NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless the context otherwise requires, all references to “Maxwell,” the “Company,” “we,” “us,” and “our” refer to Maxwell Technologies, Inc. and its subsidiaries, and all references to “Maxwell SA” refer to our Swiss subsidiary, Maxwell Technologies, SA.
Note 1—Description of Business and Summary of Significant Accounting Policies
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 facilities located in Rossens, Switzerland and Peoria, Arizona. In April 2016, the Company exited its manufacturing facility in San Diego, California. In addition, the Company has
two
contract manufacturers located in China. Maxwell operates as
one
operating segment, which is comprised of
two
product lines:
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•
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Ultracapacitors:
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 ultracapacitor cells, multi-cell packs and modules provide highly reliable energy storage and power delivery solutions for applications in multiple industries, including automotive, bus, rail and truck in transportation and grid energy storage, and wind in renewable energy. The Company has been focusing on developing complementary lithium-ion capacitors which are cost efficient energy storage devices with the power characteristics of an ultracapacitor combined with enhanced energy storage capacity. They are uniquely designed to address a variety of applications in the rail, grid, and industrial markets where energy density and weight are differentiating factors.
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•
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High-Voltage Capacitors:
The Company’s CONDIS
®
high-voltage capacitors 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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In April 2016, the Company sold substantially all of the assets and liabilities of a third product line, radiation-hardened microelectronics. The Company’s radiation-hardened microelectronic products for satellites and spacecraft included single board computers and components, such as high-density memory and power modules.
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 consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany transactions and account balances have been eliminated in consolidation.
Liquidity
As of
December 31, 2016
, the Company had approximately
$25.4 million
in cash and cash equivalents, and working capital of
$53.1 million
. In July 2015, the Company entered into a loan agreement with East West Bank (“EWB”), whereby EWB made available to the Company a secured credit facility in the form of a revolving line of credit which is available up to a maximum of the lesser of: (a)
$25.0 million
; or (b) a certain percentage of domestic and foreign trade receivables. As of
December 31, 2016
, no amounts have been borrowed under this revolving line of credit and the amount available was
$11.4 million
. Management believes the available cash balance, along with the available borrowings under the revolving line of credit, will be sufficient to fund operations, obligations as they become due, and capital investments for at least the next twelve months.
Reclassifications
“Amortization of prepaid debt costs” for the years ended December 31, 2015 and 2014 has been reclassified to “interest expense, net” and “changes in operating assets and liabilities,” in the consolidated statements of operations and consolidated statements of cash flows, respectively, to conform to the current period presentation. In accordance with the Company’s early adoption of ASU No. 2016-18, changes in restricted cash for the years ended December 2016 and 2015 have been reclassified in the consolidated statements of cash flows and restricted cash balances have been included with beginning and ending cash and cash equivalent balances in the consolidated statements of cash flows. These reclassifications do not impact reported net loss and do not otherwise have a material impact on the presentation of the overall financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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, deferred income taxes, the incurrence of warranty obligations, impairment of goodwill, estimation of the cost to complete certain projects, estimation of pension assets and liabilities, accruals for estimated losses for legal matters, and estimation of the value of stock-based compensation awards, including the probability that the performance criteria of restricted stock units awards will be met.
Revenue Recognition
Revenue is derived primarily from the sale of manufactured products directly to customers. Product revenue is recognized, according to the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Numbers 101,
Revenue Recognition in Financial Statements
, and 104,
Revenue Recognition
, when all of the following criteria are met: (1) persuasive evidence of an arrangement exists (upon contract signing or receipt of an authorized purchase order from a customer); (2) title passes to the customer at either shipment from the Company’s facilities or receipt at the customer facility, depending on shipping terms; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collectability is reasonably assured. This policy has been consistently applied from period to period.
A portion of our sales revenue is derived from sales to distributors. Distributor revenue is recognized when all of the criteria for revenue recognition are met, which is generally the time of shipment to the distributor; all returns and credits are estimable and not significant.
Revenue from production-type contracts, which represent less than five percent of total revenue, is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred as a percentage of total costs anticipated, excluding costs that are not representative of progress to completion.
Total deferred revenue and customer deposits in the consolidated balance sheets as of
December 31, 2016
and
2015
was
$4.0 million
and
$3.1 million
, respectively, and primarily relates to cash received from a customer in connection with a production-type contract, for which revenue is recognized using the percentage of completion method, and payments received under a joint development agreement, which are recognized as an offset to research and development expense as services are performed.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash in readily available checking accounts. Cash equivalents consist of highly liquid investments that are readily convertible to cash and that mature within three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities of these instruments.
Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are stated at gross invoiced amount less an allowance for uncollectible accounts. The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the accounts receivable balance. Management determines the allowance for doubtful accounts based on known troubled accounts, historical experience and other currently available evidence.
Inventories, net
Inventories are stated at the lower of cost (first-in first-out basis) or market. Finished goods and work-in-process inventory values include the cost of raw materials, labor and manufacturing overhead. Inventory when written down to market value establishes a new cost basis and its value is not subsequently increased based upon changes in underlying facts and circumstances. The Company also makes adjustments to reduce the carrying amount of inventories for estimated excess or obsolete inventories. Factors influencing these adjustments include inventories on-hand compared with historical and estimated future sales for existing and new products and assumptions about the likelihood of obsolescence. Unabsorbed manufacturing costs are treated as expense in the period incurred.
Property and Equipment
Property and equipment are carried at cost and are depreciated using the straight-line method. Depreciation is provided over the estimated useful lives of the related assets (
three
to
ten
years). Leasehold improvements are depreciated over the shorter of their estimated useful life or the term of the lease. Leasehold improvements funded by landlords are recorded as property and equipment, which is depreciated over the shorter of the estimated useful life of the asset or the lease term, and deferred rent, which is amortized over the lease term. As of
December 31, 2016
and
2015
, the net book value of leasehold improvements funded by landlords was
$1.7 million
and
$2.2 million
, respectively. As of
December 31, 2016
and
2015
, the unamortized balance of deferred rent related to landlord funding of leasehold improvements was
$1.7 million
and
$2.2 million
, respectively, which is included in “accounts payable and accrued liabilities” and “other long-term liabilities” in the consolidated balance sheets.
