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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 (San Diego, California and Rossens, Switzerland). 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:
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Ultracapacitors: The Company's 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 Company's BOOSTCAP® ultracapacitor cells and multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including transportation, energy, consumer and industrial electronics and telecommunications. |
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High-Voltage Capacitors: The Company's CONDIS® high-voltage capacitors are extremely robust devices that are designed and manufactured to perform reliably for decades in all climates. 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. |
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Radiation-Hardened Microelectronic Products: The Company's 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 Company's products are designed and manufactured 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 Company's 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 Company's audited consolidated financial statements and the notes thereto included in the Company's 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.
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, stock-based compensation expense, impairment of goodwill and other intangible assets, estimation of the cost to complete certain projects, estimation of the probability that the performance criteria of restricted stock awards will be met and the fair value of embedded conversion options related to the convertible debentures.
Warranty Obligation
The Company provides product warranties on all product sales. The majority of the Company's warranties are for one to two years in the normal course of business. The Company accrues for the estimated warranty at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure.
Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss as reported |
$ | (1,217 | ) | $ | (2,584 | ) | $ | (1,021 | ) | $ | (1,342 | ) | ||||
Foreign currency translation adjustment |
5,308 | (920 | ) | 6,060 | (1,770 | ) | ||||||||||
Pension adjustment, net of taxes |
90 | — | 174 | — | ||||||||||||
Realized gain on investments |
— | — | — | 2 | ||||||||||||
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Comprehensive income (loss) |
$ | 4,181 | $ | (3,504 | ) | $ | 5,213 | $ | (3,110 | ) | ||||||
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Net Loss per Share
In accordance with the Earnings Per Share Topic of the FASB ASC, basic net loss per share is calculated using the weighted average number of common shares outstanding during the period. 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 loss per share (in thousands, except per share data):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator |
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Net loss |
$ | (1,217 | ) | $ | (2,584 | ) | $ | (1,021 | ) | $ | (1,342 | ) | ||||
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Denominator |
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Weighted average common shares outstanding – basic and diluted |
27,669 | 26,155 | 27,478 | 26,125 | ||||||||||||
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Net loss per share |
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Basic and diluted |
$ | (0.04 | ) | $ | (0.10 | ) | $ | (0.04 | ) | $ | (0.05 | ) |
The following table summarizes instruments that may be convertible into common shares that are not included in the denominator used in the diluted net loss per share calculation because to do so would be anti-dilutive (in thousands):
June 30, | ||||||||
Common Stock |
2011 | 2010 | ||||||
Outstanding options to purchase common stock |
1,404 | 1,776 | ||||||
Restricted stock awards outstanding |
259 | 234 | ||||||
Shares issuable on conversion of convertible debentures |
— | 514 | ||||||
Warrants to purchase common stock |
— | 462 | ||||||
Restricted stock unit awards |
22 | 8 |
Change in Additional Paid in Capital
For the six months ended June 30, 2011, additional paid in capital increased $11.9 million related to shares issued for principal payments on convertible debt of $9.3 million and $2.7 million associated with the Company's stock-based compensation plans, offset by $121,000 for the repurchase of shares.
Pending Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income (loss) as part of the statement of shareholders' equity. Instead, the Company must report comprehensive income (loss) in either a single continuous statement of comprehensive income (loss) which contains two sections, net income (loss) and other comprehensive income (loss), or in two separate but consecutive statements. This guidance will be effective for the Company beginning in fiscal 2012. The Company does not expect the adoption of the standard update to impact its financial position or results of operations, as it only requires a change in the format of presentation.
In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards. While many of the amendments to U.S. GAAP are not expected to have a significant effect on practice, the new guidance changes some fair value measurement principles and disclosure requirements. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The Company does not expect the adoption of the standard update to have a significant impact on its financial position or results of operations.
