grid infrastructure and other high-voltage applications. |
| In March, we announced that we are in the process of planning a new ultracapacitor electrode production facility that will double our current electrode capacity, and are also increasing internal and outsourced assembly capabilities to ensure that we can meet increasing worldwide demand for ultracapacitor products. |
| In May, we announced that our Swiss subsidiary has launched a new line of CONDIS® capacitors and voltage dividers based on environmentally friendly technology for medium voltage applications. |
| Also in May, we announced the signing of a global distribution agreement with Digi-Key Corporation, a global electronic components distributor recognized by design engineers as having the industrys largest selection of electronic components available for immediate shipment, who will now distribute our products worldwide. |
| In June, R&D Magazine recognized our ultracapacitor-based Engine Start Module for medium and heavy duty trucks as one of the 100 most technologically significant products introduced into the marketplace over the past year. |
Results of Operations
The Second Quarter of 2012 Compared with the Second Quarter of 2011
The following table presents certain unaudited statement of operations data expressed as a percentage of revenue for the periods indicated:
Quarter Ended June 30, |
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2012 | 2011 | |||||||
Revenue |
100 | % | 100 | % | ||||
Cost of revenue |
58 | % | 60 | % | ||||
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Gross profit |
42 | % | 40 | % | ||||
Operating expenses: |
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Selling, general and administrative |
20 | % | 30 | % | ||||
Research and development |
13 | % | 14 | % | ||||
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Total operating expenses |
33 | % | 44 | % | ||||
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Income (loss) from operations |
9 | % | (4 | )% | ||||
Other income (expense), net |
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Income (loss) from operations before income taxes |
9 | % | (4 | )% | ||||
Income tax provision (benefit) |
2 | % | (1 | )% | ||||
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Net income (loss) |
7 | % | (3 | )% | ||||
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Net income reported for the three months ended June 30, 2012 was $2.7 million, or $0.09 per diluted share, compared with a net loss of $1.2 million, or $0.04 per share, in the same quarter one year ago. During the three months ended June 30, 2011, we recorded an expense for the settlement of a legal matter of $2.6 million, which negatively impacted our operating results. During the current period, we continued to achieve improved operating results due to revenue growth, improved gross margin and a reduction in operating expenses.
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Revenue and Gross Profit
The following table presents a comparison of revenue, cost of revenue and gross profit for the quarters ended June 30, 2012 and 2011 (in thousands, except percentages):
Quarter Ended June 30, 2012 |
Quarter Ended June 30, 2011 |
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Amount | % of Revenue |
Amount | % of Revenue |
Increase | % Change |
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Revenue |
$ | 40,856 | 100 | % | $ | 38,463 | 100 | % | $ | 2,393 | 6 | % | ||||||||||||
Cost of revenue |
23,876 | 58 | % | 22,987 | 60 | % | 889 | 4 | % | |||||||||||||||
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Gross profit |
$ | 16,980 | 42 | % | $ | 15,476 | 40 | % | $ | 1,504 | 10 | % | ||||||||||||
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Revenue. In the second quarter of 2012, revenue increased 6% to $40.9 million, compared with $38.5 million in the same quarter one year ago. The increase in revenue was influenced primarily by higher revenues for our high voltage capacitor product line. Revenues for our high voltage product line increased 20% during the three months ended June 30, 2012 compared with the prior year, primarily due to changes in our pricing policy concerning sales denominated in foreign currencies. Revenues for our ultracapacitor product line decreased by 1% during the three months ended June 30, 2012 compared with the prior year, influenced by a decline in sales for wind energy applications, offset by continuing strong demand for energy storage and power delivery systems for hybrid energy and electric transit vehicles and micro hybrid automotive systems.
A substantial amount of our revenue is generated through our Swiss subsidiary which has a functional currency of the Swiss Franc. As such, reported revenue can be materially impacted by the changes in exchange rates between the Swiss Franc and the U.S. Dollar, our reporting currency. Due to the strengthening of the U.S. Dollar against the Swiss Franc during the quarter ended June 30, 2012 compared with the same period one year ago, revenue was negatively impacted by $1.1 million.