Goodwill
Goodwill, which represents the excess of the cost of an acquired business over the net fair value assigned to its assets and liabilities, is not amortized. Instead, goodwill is assessed annually at the reporting unit level for impairment under the
Intangibles—Goodwill and Other
Topic of the FASB ASC. The Company has established December 31 as the annual impairment test date. In addition, the Company assesses goodwill in between annual test dates if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying value. The Company first makes a qualitative assessment as to whether goodwill is impaired. If it is more likely than not that goodwill is impaired, the Company performs a two-step quantitative impairment analysis to determine if goodwill is impaired. The Company may also determine to skip the qualitative assessment in any year and move directly to the quantitative test.
During the year ended
December 31, 2016
, the Company performed a quantitative step one goodwill impairment analysis for one reporting unit, which required the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The step one analysis indicated that the goodwill assigned to the reporting unit was not impaired and no further quantitative testing was performed. No impairments of goodwill were reported during the years ended
December 31, 2016
,
2015
and
2014
. Also see Note 3,
Goodwill,
for further discussion of the Company’s goodwill impairment analysis.
Impairment of Long-Lived Assets
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. If the Company determines that the carrying value of the asset is not recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. During the year ended
December 31, 2016
, the Company recorded impairment charges of
$1.4 million
related to property and equipment. In the fourth quarter of 2016, the Company recorded
$1.2 million
of impairment charges related to machinery which was no longer forecasted to be utilized during its remaining useful life based on the current production forecast and for which the fair value approximated zero. Additionally, during the third quarter of 2016,
$0.2 million
of impairment charges were recorded related to the cancellation of a project. No impairments of property and equipment were recorded during the years ended December 31
2015
and
2014
.
Warranty Obligation
The Company provides warranties on all product sales. The majority of the Company’s warranties are for
one
to
eight
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. As of
December 31, 2016
and
2015
, the accrued warranty liability included in “accounts payable and accrued liabilities” in the consolidated balance sheets was
$1.2 million
and
$1.3 million
, respectively.
Income Taxes
Deferred income taxes are provided on a liability method in accordance with the
Income Taxes
Topic of the FASB ASC, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their reported amounts at each period end. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The guidance also provides criteria for the recognition, measurement, presentation and disclosures of uncertain tax positions. A tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable based solely on its technical merits.
Concentration of Credit Risk
The Company maintains cash balances at various financial institutions primarily in California and in Switzerland. In California, cash balances commonly exceed the
$250,000
Federal Deposit Insurance Corporation insurance limit. In Switzerland, the banks where the Company has cash deposits are either government-owned, or in the case of cash deposited with non-government banks, deposits are insured up to
100,000
Swiss Francs. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk with respect to such cash and cash equivalents.
Financial instruments, which subject the Company to potential concentrations of credit risk, consist principally of the Company’s accounts receivable. The Company’s accounts receivable result from product sales to customers in various industries and in various geographical areas, both domestic and foreign. The Company performs credit evaluations of its customers and generally requires no collateral. No customers accounted for 10% or more of total revenue during the year ended December 31, 2016 or 10% or more of total accounts receivable at December 31, 2016.
One
customer, Shenzhen Xinlikang Supply China Management Co. LTD., accounted for
19%
and
20%
of total revenue in
2015
and
2014
, respectively, and accounted for
33%
of total accounts receivable as of December 31, and
2015
.
Research and Development Expense
Research and development expenditures are expensed in the period incurred. Third-party funding of research and development expense under cost-sharing arrangements is recorded as an offset to research and development expense in the period the expenses are incurred. Research and development expense was
$20.9 million
,
$24.7 million
and
$26.3 million
, net of third-party funding under cost-sharing arrangements of
$1.2 million
,
$1.3 million
and
$1.0 million
, for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
During 2016, the Company entered into a joint development agreement under which it will receive cash consideration of up to
$2.8 million
to fund the short-term costs of developing technologies for the automotive market. During the year ended December 31, 2016, the Company received
$2.0 million
of cash related to the joint development agreement and recognized
$0.6 million
as an offset to research and development expense, which is included in total third party funding of
$1.2 million
. The remaining
$1.4 million
is recorded in “deferred revenue and customer deposits” in the Company’s consolidated balance sheets and is expected to be recognized in 2017 based on performance under the agreement. The potential additional funding of
$0.8 million
under the agreement is contingent on the achievement of a milestone, for which the probability of achievement is uncertain as of December 31, 2016.
Shipping and Handling Expense
The Company recognizes shipping and handling expenses as a component of cost of revenue.
Advertising Expense
Advertising costs are expensed in the period incurred. Advertising expense was
$0.7 million
,
$1.1 million
and
$1.4 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Foreign Currencies
The Company’s primary foreign currency exposure is related to its subsidiary in Switzerland, which has Euro and local currency (Swiss Franc) revenue and operating expenses, and local currency loans. Changes in these currency exchange rates impact the reported U.S. dollar amount of revenue, expenses and debt. The functional currency of the Swiss subsidiary is the Swiss Franc. Assets and liabilities of the Swiss subsidiary are translated at month-end exchange rates, and revenue, expenses, gains and losses are translated at rates of exchange that approximate the rate in effect at the time of the transaction. Any translation adjustments resulting from this process are presented separately as a component of accumulated other comprehensive income within stockholders’ equity in the consolidated balance sheets. Foreign currency transaction gains and losses on intercompany balances considered long term in nature are accounted for as translation adjustments within equity. All other foreign currency transaction gains and losses are reported in “foreign currency exchange loss, net” in the consolidated statements of operations.
Foreign Currency Derivative Instruments
The Company has historically used forward contracts to hedge certain monetary assets and liabilities, primarily receivables, payables, and cash balances, denominated in foreign currencies. The Company’s objective was to partially offset gains or losses resulting from these exposures with opposing gains or losses on the forward contracts, thereby reducing volatility of earnings created by these foreign currency exposures. During the year ended December 31, 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency transaction exposure as management determined its foreign currency transaction exposure is no longer significant. In accordance with the
Derivatives and Hedging
Topic of the FASB ASC, the fair values of the forward contracts were estimated at each period end based on quoted market prices and were recorded as a net asset or liability on the consolidated balance sheets. These contracts were considered economic hedges but were not designated as hedges under the
Derivatives and Hedging Topic
of the FASB ASC, therefore, the change in the fair value of the instruments was recognized in the consolidated statements of operations and was recorded in “foreign currency exchange loss, net” in the consolidated statements of operations.