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Note 2 – Balance Sheet Details (in thousands)
Inventories
June 30, 2011 |
December 31, 2010 |
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Raw material and purchased parts |
$ | 10,533 | $ | 11,238 | ||||
Work-in-process |
6,330 | 3,732 | ||||||
Finished goods |
12,974 | 7,013 | ||||||
Inventory reserve |
(2,926 | ) | (2,693 | ) | ||||
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Net inventories |
$ | 26,911 | $ | 19,290 | ||||
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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, 2011: |
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Patents |
$ | 2,476 | $ | (1,598 | ) | $ | — | $ | 878 | |||||||
Developed core technology |
1,100 | (1,242 | ) | 327 | 185 | |||||||||||
Patent license agreement |
741 | (417 | ) | 51 | 375 | |||||||||||
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Total intangible assets at June 30, 2011 |
$ | 4,317 | $ | (3,257 | ) | $ | 378 | $ | 1,438 | |||||||
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Gross Carrying Value |
Accumulated Amortization |
Foreign Currency Adjustment |
Net Carrying Value |
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As of December 31, 2010: |
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Patents |
$ | 2,476 | $ | (1,496 | ) | $ | — | $ | 980 | |||||||
Developed core technology |
1,100 | (1,160 | ) | 312 | 252 | |||||||||||
Patent license agreement |
741 | (341 | ) | 19 | 419 | |||||||||||
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Total intangible assets at December 31, 2010 |
$ | 4,317 | $ | (2,997 | ) | $ | 331 | $ | 1,651 | |||||||
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Goodwill
The change in the carrying amount of goodwill from December 31, 2010 to June 30, 2011 is as follows:
Balance at December 31, 2010 |
$ | 24,956 | ||
Foreign currency translation adjustments |
2,467 | |||
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Balance at June 30, 2011 |
$ | 27,423 | ||
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Accrued Warranty
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Beginning balance |
$ | 449 | $ | 588 | ||||
Product warranty expense |
86 | 367 | ||||||
Settlement of warranties |
(155 | ) | (421 | ) | ||||
Other changes/adjustments |
(76 | ) | (33 | ) | ||||
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Ending balance |
$ | 304 | $ | 501 | ||||
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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. As of December 31, 2010, the interest rate on the Debentures was 1.375% and the accrued interest was $29,000.
At the issuance date, the Debentures were convertible by the holder at any time into 1,315,789 common shares. The Company also issued 394,737 warrants in connection with the issuance of the Debentures; these warrants had an expiration date of December 20, 2010 and an exercise price of $19.00 at the issuance date. The exercise price, number of convertible shares and warrants were subject to adjustment upon certain events, such as the sale of equity securities by the Company. After the issuance date, the Company sold 6.1 million shares through various offerings at a price below $19.00 which adjusted the conversion and warrant price to $16.22. The change in warrant price increased the number of warrants to 462,461. In December 2010, the holders of the warrants exercised their right to purchase 462,461 shares of common stock, which resulted in the settlement of the stock warrants liability.
As of December 31, 2010, the Debentures were convertible into 513,845 shares. In February 2011, the holder of the Debentures converted the remaining $8.3 million principal balance into 514,086 shares of the Company's 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 and warrants" in the consolidated statement of operations.
The interest paid with cash and principal converted into shares of common stock are as follows (in thousands):
Six Months Ended June 30, 2011 |
Six Months Ended June 30, 2010 |
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Value | Shares | Value | Shares | |||||||||||||
Conversion of principal into shares of common stock |
$ | 8,333 | 514 | $ | — | — | ||||||||||
Interest paid with cash |
17 | N/A | 62 | N/A | ||||||||||||
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Total debenture payments |
$ | 8,350 | 514 | $ | 62 | — | ||||||||||
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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. To determine a fair value of this forced conversion, the Company applied a Z factor, which is a theoretical measurement of the probability of this occurrence. The probability used as of December 31, 2010 was 21.5% for forced conversion of 50% of the conversion option at 135% of the original exercise price, and 4.7% for forced conversion of the remaining conversion option at 175% of the original exercise price.
The Company accounted for the conversion options in the Debentures and the associated warrants as derivative liabilities in accordance with the Derivatives and Hedging Topic of the FASB ASC. The discount at the issuance date attributable to the aggregate fair value of the conversion options and warrants and the issuance costs totaling $9.2 million was amortized using the effective interest method over the term of the Debentures. The remaining unamortized discount was $47,000 at December 31, 2010. For the three months ended June 30, 2011 and 2010, $0 and $20,000, respectively, and $6,000 and $41,000 for the six months ended June 30, 2011 and 2010, respectively, of the discount and prepaid fees were amortized. Upon conversion of the remaining principal balance of the Debentures into shares of the Company's 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.