Gross Profit. In the second quarter of 2012, gross profit increased $1.5 million or 10% compared with the second quarter of 2011. As a percentage of revenue, gross profit margin increased to 42% compared with 40% in the same quarter one year ago. Of the increase in gross profit in absolute dollars, $1.6 million related to an increase in the volume of sales, and $540,000 was due to net reductions in product costs. Offsetting these increases was a decrease in gross profit in absolute dollars of $643,000 related to the impact of changes in foreign currency exchange rates, primarily changes between the Swiss Franc and the U.S. Dollar.
Selling, General and Administrative Expense
The following table presents selling, general and administrative expense for the second quarter of 2012 and 2011 (in thousands, except percentages):
Quarter Ended June 30, 2012 |
Quarter Ended June 30, 2011 |
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Amount | % of Revenue |
Amount | % of Revenue |
Decrease | % Change |
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Selling, general and administrative |
$ | 8,187 | 20 | % | $ | 11,747 | 30 | % | $ | (3,560 | ) | (30 | %) |
Selling, general and administrative expenses were 20% of revenue for the second quarter of 2012, down from 30% in the same quarter one year ago, while total expenses decreased by $3.6 million, or 30%. The decrease in absolute dollars was primarily attributable to a $2.6 million expense recorded in Q2 2011 related to the settlement of a legal matter. In addition, legal expenses decreased by approximately $700,000 due to the resolution of certain legal matters.
Research and Development Expense
The following table presents research and development expense for the second quarter of 2012 and 2011 (in thousands, except percentages):
Quarter Ended June 30, 2012 |
Quarter Ended June 30, 2011 |
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Amount | % of Revenue |
Amount | % of Revenue |
Decrease | % Change |
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Research and development |
$ | 5,294 | 13 | % | $ | 5,297 | 14 | % | $ | (3 | ) | |
19
Research and development expenses were 13% of revenue for the second quarter of 2012, down from 14% in the same quarter one year ago, while total expenses decreased by $3,000, or 0%. The decrease in absolute dollars was driven primarily by a decrease in headcount.
Provision for Income Taxes
The effective tax rate differs from the statutory U.S. federal income tax rate of 34% primarily due to foreign income tax and the valuation allowance against the Companys domestic deferred tax assets.
We recorded an income tax provision of $719,000 for the second quarter of 2012 compared with an income tax benefit of $427,000 for the same quarter in 2011. During the second quarter of 2011, we recorded a tax benefit of $565,000 related to an accrual for the anticipated settlement of a legal matter by our Swiss subsidiary. Excluding this impact, we recorded a tax provision of $138,000 related to income generated by our Swiss subsidiary for the second quarter of 2011, compared with a tax provision of $719,000 for the same quarter in 2012. This increase in the tax provision is due to higher projected taxable income for our Swiss subsidiary for the full year 2012 compared with 2011. Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable as it is not anticipated such earnings will be remitted to the United States. The Company has established a valuation allowance against its U.S. federal and state deferred tax assets, as well as the deferred tax asset of a foreign subsidiary, due to the uncertainty surrounding the realization of such assets as evidenced by the cumulative losses from operations through June 30, 2012. Management periodically evaluates the recoverability of the deferred tax assets and at such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced accordingly.
The Six Months Ended June 30, 2012 Compared with the Six Months Ended June 30, 2011
The following table presents certain unaudited statement of operations data expressed as a percentage of revenue for the periods indicated:
Six Months Ended June 30, |
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2012 | 2011 | |||||||
Revenue |
100 | % | 100 | % | ||||
Cost of revenue |
59 | % | 60 | % | ||||
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Gross profit |
41 | % | 40 | % | ||||
Operating expenses: |
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Selling, general and administrative |
22 | % | 27 | % | ||||
Research and development |
13 | % | 15 | % | ||||
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Total operating expenses |
35 | % | 42 | % | ||||
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Income (loss) from operations |
6 | % | (2 | )% | ||||
Other income (expense), net |
| 1 | % | |||||
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Income (loss) from operations before income taxes |
6 | % | (1 | )% | ||||
Income tax provision |
2 | % | 1 | % | ||||
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Net income (loss) |
4 | % | (2 | )% | ||||
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Net income reported for the six months ended June 30, 2012 was $3.2 million, or $0.11 per diluted share, compared with a net loss of $1.0 million, or $0.04 per share, in the same quarter one year ago. During the six months ended June 30, 2011, we recorded an accrual for the settlement of a legal matter of $2.6 million, and a gain on embedded derivatives and warrants of $1.1 million. During the six months ended June 30, 2012, we continued to achieve improved operating results due to revenue growth combined with improvements in gross profit and operating margins.