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 dilutive potential 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):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Numerator
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,705
|
)
|
|
$
|
(22,333
|
)
|
|
$
|
(6,272
|
)
|
Denominator
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
31,870
|
|
|
30,716
|
|
|
29,216
|
|
Net loss per share
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.74
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.21
|
)
|
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):
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|
|
|
|
|
|
|
|
|
Common Stock
|
|
2016
|
|
2015
|
|
2014
|
Outstanding options to purchase common stock
|
|
414
|
|
|
931
|
|
|
672
|
|
Unvested restricted stock awards
|
|
88
|
|
|
245
|
|
|
528
|
|
Unvested restricted stock unit awards
|
|
1,748
|
|
|
885
|
|
|
224
|
|
Employee stock purchase plan awards
|
|
—
|
|
|
10
|
|
|
9
|
|
Bonus to be paid in stock awards
|
|
265
|
|
|
—
|
|
|
—
|
|
Stock-Based Compensation
The Company issues stock-based compensation awards to its employees and non-employee directors, including stock options, restricted stock, restricted stock units, and shares under an employee stock purchase plan. The Company records compensation expense for stock-based awards in accordance with the criteria set forth in the
Stock Compensation
Subtopic of the FASB ASC. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option grants. The determination of the fair value of stock options utilizing the Black-Scholes model is affected by the Company’s stock price and a number of assumptions, including expected volatility, expected term, risk-free interest rate and expected dividends.
The fair value of restricted stock awards (“RSAs”) and restricted stock unit awards (“RSUs”) with service-based or performance-based vesting is based on the closing market price of the Company’s common stock on the date of grant. Compensation expense equal to the fair value of each RSA or RSU is recognized ratably over the requisite service period. For RSUs with vesting contingent on Company performance conditions, the Company uses the requisite service period that is most likely to occur. The requisite service period is estimated based on the performance period as well as any time-based service requirements. If it is unlikely that a performance condition will be achieved, no compensation expense is recognized unless it is later determined that achievement of the performance condition is likely. Expense may be adjusted for changes in the expected outcomes of the related performance conditions, with the impact of such changes recognized as a cumulative adjustment in the consolidated statement of operations in the period in which the expectation changes.
In 2014 and 2016, the Company issued market-condition RSUs to certain members of executive management. Since the vesting of the market-condition RSUs is dependent on stock price performance, the fair values of these awards were estimated using a Monte-Carlo valuation model. The determination of the fair value of market-condition RSUs utilizing a Monte-Carlo valuation model was affected by the Company’s stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends.
In 2016, Company adopted a bonus plan that enabled participants to earn annual incentive bonuses based upon achievement of specified financial and strategic performance objectives. Under the terms of this plan, the Company has the ability to settle bonuses earned under the plan with fully vested RSUs. For the fiscal year 2016 performance period, the Company intends to settle the amounts earned under the bonus plan in fully vested RSUs in the first quarter of 2017. The stock-based compensation expense accrued under this bonus plan represents stock-settled debt per ASC 718 and ASC 480, as such, the Company has recorded a liability for bonuses expected to be paid in fully vested RSUs in “accrued employee compensation” in the Company’s consolidated balance sheets.
Stock-based compensation expense recognized in the consolidated statements of operations is based on equity awards ultimately expected to vest. The Company estimates forfeitures at the time of grant and revises forfeitures, if necessary, in subsequent periods with a cumulative catch up adjustment if actual forfeitures differ from those estimates. For market-condition awards, because the effect of the market-condition is reflected as an adjustment to the awards’ fair value at grant date, subsequent forfeitures due to the Company’s stock price performance do not result in a reversal of expense.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
. The standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. In August 2015, the FASB issued ASU 2015-14,
Deferral of the Effective Date
, which defers the required adoption date of ASU 2014-09 by one year. As a result of the deferred effective date, ASU 2014-09 will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted but not before the original effective date of the new standard of the first quarter of fiscal 2017. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance in some areas and add practical expedients: In March 2016, ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations;
in April 2016, ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing;
in May 2016, ASU 2016-12,
Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients;
and in December 2016, ASU 2016-20,
Technical Corrections and Improvements to Revenue from Contracts with Customers
. The Company’s has begun the process of evaluating its standard product sales arrangements and has not yet identified any expected material impact on the timing and measurement of revenue for these arrangements from the adoption of this standard; however, the Company has not yet formalized its final conclusions from this review process. The Company is still evaluating the impact of adoption on non-product sale arrangements, which represent less than five percent of revenue. The Company has also developed a comprehensive project plan to guide implementation of the new standard. The Company has not yet determined its method of adoption for the new accounting standard.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. The Company’s initial evaluation of its current leases does not indicate that the adoption of this standard will have a material impact on its consolidated statements of operations. The Company expects that the adoption of the standard will have a material impact on its consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities.
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which changes the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, excess tax benefits associated with share-based payment awards will be recognized in the income statement when the awards vest or settle, rather than in stockholders’ equity. In addition, it will increase the number of shares an employer can withhold to cover income taxes on share-based payment awards and still qualify for the exemption to liability classification. The guidance will be effective for the Company in its first quarter of fiscal 2017. The Company expects that the adoption of this standard will result in the recognition of approximately
$10.0 million
of deferred tax assets related to stock-based compensation and a corresponding increase in the Company’s valuation allowance, which will be disclosed in the Company’s notes to consolidated financial statements. The Company does not expect that the adoption of this standard will have a material effect on its consolidated financial statements.
In August, 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments,
which provides guidance on the presentation and classification in the statement of cash flows for eight specific cash flow issues. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted in any annual or interim period. The Company has not identified any of the eight specific cash flow issues within its consolidated financial statements, therefore the Company does not expect that the adoption of this standard will have a material effect on its consolidated statements of cash flows.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows - Restricted Cash
, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. The Company early adopted this standard in the fourth quarter of 2016 resulting in the reclassification of restricted cash in the presentation of its consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017 No. 2017-04,
Intangibles - Goodwill and Other,
which eliminates step two from the annual goodwill impairment test. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis. The adoption of the standard will not materially impact the Company's consolidated financial statements unless step one of the annual goodwill impairment test fails. The Company is currently evaluating the timing of its planned adoption of this standard.