The change in fair value on revaluation of the conversion rights and warrant liabilities represents the difference between the fair value at the end of the current period or conversion date and the fair value at the beginning of the current period using the value calculated by the Black-Scholes pricing model. The net fair value of the liability for the holder's and Maxwell's conversion rights at December 31, 2010 was a liability of $2.1 million which is included in "long-term debt, excluding current portion" in the consolidated balance sheet. The effect of the fair market value adjustment for the three months ended June 30, 2011 and 2010 was a $0 and $1.2 million gain, respectively, and a $78,000 and $4.5 million gain for the six months ended June 30, 2011 and 2010, respectively, which is recorded as "gain on embedded derivatives and warrants" in the consolidated statement of operations.
The fair value of the embedded conversion options was estimated on December 31, 2010 using the Black-Scholes valuation model with the following assumptions:
Black-Scholes Assumptions: |
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Conversion / exercise price |
$ | 16.22 | ||
Market price |
$ | 18.89 | ||
Expected dividends |
— | |||
Expected volatility |
52.6 | % | ||
Average risk-free interest rate |
0.25 | % | ||
Expected term/life (in years) |
0 .7 |
As long as the Debentures were outstanding, the Company was required to maintain a minimum cash balance of $8.0 million. This amount was classified as restricted cash at December 31, 2010. The cash restriction was released in February 2011 when the outstanding principal amount of the convertible debentures was converted to shares of the Company's common stock.
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Note 4 – 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, 2011, the financial instruments to which this topic applied were financial assets for foreign currency forward contracts, which are valued using quoted market prices. As of June 30, 2011, the fair value of these foreign currency forward contracts was $244,000 (asset), which is recorded in "prepaid expenses and other current assets" in the consolidated balance sheet.
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.
The convertible debentures issued on December 20, 2005 were evaluated and determined not to be conventional convertible debentures and, therefore, because of certain terms and provisions including liquidating damages under the associated registration rights agreement, the embedded conversion features were bifurcated and have been accounted for as derivative liability instruments until settled in February 2011. The stock warrants issued on December 20, 2005 in conjunction with the convertible debentures were also evaluated and determined to be a derivative instrument and, therefore, were classified as a liability on the balance sheet until exercised in December 2010. The accounting guidance requires that the conversion features and warrants be recorded at fair value each reporting period with changes in fair value recorded in the consolidated statement of operations. The fair values of the embedded conversion options and stock warrants are based on Black-Scholes fair value calculations. In December 2010, the stock warrants were exercised, and in February 2011, the remaining $8.3 million principal balance was converted into shares of the Company's common stock, therefore, there was no fair value measurement to be made as of June 30, 2011.
For those financial instruments with significant Level 3 inputs, the following table summarizes the activity for the period by investment type (in thousands):
Description |
Convertible1 Debentures |
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Beginning liability balance, December 31, 2010 |
$ | 2,093 | ||
Total realized gain included in net loss |
(1,086 | ) | ||
Liability settled on conversion of Debentures |
(1,007 | ) | ||
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Ending liability balance, June 30, 2011 |
$ | — | ||
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Refer to Note 3 – Convertible Debentures for the valuation model and unobservable data used to calculate the fair value of the conversion features of the convertible debentures and warrants issued by the Company. |
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Note 5 – 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.
Net gains (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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2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of revenue |
$ | (122 | ) | $ | 87 | $ | (238 | ) | $ | 355 | ||||||
Selling, general and administrative |
1,958 | (81 | ) | 2,015 | (270 | ) | ||||||||||
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Total |
$ | 1,836 | $ | 6 | $ | 1,777 | $ | 85 | ||||||||
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As of June 30, 2011, the total notional amount of foreign currency forward contracts not designated as hedges was $26.1 million. The fair value of these derivatives was $244,000 (asset) at June 30, 2011. For additional information, refer to Note 4 – Fair Value Measurement.