20
Revenue and Gross Profit
The following table presents revenue, cost of revenue and gross profit for the six months ended June 30, 2012 and 2011 (in thousands, except percentages):
Six Months Ended June 30, 2012 |
Six Months Ended June 30, 2011 |
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Amount | % of Revenue |
Amount | % of Revenue |
Increase | % Change |
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Revenue |
$ | 80,086 | 100 | % | $ | 73,722 | 100 | % | $ | 6,364 | 9 | % | ||||||||||||
Cost of revenue |
46,969 | 59 | % | 44,362 | 60 | % | 2,607 | 6 | % | |||||||||||||||
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Gross profit |
$ | 33,117 | 41 | % | $ | 29,360 | 40 | % | $ | 3,757 | 13 | % | ||||||||||||
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Revenue. During the six months ended June 30, 2012, revenue increased 9% to $80.1 million, compared with $73.7 million in the same period one year ago. The increase in revenue was influenced primarily by higher revenues for our high voltage capacitor product line. Revenues for our high voltage product line increased 22% during the six months ended June 30, 2012 compared with the prior year, primarily due to changes in our pricing policy concerning sales denominated in foreign currencies. Revenues for our ultracapacitor product line increased by 1% during the six months ended June 30, 2012 compared with the prior year, influenced by continuing strong demand for energy storage and power delivery systems for hybrid energy and electric transit vehicles and micro hybrid automotive systems, offset by a decline in sales for wind energy applications.
A substantial amount of our revenue is generated through our Swiss subsidiary which has a functional currency of the Swiss Franc. As such, reported revenue can be materially impacted by the changes in exchange rates between the Swiss Franc and the U.S. dollar, our reporting currency. Due to the strengthening of the U.S. Dollar against the Swiss Franc during the six months ended June 30, 2012 compared with the same period one year ago, revenue was negatively impacted by $951,000.
Gross Profit. During the six months ended June 30, 2012, gross profit increased $3.8 million or 13% compared with the same period one year ago. As a percentage of revenue, gross profit margin increased to 41% compared with 40% in the same period one year ago. Of the increase in gross profit in absolute dollars, $3.1 million related to an increase in the volume of sales and $1.2 million was due to net reductions of product costs. Offsetting this increase was a decrease in gross profit in absolute dollars of $526,000 related to the impact of changes in foreign currency exchange rates, primarily changes between the Swiss Franc and the U.S. Dollar.
Selling, General and Administrative Expense
The following table presents a comparison of selling, general and administrative expense for the six months ended June 30, 2012 and 2011 (in thousands, except percentages):
Six Months Ended June 30, 2012 |
Six Months Ended June 30, 2011 |
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Amount | % of Revenue |
Amount | % of Revenue |
Decrease | % Change |
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Selling, general and administrative |
$ | 17,422 | 22 | % | $ | 19,681 | 27 | % | $ | (2,259 | ) | (11 | %) |
Selling, general and administrative expenses were 22% of revenue for the six months ended June 30, 2012, down from 27% in the same period one year ago, and total expenses decreased $2.3 million, or 11%, from the same period one year ago. The decrease in absolute dollars was primarily attributable to a $2.6 million expense recorded in Q2 2011 related to the settlement of a legal matter, as well as a settlement gain of $667,000 recorded in Q1 2012. In addition, labor costs increased by $576,000, primarily due to headcount growth in both our sales and marketing and general and administrative operations to support the continued expansion of our operations, as well as severance costs incurred in connection with the departure of our chief operating officer. Advertising costs increased by $452,000, primarily related to the roll out of a new ultracapacitor product, the ESM.