Business Enterprise Information
The Company operates as a single operating segment. According to the FASB ASC Topic
Disclosures about Segments of an Enterprise and Related Information
, operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Chief Executive Officer who evaluates the Company’s financial information and resources and assesses performance on a consolidated basis.
Revenue by product line and geographic area is presented below (in thousands):
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|
|
|
|
|
Years ended December 31,
|
Revenue by product line:
|
|
2016
|
|
2015
|
|
2014
|
Ultracapacitors
|
|
$
|
71,491
|
|
|
$
|
114,525
|
|
|
$
|
135,637
|
|
High-voltage capacitors
|
|
45,177
|
|
|
41,718
|
|
|
40,361
|
|
Microelectronic products
|
|
4,576
|
|
|
11,129
|
|
|
10,588
|
|
Total
|
|
$
|
121,244
|
|
|
$
|
167,372
|
|
|
$
|
186,586
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
Revenue from external customers located in
(1)
:
|
|
2016
|
|
2015
|
|
2014
|
China
|
|
$
|
48,191
|
|
|
$
|
87,856
|
|
|
$
|
89,143
|
|
United States
|
|
12,041
|
|
|
20,836
|
|
|
23,758
|
|
Germany
|
|
12,854
|
|
|
13,972
|
|
|
16,384
|
|
All other countries
(2)
|
|
48,158
|
|
|
44,708
|
|
|
57,301
|
|
Total
|
|
$
|
121,244
|
|
|
$
|
167,372
|
|
|
$
|
186,586
|
|
_____________
|
|
|
|
|
|
|
(1)
Location is determined by shipment destination.
(2)
Revenue from external customers located in countries included in “All other countries” does not individually comprise more than 10% of total revenue for any of the years presented.
Long-lived assets by geographic location are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
19,267
|
|
|
$
|
22,267
|
|
|
$
|
28,013
|
|
China
|
|
1,477
|
|
|
4,148
|
|
|
4,991
|
|
Switzerland
|
|
5,376
|
|
|
6,021
|
|
|
5,663
|
|
Total
|
|
$
|
26,120
|
|
|
$
|
32,436
|
|
|
$
|
38,667
|
|
Note 2—Balance Sheet Details (in thousands):
Inventories, net
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31, 2015
|
Raw materials and purchased parts
|
|
$
|
12,980
|
|
|
$
|
21,126
|
|
Work-in-process
|
|
858
|
|
|
4,367
|
|
Finished goods
|
|
19,492
|
|
|
16,941
|
|
Reserves
|
|
(1,082
|
)
|
|
(3,379
|
)
|
Total inventories, net
|
|
$
|
32,248
|
|
|
$
|
39,055
|
|
Warranty
Activity in the warranty reserve, which is included in “accounts payable and accrued liabilities” in the consolidated balance sheets, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
Beginning balance
|
|
$
|
1,288
|
|
|
$
|
716
|
|
Product warranties issued
|
|
486
|
|
|
751
|
|
Settlement of warranties
|
|
(458
|
)
|
|
(755
|
)
|
Changes related to preexisting warranties
|
|
(103
|
)
|
|
576
|
|
Ending balance
|
|
$
|
1,213
|
|
|
$
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Property and equipment, net:
|
|
|
|
|
Machinery, furniture and office equipment
|
|
$
|
62,583
|
|
|
$
|
76,077
|
|
Computer hardware and software
|
|
10,071
|
|
|
12,235
|
|
Leasehold improvements
|
|
20,320
|
|
|
16,883
|
|
Construction in progress
|
|
1,401
|
|
|
2,527
|
|
Property and equipment, gross
|
|
94,375
|
|
|
107,722
|
|
Less accumulated depreciation and amortization
|
|
(68,255
|
)
|
|
(75,398
|
)
|
Total property and equipment, net
|
|
$
|
26,120
|
|
|
$
|
32,324
|
|
|
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
13,109
|
|
|
$
|
22,291
|
|
Income tax payable
|
|
1,066
|
|
|
1,376
|
|
Accrued warranty
|
|
1,213
|
|
|
1,288
|
|
Other accrued liabilities
|
|
3,793
|
|
|
9,030
|
|
Total accounts payable and accrued liabilities
|
|
$
|
19,181
|
|
|
$
|
33,985
|
|
Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
Defined Benefit
Pension Plan
|
|
Accumulated
Other
Comprehensive
Income
|
|
Affected Line Items in the Statement of Operations
|
Balance as of December 31, 2015
|
|
$
|
9,933
|
|
|
$
|
(5,039
|
)
|
|
$
|
4,894
|
|
|
|
Other comprehensive income (loss) before reclassification
|
|
(2,107
|
)
|
|
—
|
|
|
(2,107
|
)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
2,613
|
|
|
2,613
|
|
|
Cost of Sales, Selling, General and Administrative and Research and Development Expense
|
Net other comprehensive income (loss) for the
year ended December 31, 2016
|
|
(2,107
|
)
|
|
2,613
|
|
|
506
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
7,826
|
|
|
$
|
(2,426
|
)
|
|
$
|
5,400
|
|
|
|
Note 3—Goodwill
The Company performs an impairment test for goodwill annually according to the
Intangibles—Goodwill and Other
Topic of the FASB ASC. The Company first makes a qualitative assessment of the likelihood of goodwill impairment and if it concludes that it is more likely than not that the carrying amount of a reporting unit is greater than its fair value, then it will be required to perform the first step of a two-step quantitative impairment test. Otherwise, performing the two-step impairment test is not required. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned capacity and new product launches, cost factors such as raw material prices and financial performance of the reporting unit. The Company may also determine to skip the qualitative assessment in any year and move directly to the quantitative test.