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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2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of revenue |
$ | 138 | $ | (133 | ) | $ | 223 | $ | (304 | ) | ||||||
Selling, general and administrative |
(2,088 | ) | 19 | (2,189 | ) | 169 | ||||||||||
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Total |
$ | (1,950 | ) | $ | (114 | ) | $ | (1,966 | ) | $ | (135 | ) | ||||
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Note 6 – Stock Plans
The Company has two active stock-based compensation plans as of June 30, 2011: 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, 2011 and 2010 was $336,000 and $384,000, respectively, and $815,000 and $800,000 for the six months ended June 30, 2011 and 2010, respectively. No stock options were granted during the six months ended June 30, 2011. During the three and six months ended June 30, 2010, the Company granted 5,000 and 200,650 employee stock options, respectively, with an average grant date fair value per share of $7.70 and $9.09, respectively. The fair value of stock options was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:
Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
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Expected dividends |
— | — | ||||||
Expected volatility |
69.2 | % | 69.4 | % | ||||
Average risk-free interest rate |
2.3 | % | 2.7 | % | ||||
Expected term/life (in years) |
4.8 | 4.8 |
Restricted Stock Awards
During the three months ended June 30, 2011 and 2010, the Company granted 2,900 and 4,384 shares, respectively, subject to restricted stock awards with an average grant date fair value per share of $16.46 and $11.40, respectively. During the six months ended June 30, 2011 and 2010, the Company granted 215,916 and 32,000 shares, respectively, subject to restricted stock awards with an average grant date fair value per share of $18.94 and $15.71, respectively. The following table summarizes the amount of compensation expense recognized for restricted stock awards for the three and six months ended June 30, 2011 and 2010 (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Service based restricted stock |
$ | 234 | $ | 224 | $ | 465 | $ | 391 | ||||||||
Performance based restricted stock |
90 | 70 | 150 | (12 | ) | |||||||||||
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Total compensation expense recognized for restricted stock awards |
$ | 324 | $ | 294 | $ | 615 | $ | 379 | ||||||||
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Restricted Stock Units
During the six months ended June 30, 2011, non-employee directors of the Company were granted a total of 22,036 restricted stock units, with an average grant date fair value per share of $19.06, which vest one year from the date of grant, as part of their annual retainer compensation. No restricted stock units were granted during the three months ended June 30, 2011. During the three and six months ended June 30, 2010, non-employee directors of the Company were granted a total of 4,384 and 8,416 restricted stock units, respectively, with an average grant date fair value per share of $11.40 and $11.87, respectively, which were fully vested on the date of grant, in payment of their quarterly retainer fees. As of January 1, 2011, the Company began paying the quarterly retainer in cash instead of restricted stock units.
Total compensation expense recognized for service-based restricted stock unit awards was $105,000 and $50,000 during the three months ended June 30, 2011 and 2010, respectively, and $163,000 and $100,000 for the six months ended June 30, 2011 and 2010, 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, 2011 and 2010 was $24,000 and $15,000, respectively, and $113,000 and $87,000 for the six months ended June 30, 2011 and 2010, respectively. The fair value of the ESPP shares issued during the offering period is estimated using the Black-Scholes valuation model for a call and a put option, and by using the following assumptions:
For the offering period beginning January 1 and ending June 30, |
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2011 | 2010 | |||||||
Expected dividends |
$ | — | $ | — | ||||
Market price |
18.89 | 17.84 | ||||||
Expected volatility |
48.1 | % | 53.3 | % | ||||
Average risk-free interest rate |
0.19 | % | 0.20 | % | ||||
Expected life/term (in years) |
0.5 | 0.5 | ||||||
Fair value per share |
$ | 5.51 | $ | 5.35 |
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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2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of revenue |
$ | 84 | $ | 89 | $ | 203 | $ | 205 | ||||||||
Selling, general and administrative |
597 | 575 | 1,242 | 1,068 | ||||||||||||
Research and development |
108 | 79 | 261 | 93 | ||||||||||||
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Total stock-based compensation expense |
$ | 789 | $ | 743 | $ | 1,706 | $ | 1,366 | ||||||||
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Note 7 – Defined Benefit Plan
Maxwell SA, a subsidiary of the Company, has a retirement plan that is classified as a defined benefit pension plan. The 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 Company's funding policy with respect to the pension plan is to contribute the amount required by Swiss law, using the required percentage applied to the employee's 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 income are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 202 | $ | 148 | $ | 388 | $ | 303 | ||||||||
Interest cost |
182 | 144 | 351 | 295 | ||||||||||||
Expected return on plan assets |
(412 | ) | (350 | ) | (793 | ) | (717 | ) | ||||||||
Prior service cost amortization |
— | 9 | — | 19 | ||||||||||||
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Net periodic pension income |
$ | (28 | ) | $ | (49 | ) | $ | (54 | ) | $ | (100 | ) | ||||
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Employer contributions of $200,000 and $149,000 were paid during the three months ended June 30, 2011 and 2010, respectively. Total employer contributions of $385,000 and $308,000 were paid during the six months ended June 30, 2011 and 2010, respectively. Additional employer contributions of approximately $296,000 are expected to be paid during the remainder of fiscal 2011.