Research and Development Expense
The following table presents research and development expense for the six months ended June 30, 2012 and 2011 (in thousands, except percentages):
Six Months Ended June 30, 2012 |
Six Months Ended June 30, 2011 |
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Amount | % of Revenue |
Amount | % of Revenue |
Decrease | % Change |
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Research and development |
$ | 10,890 | 13 | % | $ | 11,269 | 15 | % | $ | (379 | ) | (3 | %) |
Research and development expenses were 13% of revenue for the six months ended June 30, 2012, down from 15% in the same period one year ago, while total expenses decreased by $379,000, or 3%. The decrease in absolute dollars was driven primarily by a $235,000 decrease in labor costs related to a decrease in head count and a $156,000 decrease in engineering development expenses primarily due to the completion of the design of a new ultracapacitor product, the ESM, in 2011, as well as the completion of a funded development program with a government contractor.
21
Gain on Embedded Derivatives
The Company recorded a gain on embedded derivatives of $1.1 million during the six months ended June 30, 2011. The gain recorded on the embedded derivatives represents the change in the fair market value on revaluation of the debenture conversion rights at the conversion date compared to the beginning of the year. In February 2011, the remaining principal balance of the convertible debentures was converted to shares of our common stock. As such, there will be no further impact to the consolidated statement of operations related to the fair value measurement of these derivative instruments.
Provision for Income Taxes
The effective tax rate differs from the statutory U.S. federal income tax rate of 34% primarily due to foreign income tax and the valuation allowance against the Companys domestic deferred tax assets.
We recorded an income tax provision of $1.4 million for the six months ended June 30, 2012, compared with $299,000 for the same period in 2011. During the six months ended June 30, 2011, we recorded a tax benefit of $565,000 related to an accrual for the anticipated settlement of a legal matter by our Swiss subsidiary. Excluding this impact, we recorded a tax provision of $864,000 related to income generated by our Swiss subsidiary for the six months ended June 30, 2011, compared with a tax provision of $1.4 million for the six months ended June 30, 2012. This increase in the tax provision is due to higher projected taxable income for our Swiss subsidiary for the full year 2012 compared with 2011. Unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the United States taxes that may be payable as it is not anticipated such earnings will be remitted to the United States. The Company has established a valuation allowance against its U.S. federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets as evidenced by the cumulative losses from operations through June 30, 2012. Management periodically evaluates the recoverability of the deferred tax assets and at such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced accordingly.
Liquidity and Capital Resources
Changes in Cash Flow
The following table summarizes our cash flows from operating, investing and financing activities for the six months ended June 30, 2012 and 2011 (in thousands):
Six Months Ended June 30, | ||||||||
2012 | 2011 | |||||||
Total cash provided by (used in): |
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Operating activities |
$ | (14,034 | ) | $ | (12,788 | ) | ||
Investing activities |
(8,288 | ) | (7,291 | ) | ||||
Financing activities |
16,155 | 8,762 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(812 | ) | 1,279 | |||||
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Decrease in cash and cash equivalents |
$ | (6,979 | ) | $ | (10,038 | ) | ||
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Net cash used in operating activities was $14.0 million for the six months ended June 30, 2012. This usage of cash related primarily to an increase in accounts receivable of $12.2 million and a decrease in accounts payable and accrued liabilities and other long-term liabilities of $6.9 million. The increase in accounts receivable was due to significant sales in the last month of the quarter. The decrease in accounts payable and accrued liabilities and other long-term liabilities was primarily due to $5.1 million in settlement payments to the SEC and DOJ in the first quarter of 2012 related to the Foreign Corrupt Practices Act matter. Net cash used in operating activities was $12.8 million for the six months ended June 30, 2011, which related primarily to increases in accounts receivable and inventories associated with growth in our business, offset by settlement payments of $6.7 million related to the Foreign Corrupt Practices Act matter.
Net cash used in investing activities was $8.3 million and $7.3 million for the six months ended June 30, 2012 and 2011, respectively, and related to capital expenditures. Capital expenditures in the six months ended June 30, 2012 were primarily focused on investments in increased production capacity, research and development equipment and our corporate research and development facility. In 2011, capital expenditures were primarily focused on investments in a corporate research and development facility, information technology infrastructure and increased production capacity.