The first step of the two-step quantitative impairment test consists of estimating the fair value and comparing the estimated fair value with the carrying value of the reporting unit. If the fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The implied fair value of goodwill is the residual fair value derived by deducting the fair value of a reporting unit’s assets and liabilities from its estimated total fair value, which was calculated in step one. An impairment charge would represent the excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the goodwill. The guidance requires goodwill to be reviewed annually at the same time every year or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. The Company selected December 31 as its annual testing date.
In 2016, the Company assessed the qualitative factors for
one
of its two reporting units and concluded that it was more likely than not that its fair value exceeded its carrying value and therefore did not perform quantitative testing for the reporting unit. For its other reporting unit, the Company determined to skip the qualitative assessment and moved directly to the first quantitative test. The Company utilized a discounted cash flow methodology to calculate the fair value of the reporting unit. Based on the fair value analysis, management concluded that fair value exceeded carrying value of the reporting unit and no additional quantitative testing was required. As a result of the Company’s annual assessments,
no
impairment was indicated as of
December 31, 2016
,
2015
and
2014
.
The change in the carrying amount of goodwill during
2015
and
2016
was as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2014
|
$
|
23,599
|
|
Foreign currency translation adjustments
|
36
|
|
Balance at December 31, 2015
|
23,635
|
|
Foreign currency translation adjustments
|
(545
|
)
|
Disposition of microelectronics product line
|
(291
|
)
|
Balance at December 31, 2016
|
$
|
22,799
|
|
Note 4 – Sale of Microelectronics Product Line
On April 27, 2016, the Company sold substantially all of the assets and liabilities comprising its microelectronics product line to Data Device Corporation, a privately-held Delaware corporation. The transaction purchase price was
$21.0 million
, subject to a working capital adjustment and a one year
$1.5 million
escrow holdback on the purchase price.
The assets sold were primarily comprised of inventory, accounts receivable and property and equipment. The liabilities sold were comprised mainly of deferred revenue, accounts payable and other current liabilities. During the first quarter of 2016, the Company met the held for sale criteria in accordance with ASC Topic 380,
Impairment or Disposal of Long Lived Assets,
and
the Company ceased depreciation on the property and equipment and classified the assets to be sold as held for sale. During the second quarter of 2016, all assets and liabilities formerly classified as held for sale were disposed of pursuant to the sale. The sale of the microelectronics product line did not represent a strategic shift that had a major effect on the Company’s operations and financial results. As such, the Company did not account for the disposition as a discontinued operation. During the year ended December 31, 2016, the Company recorded a gain of
$6.7 million
related to the sale of the microelectronics product line.
In connection with the sale of the microelectronics product line, the Company guaranteed the future operating lease commitment related to the facility formerly occupied by the microelectronics product line, which was assumed by the buyer. The Company is obligated to perform under the guarantee if Data Device Corporation defaults on the lease at any time during the remainder of the lease agreement. The lease had a remaining lease term of
fifteen months
from the date of sale and expires on July 31, 2017. As of
December 31, 2016
, the undiscounted maximum amount of potential future payments under the lease guarantee is
$0.6 million
. The Company assessed the probability that it will be required to make payments under the terms of the guarantee based upon its actual and expected loss experience. Consistent with the requirements of FASB ASC 460,
Guarantees,
the Company has not recorded a liability on its consolidated balance sheet as of
December 31, 2016
as a loss is not considered probable.
Note 5 – Restructuring and Exit Costs
In 2015, the Company initiated a restructuring plan to consolidate U.S. manufacturing operations and to reduce headcount and operating expenses in order to align the Company’s cost structure with the current business forecast and to improve operational efficiency. The plan also included the disposition of the Company’s microelectronics product line which was completed in April 2016. The restructuring plan was otherwise substantially completed in the first quarter of 2016. Total restructuring and exit costs were
$2.8 million
, which included
$1.3 million
in facilities costs related to the consolidation of manufacturing operations,
$1.2 million
in employee severance costs and
$0.3 million
in other exit costs. The Company also incurred
$0.6 million
in accelerated equipment depreciation expense related to the consolidation of manufacturing operations. Total cash expenditures related to restructuring activities were approximately
$1.5 million
.
The Company accounts for charges resulting from restructuring and exit activities in accordance with ASC Topic 420,
Exit or Disposal Cost Obligations
(“ASC 420”), and ASC Topic 712,
Compensation-Nonretirement Postemployment Benefits,
for employee termination benefits to be paid in accordance with its ongoing employee termination benefit arrangement.
In June 2015, the Company ceased use of approximately
60,000
square feet of its Peoria, AZ manufacturing facility, and determined this leased space would have no future economic benefit to the Company based on the current business forecast. As a result, in June 2015, the Company recorded a liability for the future rent obligation associated with this space, net of estimated sublease income, in accordance with ASC Topic 420. For the year ended December 31, 2015, the expense related to the exit of this leased space was
$1.2 million
, before tax, and was recorded as a component of total restructuring and exit costs. During the
year ended December 31, 2016
, the Company recorded additional restructuring and exit costs of
$0.1 million
related to revisions to the sublease income assumption.
For the years ended
December 31, 2016
and 2015, the Company recorded total charges related to its restructuring plan of
$0.3 million
and
$2.5 million
, respectively, within “restructuring and exit costs” in the consolidated statements of operations. Additionally, for the years ended
December 31, 2016
and 2015, the Company recorded
$0.1 million
and
$0.4 million
, respectively, of accelerated depreciation expense within “cost of revenue” in the consolidated statements of operations.
As of
December 31, 2016
, the Company’s consolidated balance sheet includes restructuring liability associated with lease obligation costs of
$0.3 million
in “accounts payable and accrued liabilities” and
$0.5 million
in “other long term liabilities.”