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Note 8 – Legal Proceedings
There have been no material changes from the legal proceedings disclosed in Note 13 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 except for developments related to the derivative suit and the customer claim described below.
Shareholder Derivative Suit
In August 2010, a shareholder derivative action was filed in the Superior Court for San Diego County, California, allegedly on behalf of and for the benefit of the Company, against certain of the Company's current and former officers and directors alleging, among other claims, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The complaint was titled Lozides v. Schramm et al. and alleged that the individual defendants allowed the Company to violate the U.S. Foreign Corrupt Practices Act ("FCPA") and failed to maintain internal controls and accounting systems for compliance with the FCPA. In September 2010, Washtenaw County Employees' Retirement System v. Guyett et al., another derivative action, was filed in the same court against certain of the Company's current and former officers and directors, as well as a member of the Company's management team, alleging substantially similar claims. In October 2010, the two actions were consolidated. The amended consolidated shareholder derivative complaint was filed on March 24, 2011 against certain of the Company's current and former directors and officers, as well as members of the Company's management team, bringing similar claims as the previous complaints. On May 6, 2011, the defendants filed a demurrer (motion to dismiss) for all claims asserted under the complaint. On June 23, 2011, the plaintiffs filed an opposition to this demurrer contesting the validity of the defendants' grounds for dismissal. There is a hearing scheduled for August 12, 2011, wherein the court will consider the parties' respective filings. Because the consolidated action is derivative in nature, it does not seek monetary damages from the Company. However, the Company may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendants and to incur other financial obligations. At this preliminary stage, the Company cannot predict the ultimate outcome of this action and therefore has not accrued an amount for any potential costs associated with this action.
Customer Claim
In 2005, a customer claimed a possible defect in a product that was produced for the Company's Swiss subsidiary, Maxwell SA, under contract by a third party manufacturer, Epcos AG, and resold to the customer. In July 2011, the Company reached an agreement in principal with the customer to settle any and all claims for consideration of 1.8 million Euro (approximately $2.6 million as of June 30, 2011), with 500,000 Euro (approximately $725,000 as of June 30, 2011) payable to the customer up front and the remaining amount of 1.3 million Euro (approximately $1.9 million as of June 30, 2011) available to the customer as a discount on future purchases of the Company's products. This agreement is not yet final, and is therefore subject to change until a written agreement between the parties is executed. The Company is continuing to pursue recovery of damages from the manufacturer of the defective product, but at this time is unable to ascertain the amount of the recovery, if any. The anticipated settlement amount of 1.8 million Euro (approximately $2.6 million as of June 30, 2011) due from the Company to the customer has been fully accrued in the consolidated balance sheet as of June 30, 2011.
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Note 9 – Subsequent Event
In July 2011, the Company entered into a memorandum of understanding with a financial institution to obtain a line of credit to borrow up to $27.5 million, with $15 million of the line of credit available to support increases in working capital and $12.5 million available to provide long term financing for capital expenditures and commercial real estate.