22
Net cash provided by financing activities was $16.2 million and $8.8 million for the six months ended June 30, 2012 and 2011, respectively. Net cash provided by financing activities in the six months ended June 30, 2012 primarily resulted from net proceeds from the sale of common stock of $10.3 million, net borrowings of $4.8 million and proceeds from the issuance of common stock under our stock-based compensation plans of $1.4 million. Net cash provided by financing activities in the six months ended June 30, 2011 primarily resulted from proceeds from the issuance of common stock under our stock-based compensation plans of $1.1 million, as well as the release of $8.0 million in restricted cash upon the settlement of the remaining principal balance of our convertible debentures.
Liquidity
As of June 30, 2012, we had approximately $22.3 million in cash and cash equivalents, and working capital of $58.7 million. In addition, we have a credit facility which currently provides for borrowings under a line of credit of up to $15.0 million to fund our operations. This credit facility also provided for an equipment term loan, however, the availability of the equipment term loan for new borrowing expired in April 2012. We currently owe $4.9 million under this term loan, which is payable in monthly installments including interest and principal through April 2015. We are subject to certain financial covenants and other requirements under the credit agreement, and if we fail to meet these requirements, the credit facility may not be available to us.
In April 2011, we filed a shelf registration statement on Form S-3 with the SEC to, from time to time, sell up to an aggregate of $125 million of our common stock, warrants or debt securities. In February 2012, we entered into an At-the-Market Equity Offering Sales Agreement (Sales Agreement) with Citadel Securities LLC (Citadel) pursuant to which we may sell, at our option, up to an aggregate of $30.0 million in shares of our common stock through Citadel, as sales agent. We will pay Citadel a commission equal to 2% of the gross proceeds from the sale of shares of our common stock under the Sales Agreement. During the quarter ended March 31, 2012, we sold a total of 572,510 shares of our common stock for net proceeds of $10.3 million pursuant to this program. During the three months ended June 30, 2012, we did not sell any shares under this program.
Management believes that cash we expect to generate from operations, combined with available cash balances, will be sufficient to fund our operations, obligations as they become due, and capital equipment expenditures for at least the next twelve months. In addition, we may choose to access additional funds from our credit facility or issue additional debt or equity to supplement our existing cash balances and cash from operating activities.
As of June 30, 2012, we have an accrual recorded in the amount of $2.3 million for the remaining settlement payment to be made in connection with past FCPA violations, which is payable in the first quarter of 2013. In addition, we have accrued 846,000 Euro ($1.1 million as of June 30, 2012) for the remaining consideration due as a result of settlement of a past customer dispute, which is available to the customer as a discount on purchases of our products through December 31, 2014. Any balance of this original, non-cash settlement value of 1.3 million Euro not used as product discount by December 31, 2014 will be payable in cash at that time.
As of June 30, 2012, the amount of cash and short-term investments held by foreign subsidiaries was $13.3 million. If these funds are needed for our operations in the U.S. in the future, we may be required to accrue and pay U.S. taxes to repatriate these funds. However, due to the Companys substantial net operating loss carryforwards, repatriation would have an immaterial impact on the Companys current tax rate and cash flows.
Credit Facility
In December 2011, we entered into a credit agreement whereby we obtained a secured credit facility in the form of a revolving line of credit up to a maximum of $15.0 million (the Revolving Line of Credit) and an equipment term loan up to a maximum of $12.5 million (the Equipment Term Loan) (together, the Credit Facility). In general, amounts borrowed under the Credit Facility are secured by a lien on all of our assets other than our intellectual property. In addition, under the credit agreement, we are required to pledge 65% of our equity interests in our Swiss subsidiary. We have also agreed not to encumber any of our intellectual property. The agreement also contains certain restrictive covenants that limit our ability to, amongst other things; (i) incur additional indebtedness or guarantees; (ii) create liens or other encumbrances on our property; (iii) enter into a merger or similar transaction; (iiii) invest in another entity; (iv) declare or pay dividends; and (v) invest in fixed assets in excess of a defined dollar amount. Repayment of amounts owed pursuant to the Credit Facility may be accelerated in the event that we are in violation of the representations, warranties and covenants made in the credit agreement, including certain financial covenants. The financial covenants that we must meet on a quarterly basis during the term of the credit agreement include a minimum liquidity ratio, a minimum quick ratio, a quarterly EBITDA amount and an annual net income amount. It is uncertain whether we will be able to meet these financial covenants over the term of the credit agreement. If we fail to comply with the terms and conditions of this credit agreement, then the credit facility may be withdrawn and the bank could require us to immediately repay the outstanding obligation.