The following table summarizes restructuring and exit costs for the years ended
December 31, 2016
and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance Costs
|
|
Lease Obligation Costs
|
|
Other Exit Costs
|
|
Total
|
Restructuring liability as of December 31, 2014
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Costs incurred
|
|
1,439
|
|
|
1,208
|
|
|
—
|
|
|
2,647
|
|
Amounts paid
|
|
(1,010
|
)
|
|
—
|
|
|
—
|
|
|
(1,010
|
)
|
Accruals released
|
|
(135
|
)
|
|
—
|
|
|
—
|
|
|
(135
|
)
|
Other non-cash adjustments
|
|
—
|
|
|
(165
|
)
|
|
—
|
|
|
(165
|
)
|
Restructuring liability as of December 31, 2015
|
|
294
|
|
|
1,043
|
|
|
—
|
|
|
1,337
|
|
Costs incurred
|
|
67
|
|
|
86
|
|
|
298
|
|
|
451
|
|
Amounts paid
|
|
(207
|
)
|
|
—
|
|
|
(246
|
)
|
|
(453
|
)
|
Accruals released
|
|
(154
|
)
|
|
—
|
|
|
—
|
|
|
(154
|
)
|
Other non-cash adjustments
|
|
—
|
|
|
(327
|
)
|
|
(52
|
)
|
|
(379
|
)
|
Restructuring liability as of December 31, 2016
|
|
$
|
—
|
|
|
$
|
802
|
|
|
$
|
—
|
|
|
$
|
802
|
|
Note 6—Credit Facilities
Revolving Line of Credit
In July 2015, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with East West Bank (“EWB”), whereby EWB made available to the Company a secured credit facility in the form of a revolving line of credit (the “Revolving Line of Credit”). The Revolving Line of Credit is available up to a maximum of the lesser of: (a)
$25.0 million
; or (b) a certain percentage of domestic and foreign trade receivables. As of
December 31, 2016
the amount available under the Revolving Line of Credit was
$11.4 million
. In general, amounts borrowed under the Revolving Line of Credit are secured by a lien on all of the Company’s assets, including its intellectual property, as well as a pledge of
100%
of its equity interests in Maxwell SA. The obligations under the Loan Agreement are also guaranteed directly by Maxwell SA. The Revolving Line of Credit will mature on July 3, 2018. In the event that the Company is in violation of the representations, warranties and covenants made in the Loan Agreement, including certain financial covenants set forth therein, the Company may not be able to utilize the Revolving Line of Credit or repayment of amounts owed pursuant to the Loan Agreement could be accelerated. The Company is currently in compliance with the financial covenants that it is required to meet during the term of the credit agreement including the minimum four-quarter rolling EBITDA, quarterly minimum quick ratio and monthly minimum cash requirements. On March 1, 2017, the Company entered into an amendment to the Loan Agreement to approve the acquisition of substantially all of the assets and business of Nesscap Energy, Inc., and to modify certain financial covenants.
Amounts borrowed under the Revolving Line of Credit bear interest, payable monthly. Such interest shall accrue based upon, at the Company’s election, subject to certain limitations, either the Prime Rate plus a margin ranging from
0%
to
0.50%
or the LIBOR Rate plus a margin ranging from
2.75%
to
3.25%
, the specific rate for each as determined based upon the Company’s leverage ratio from time to time.
The Company is required to pay an annual commitment fee of
$125,000
, and an unused commitment fee of the average daily unused amount of the Revolving Line of Credit, payable monthly, equal to a per annum rate in a range of
0.30%
to
0.50%
, as determined by the Company’s leverage ratio on the last day of the previous fiscal quarter. No amounts have been borrowed under the Revolving Line of Credit as of
December 31, 2016
.
Former Credit Facility
In December 2011, the Company obtained a secured credit facility in the form of a revolving line of credit (the “Former Revolving Line of Credit”) and an equipment term loan (the “Equipment Term Loan”) (together, the “Former Credit Facility”). Borrowings under the Former Credit Facility bore interest, payable monthly, at either (i) the bank’s prime rate or (ii) LIBOR plus
2.25%
, at the Company’s option subject to certain limitations. The Equipment Term Loan was available to finance
80%
of eligible equipment purchases made between April 1, 2011 and April 30, 2012. During this period, the Company borrowed
$5.0 million
under the Equipment Term Loan. The balance of the Equipment Term Loan was paid in full by the maturity date of April 30, 2015. Concurrently with entering into the Loan Agreement described above, in July 2015, the Company repaid all outstanding loans under the Former Revolving Line of Credit and the Former Credit Facility was terminated. The Company did not incur any early termination or prepayment penalties under the Former Credit Facility in connection with the above transactions.
Other Long-term Borrowings
Maxwell SA has various financing agreements for vehicles. These agreements are for up to an original
three
-year repayment period with interest rates ranging from
0.9%
to
3.9%
. At
December 31, 2016
and
2015
,
$83,000
and
$91,000
, respectively, was outstanding under these agreements.
Note 7—Fair Value Measurement
The Company records certain financial instruments at fair value in accordance with the
Fair Value Measurements and Disclosures
Topic of the FASB ASC. Historically, the financial instruments to which this topic applied were foreign currency forward contracts and pension assets. The fair value of foreign currency forward contracts was recorded as a liability or asset in the consolidated balance sheets. During the second quarter of 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure is no longer significant. Therefore, no foreign currency forward contracts were outstanding as of
December 31, 2016
. As of December 31, 2015, the fair value of the Company’s foreign currency forward contracts was an asset of
$16,000
, which was recorded in “trade and other accounts receivable” in the consolidated balance sheet. The fair value of derivative instruments was measured using models following quoted market prices in active markets for identical instruments, which is a Level 2 input under the fair value hierarchy of the
Fair Value Measurements and Disclosures
Topic of the FASB ASC. Also see Note 8,
Foreign Currency Derivative Instruments
, and Note 13,
Pension and Other Postretirement Benefit Plans
, of this Annual Report on Form 10-K, for further discussion of fair value measurements.
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 8—Foreign Currency Derivative Instruments
The Company has historically used forward contracts to hedge certain monetary assets and liabilities, primarily receivables, payables, and cash balances, denominated in foreign currencies. During the year ended December 31, 2016, the Company ceased using foreign currency forward contracts to hedge foreign currency exposure as management determined its foreign currency exposure is no longer significant. The change in fair value of these forward contracts represented a natural hedge as gains and losses on these instruments partially offset the changes in the fair value of the underlying monetary assets and liabilities due to movements in currency exchange rates. These forward contracts generally expired in one month. These contracts were considered economic hedges but were not designated as hedges under the
Derivatives and Hedging
Topic of the FASB ASC, therefore, the change in the fair value of the instruments was recognized each period in the consolidated statements of operations.