23
Revolving Line of Credit
We may use borrowings under the Revolving Line of Credit for general working capital and corporate purposes. Amounts borrowed under the Revolving Line of Credit bear interest, payable monthly, at either (i) the banks prime rate or (ii) LIBOR plus 2.25%, at our option subject to certain limitations. We must also pay an unused commitment fee, payable quarterly, equal to 0.25% per annum of the average daily unused amount of the Revolving Line of Credit. The Revolving Line of Credit matures on December 5, 2013, and may be prepaid in whole or in part at any time without penalty.
Equipment Term Loan
The Equipment Term Loan was available to finance 80% of eligible capital assets put into service between April 1, 2011 and April 30, 2012. Amounts borrowed under the Equipment Term Loan bear interest at either (i) the banks prime rate or (ii) LIBOR plus 2.25%, at our option subject to certain limitations. Beginning in May 2012, principal and interest are repayable in 36 equal monthly installments such that the Equipment Term Loan will be fully repaid by the maturity date of April 30, 2015, but may be prepaid in whole or in part at any time.
As of June 30, 2012, $4.9 million was outstanding under the Equipment Term Loan and the applicable interest rate was LIBOR plus 2.25% (2.5% as of June 30, 2012). No amounts were outstanding under the Revolving Line of Credit as of June 30, 2012. Further, the Company was in compliance with the terms of the credit agreement as of June 30, 2012, therefore, the full amount of the Revolving Line of Credit was available to us.
Short-term and Long-term Borrowings
Short-term borrowings
Maxwells Swiss subsidiary, Maxwell SA, has a 3.0 million Swiss Franc-denominated (approximately $3.2 million as of June 30, 2012) credit agreement with a Swiss bank, which renews semi-annually and bears interest at 2.2%. Borrowings under the short-term loan agreement are unsecured and as of June 30, 2012 and December 31, 2011, the full amount of the loan was drawn.
Maxwell SA has a 2.0 million Swiss Franc-denominated (approximately $2.1 million as of June 30, 2012) credit agreement with a Swiss bank, which renews annually and bears interest at 2.5%. Borrowings under the credit agreement are unsecured and as of June 30, 2012 and December 31, 2011, the full amount available under the credit line was drawn.
Maxwell SA also has a 1.0 million Swiss Franc-denominated (approximately $1.1 million as of June 30, 2012) credit agreement with another Swiss bank, and the available balance of the line can be withdrawn or reduced by the bank at any time. As of June 30, 2012 and December 31, 2011, no amounts were drawn under the credit line. Interest rates applicable to any draws on the line will be determined at the time of draw.
Long-term borrowings
The Company has various financing agreements for vehicles. These agreements are for up to a five year repayment period with interest rates ranging from 4.9% to 7.0%. At June 30, 2012 and December 31, 2011, $97,000 and $164,000, respectively, was outstanding under these financing agreements.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Description of Business and Summary of Significant Accounting Policies, of the notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. We discuss our critical accounting estimates in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of fiscal 2011.
Off Balance Sheet Arrangements
None.