The net losses on foreign currency forward contracts included in “foreign currency exchange loss, net” in the consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Total loss
|
|
$
|
(88
|
)
|
|
$
|
(720
|
)
|
|
$
|
(5,265
|
)
|
The net losses on foreign currency derivative contracts were partially offset by net gains and losses on the underlying monetary assets and liabilities. The net foreign currency gains or losses on those underlying monetary assets and liabilities included in “foreign currency exchange loss, net” in the consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Total gain (loss)
|
|
$
|
(37
|
)
|
|
$
|
179
|
|
|
$
|
4,391
|
|
The following table presents gross amounts, amounts offset and net amounts presented in the consolidated balance sheets for the Company’s derivative instruments measured at fair value (in thousands):
|
|
|
|
|
|
|
|
December 31, 2015
|
Gross amounts of recognized asset
|
|
$
|
66
|
|
Gross amounts offset
|
|
(50
|
)
|
Net amount of recognized asset
|
|
$
|
16
|
|
The Company had the legal right to offset these recognized assets and liabilities upon settlement of the derivative instruments. For additional information, refer to Note 7,
Fair Value Measurements
.
Note 9—Stock Plans
Equity Incentive Plans
The Company has
two
active share-based compensation plans as of
December 31, 2016
: the 2004 Employee Stock Purchase Plan (“ESPP”) and the 2013 Omnibus Equity Incentive Plan (the “Incentive Plan”), as approved by the stockholders. Under the Incentive Plan, incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) have been granted to employees and non-employee directors. Generally, these awards vest over periods of
one
to
four
years. In addition, equity awards have been issued to senior management where vesting of the award is tied to Company performance or market conditions. The Company’s policy is to issue new shares of its common stock upon the exercise of stock options, vesting of restricted stock units, granting of restricted stock awards or ESPP purchases.
The Company’s Incentive Plan currently provides for an equity incentive pool of
4,900,000
shares. Shares reserved for issuance are replenished by forfeited shares from the Incentive Plan. Additionally, equity awards forfeited under the Company’s former 2005 equity incentive plan and shares that were available under other predecessor plans are included in the total shares available for issuance under the Incentive Plan.
For the year ended
December 31, 2016
, the tax benefit associated with stock option exercises, restricted stock unit vesting, restricted stock grants, and disqualifying dispositions of both incentive stock options and stock issued under the Company’s ESPP, was approximately
$1.7 million
.
No
tax benefits were recognized in the years ended
December 31, 2016
,
2015
and
2014
because excess tax benefits were not realized by the Company.
Stock Options
The Company grants stock options to its employees and executive management on a discretionary basis. The following table summarizes total aggregate stock option activity for the year ended
December 31, 2016
(in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value
|
Balance at December 31, 2015
|
|
931
|
|
|
$
|
10.19
|
|
|
|
|
|
Cancelled
|
|
(517
|
)
|
|
11.17
|
|
|
|
|
|
Balance at December 31, 2016
|
|
414
|
|
|
$
|
8.97
|
|
|
6.03
|
|
$
|
23
|
|
Vested or expected to vest at December 31, 2016
|
|
398
|
|
|
$
|
9.08
|
|
|
5.13
|
|
$
|
21
|
|
Exercisable at December 31, 2016
|
|
246
|
|
|
$
|
10.69
|
|
|
4.04
|
|
$
|
6
|
|
The weighted-average grant date fair value of stock options granted during the year ended December 31, 2015 was
$3.34
.
No
stock options were granted during the years ended
December 31, 2016
and
2014
. The total intrinsic value of options exercised during the years ended
December 31, 2016
,
2015
and
2014
was
$0
,
$16,000
and
$0.6 million
, respectively. There were
no
option exercises for the year ended
December 31, 2016
.
The fair value of the stock options granted during the years ended December 31, 2015 was estimated using the Black-Scholes valuation model using the following assumptions:
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2015
|
Expected dividends
|
|
—
|
%
|
Expected volatility range
|
|
60% to 61%
|
|
Expected volatility weighted average
|
|
60
|
%
|
Risk-free interest rate
|
|
1.6
|
%
|
Expected life/term weighted average (in years)
|
|
4.9
|
|
The expected dividend yield is zero because the Company has never paid cash dividends and has no present intention to pay cash dividends. The expected term is based on the Company’s historical experience from previous stock option grants. Expected volatility is based on the historical volatility of the Company’s stock measured over a period commensurate with the expected option term. The Company does not consider implied volatility due to the low volume of publicly traded options in the Company’s stock. The risk-free interest rate is derived from the zero coupon rate on U.S. Treasury instruments with a term comparable to the option’s expected term.
As of
December 31, 2016
, there was
$0.4 million
of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of
2.3 years
.
Restricted Stock Awards
During the year ended December 31, 2014, the Company ceased granting RSAs and began granting RSUs to employees and executive management as part of its annual equity incentive award program.
The following table summarizes RSA activity for the year ended
December 31, 2016
(in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at December 31, 2015
|
|
245
|
|
|
$
|
13.87
|
|
Vested
|
|
(105
|
)
|
|
14.86
|
|
Forfeited
|
|
(52
|
)
|
|
12.73
|
|
Nonvested at December 31, 2016
|
|
88
|
|
|
$
|
13.37
|
|
The weighted average grant date fair value of RSAs granted during the year ended December 31, 2014 was
$14.21
.
No
RSAs were granted during the years ended
December 31, 2016
and
2015
.
The vest date fair value of RSAs vested in
2016
,
2015
and
2014
was
$0.6 million
,
$1.2 million
and
$0.9 million
, respectively. As of
December 31, 2016
, there was
$0.6 million
of unrecognized compensation cost related to nonvested RSAs expected to be recognized over a weighted average period of
0.9
years.
Restricted Stock Units
Non-employee directors receive annual RSU awards, normally in February of each year, as partial consideration for their annual retainer compensation. These awards vest in full
one
year from the date of grant provided the non-employee director provides continued service. Additionally, new directors normally receive RSUs upon their election to the board. The Company also grants RSUs to employees as part of its annual equity incentive award program, with vesting typically in equal annual installments over
four years
of continuous service. Additionally, the Company grants performance-based restricted stock units (“PSUs”) to executives with vesting contingent on continued service and achievement of specified performance objectives or stock price performance. Each RSU represents the right to receive
one
unrestricted share of the Company’s common stock upon vesting.