24
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time and could have a material adverse impact on our financial results. We have not entered into or invested in any instruments that are subject to market risk, except as follows:
Foreign Currency Risk
Our primary foreign currency exposure is related to our subsidiary in Switzerland. Maxwell SA has Euro and local currency (Swiss Franc) revenue and operating expenses, as well as local currency loans. Changes in these currency exchange rates impact the reported amount (U.S. dollar) of revenue, expenses and debt. As part of our risk management strategy, we use forward contracts to hedge certain foreign currency exposures. Our objective is to offset gains and losses resulting from these exposures with gains and losses on the forward contracts, thereby reducing volatility of earnings. We use the forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables, denominated in a foreign currency. The change in fair value of these instruments represents a natural hedge as their gains and losses offset the changes in the underlying fair value of the monetary assets and liabilities due to movements in currency exchange rates. We enter into these foreign currency forward contracts on the last business day of each calendar quarter, therefore, as of June 30, 2012, the impact of any theoretical change in foreign currency exchange rates on the hedged monetary assets and liabilities would be equally offset by the theoretical gains and losses on the foreign currency forward contracts. In addition, our Swiss pension plan maintains certain plan investments in the Euro currency and changes in currency rates impact the reported amount of our net pension asset.
Fair Value Risk
We had a net pension asset of $6.7 million and $6.4 million at June 30, 2012 and December 31, 2011, respectively. As of the last fair value measurement date of December 31, 2011, the net pension asset included plan assets with a fair value of $33.1 million. The plan assets consisted of 86% debt and equity securities, 12% real estate and 2% cash and cash equivalents. The fair value measurement of the real estate is subject to the real estate market forces in Switzerland. The fair values of debt and equity securities are determined based on quoted prices in active markets for identical assets and are subject to interest rate risk. We manage our risk by having a diversified portfolio.
Item 4. | Controls and Procedures |
We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Securities and Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2012, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
There was no change in our internal control over financial reporting that occurred during the period ended June 30, 2012 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
25
Item 1. | Legal Proceedings |
The information set forth under Note 10 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors disclosed in Part I, Item 1A, of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Item 2, 3, 4 and 5 are not applicable and have been omitted
Item 6. | Exhibits |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) (Section 302 Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) (Section 302 Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * | |
32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 Certification), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * | |
101 | The following financial statements and footnotes from the Maxwell Technologies, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (iv) Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements. ** |
* | Filed herewith. |
** | Furnished herewith. |
26
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.
Date: August 2, 2012 | MAXWELL TECHNOLOGIES, INC. | |||||
By: | /s/ David J. Schramm | |||||
David J. Schramm | ||||||
President and Chief Executive Officer | ||||||
Date: August 2, 2012 | By: | /s/ Kevin S. Royal | ||||
Kevin S. Royal | ||||||
Senior Vice President, Chief Financial Officer, | ||||||
Treasurer and Secretary |
27
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, David J. Schramm, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maxwell Technologies, Inc. for the quarter ended June 30, 2011.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 2, 2012 | MAXWELL TECHNOLOGIES, INC. | |||||
By: | /s/ David J. Schramm | |||||
David J. Schramm | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kevin S. Royal, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maxwell Technologies, Inc. for the quarter ended June 30, 2011.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 2, 2012 | By: | /s/ Kevin S. Royal | ||||
Kevin S. Royal | ||||||
Senior Vice President, Chief Financial Officer, | ||||||
Treasurer and Secretary | ||||||
(Principal Financial Officer) |
Exhibit 32
Certification of Periodic Financial Report by the Principal Executive Officer and
Principal Financial Officer
Solely for the purpose of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Maxwell Technologies, Inc. (the Company), hereby certify that, based on our knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2012 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 2, 2012 | MAXWELL TECHNOLOGIES, INC. | |||||
By: | /s/ David J. Schramm | |||||
David J. Schramm | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: August 2, 2012 | By: | /s/ Kevin S. Royal | ||||
Kevin S. Royal | ||||||
Senior Vice President, Chief Financial Officer, | ||||||
Treasurer and Secretary | ||||||
(Principal Financial Officer) |
Foreign Currency Derivative Instruments (Details Textual) (USD $)
|
Jun. 30, 2012
|
---|---|
Foreign Currency Derivative Instruments (Textual) [Abstract] | |
Notional amount of foreign currency forward contracts not designated as hedges | $ 17,300,000 |
Fair value of derivatives (liability) | $ 51,000 |
Legal Proceedings (Details Textual) (USD $)
|
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Jan. 31, 2011
|
|
Legal proceedings (Textual) [Abstract] | ||
Profit disgorgement and prejudgment interest | $ 6,400,000 | |
Profit disgorgement and prejudgment interest paid | 3,200,000 | |
Profit disgorgement and prejudgment interest payable in 2012 | 3,200,000 | |
Penalties under the terms of the settlement | 8,000,000 | |
Settlement, penalties paid | 3,500,000 | |
Settlement, penalties payable in 2012 | 2,300,000 | |
Settlement, penalties payable in 2013 | 2,300,000 | |
Penalties under terms of settlement included in accounts payable and accrued liabilities | 2,300,000 | |
Customer bankruptcy matter purchase right to future claims | 250,000 | |
Customer bankruptcy matter recently increased settlement offer | 750,000 | |
Customer bankruptcy matter company maximum settlement offer | 1,100,000 | |
Customer bankruptcy matter company minimum settlement offer | 750,000 | |
Accrued estimated loss on settlement offer | $ 750,000 |
Convertible Debentures (Details) (USD $)
In Thousands, except Share data, unless otherwise specified |
1 Months Ended | 6 Months Ended |
---|---|---|
Feb. 28, 2011
|
Jun. 30, 2011
|
|
Schedule of debenture interest paid with cash and principal converted into shares of common stock | ||
Conversion of principal into shares of common stock, Value | $ 8,300 | $ 8,333 |
Conversion of principal into shares of common stock, Shares | 514,086 | 514,000 |
Interest paid with cash, Value | 17 | |
Total debenture payments | $ 8,350 |
Stock Plans (Details Textual) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
Stockcompensationplan
|
Jun. 30, 2011
|
Jun. 30, 2012
Stockcompensationplan
|
Jun. 30, 2011
|
|
Stock Plans (Textual) [Abstract] | ||||
Stock-based compensation plans | 2 | 2 | ||
Stock-based compensation expense | $ 770,000 | $ 789,000 | $ 2,056,000 | $ 1,706,000 |
Outstanding options to purchase common stock [Member]
|
||||
Stock Plans (Textual) [Abstract] | ||||
Stock-based compensation expense | 167,000 | 336,000 | 712,000 | 815,000 |
Restricted Stock Awards [Member]
|
||||
Stock Plans (Textual) [Abstract] | ||||
Restricted stock granted | 1,700 | 2,900 | 251,066 | 215,916 |
Restricted stock unit, average grant date fair value per share | $ 8.90 | $ 16.46 | $ 20.81 | $ 18.94 |
Restricted Stock Unit [Member]
|
||||
Stock Plans (Textual) [Abstract] | ||||
Stock-based compensation expense | 104,000 | 105,000 | 210,000 | 163,000 |
Restricted stock unit, granted | 0 | 0 | 20,342 | 22,036 |
Restricted stock unit, average grant date fair value per share | $ 0.00 | $ 0.00 | $ 20.65 | $ 19.06 |
Restricted stock unit vesting period (in years) | 1 year | |||
Employee Stock Purchase Plan [Member]
|
||||
Stock Plans (Textual) [Abstract] | ||||
Stock-based compensation expense | $ 34,000 | $ 24,000 | $ 128,000 | $ 113,000 |
Discount rate from market value on offering date | 85.00% |
Foreign Currency Derivative Instruments (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Schedule of gains (losses) on foreign currency forward contracts | ||||
Net gains (losses) on foreign currency forward contracts | $ (1,984) | $ 1,836 | $ (1,232) | $ 1,777 |
Cost of revenue [Member]
|
||||
Schedule of gains (losses) on foreign currency forward contracts | ||||
Net gains (losses) on foreign currency forward contracts | (122) | (238) | ||
Selling, general and administrative [Member]
|
||||
Schedule of gains (losses) on foreign currency forward contracts | ||||
Net gains (losses) on foreign currency forward contracts | $ (1,984) | $ 1,958 | $ (1,232) | $ 2,015 |
Balance Sheet Details
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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Balance Sheet Details [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Details |
Note 2 – Balance Sheet Details (in thousands) Inventories
Intangible Assets Intangible assets consisted of the following:
Goodwill The change in the carrying amount of goodwill from December 31, 2011 to June 30, 2012 is as follows:
Accrued Warranty
Accumulated Other Comprehensive Income
|