The following table summarizes RSU activity for the year ended
December 31, 2016
(in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at December 31, 2015
|
|
885
|
|
|
$
|
7.36
|
|
Granted
|
|
1,353
|
|
|
6.00
|
|
Released
|
|
(225
|
)
|
|
7.20
|
|
Forfeited
|
|
(265
|
)
|
|
6.86
|
|
Nonvested at December 31, 2016
|
|
1,748
|
|
|
$
|
6.40
|
|
The weighted average grant date fair value of RSUs granted in the years ended
December 31, 2016
,
2015
and
2014
was
$6.00
,
$7.02
and
$12.63
, respectively. The release date fair value of RSUs in the years ended
December 31, 2016
,
2015
and
2014
was
$1.3 million
,
$0.5 million
and
$0.6 million
, respectively. As of
December 31, 2016
, there was
$5.6 million
of unrecognized compensation cost related to nonvested RSU awards. The cost is expected to be recognized over a weighted average period of
2.2 years
.
RSU activity included
46,224
,
214,831
and
50,000
PSUs granted in the years ended
December 31, 2016
,
2015
and
2014
with a weighted average grant date fair value of
$5.08
,
$7.18
and
$10.85
per share, respectively, with vesting contingent upon specified Company performance conditions or objectives.
Additionally, for the year ended
December 31, 2016
, RSUs granted included
313,460
market-condition PSUs with a weighted average grant date fair value of
$7.76
. The market-condition PSUs will be earned based on the level of the Company’s stock price performance against a determined market index over
one
,
two
and
three
-year performance periods. The market-condition PSUs have the potential to vest between
0%
and
200%
depending on the Company’s stock price performance and the recipients must remain employed through the end of each performance period in order to vest.
No
market-condition PSUs were granted during the year ended
December 31, 2015
. For the year ended December 31, 2014, RSUs granted included
70,000
market-condition PSUs with a weighted average grant date fair value of
$7.71
per share. These PSUs have the potential to vest upon the achievement of certain stock price thresholds and the completion of
three
years of continuous employment from the date of grant. The fair value of market-condition PSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2014
|
Expected dividend yield
|
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
|
62
|
%
|
|
65
|
%
|
Risk-free interest rate
|
|
1.07
|
%
|
|
0.86
|
%
|
Expected term (in years)
|
|
3.0
|
|
|
3.0
|
|
The following table summarizes the amount of compensation expense recognized for RSUs for the years ended
December 31, 2016
,
2015
and
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Service-based restricted stock units
|
|
$
|
2,243
|
|
|
$
|
1,362
|
|
|
$
|
749
|
|
Performance-based restricted stock units
|
|
103
|
|
|
(28
|
)
|
|
28
|
|
Market-condition restricted stock units
|
|
869
|
|
|
128
|
|
|
90
|
|
Total compensation expense recognized for employee restricted stock units
|
|
$
|
3,215
|
|
|
$
|
1,462
|
|
|
$
|
867
|
|
Employee Stock Purchase Plan
In 2013, the Company amended and restated the 2004 Employee Stock Purchase Plan (“ESPP”). Pursuant to the ESPP, the aggregate number of shares of common stock which may be purchased shall not exceed
1,000,000
shares of common stock of the Company. For the years ended
December 31, 2016
and
2015
,
111,832
and
145,733
shares, respectively, were purchased under the ESPP.
The 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. The number of shares purchased is based on participants’ contributions made during the offering period.
The fair value of the “look back” option for ESPP shares issued during the offering period is estimated using the Black-Scholes valuation model for a call and a put option. The share price used for the model is a
15%
discount on the stock price on the last trading day before the offering period; the number of shares to be purchased is based on employee contributions. The fair value of ESPP awards was calculated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Expected dividends
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
|
57
|
%
|
|
57
|
%
|
|
77
|
%
|
Risk-free interest rate
|
|
0.43
|
%
|
|
0.29
|
%
|
|
0.08
|
%
|
Expected life (in years)
|
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Fair value per share
|
|
$
|
1.93
|
|
|
$
|
1.86
|
|
|
$
|
4.56
|
|
The intrinsic value of shares of the Company’s stock purchased pursuant to the ESPP for offering periods within the years ended
December 31, 2016
,
2015
and
2014
was
$0.1 million
,
$0.2 million
and
$0.4 million
, respectively.
Bonuses to be Settled in Stock
On January 15, 2016, the Compensation Committee of the Board of Directors of the Company adopted the Maxwell Technologies, Inc. Incentive Bonus Plan to enable participants to earn annual incentive bonuses based upon achievement of specified financial and strategic performance objectives. The Company intends to settle bonuses earned under the plan for the fiscal year 2016 performance period with fully vested common stock of the Company in the first quarter of 2017. The Company recorded
$1.4 million
of stock-based compensation expense for these bonuses during the
year ended December 31, 2016
.
Stock-based Compensation Expense
Compensation cost for stock options, RSAs, RSUs, ESPP and bonus plan stock is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
|
$
|
171
|
|
|
$
|
232
|
|
|
$
|
52
|
|
Restricted stock awards
|
|
388
|
|
|
1,974
|
|
|
2,536
|
|
Restricted stock units
|
|
3,215
|
|
|
1,462
|
|
|
867
|
|
ESPP
|
|
231
|
|
|
278
|
|
|
512
|
|
Bonuses to be settled in stock
|
|
1,359
|
|
|
—
|
|
|
—
|
|
Total stock-based compensation expense
|
|
$
|
5,364
|
|
|
$
|
3,946
|
|
|
$
|
3,967
|
|
Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Cost of revenue
|
|
$
|
854
|
|
|
$
|
644
|
|
|
$
|
740
|
|
Selling, general and administrative
|
|
3,674
|
|
|
2,502
|
|
|
2,362
|
|
Research and development
|
|
836
|
|
|
800
|
|
|
865
|
|
Total stock-based compensation expense
|
|
$
|
5,364
|
|
|
$
|
3,946
|
|
|
$
|
3,967
|
|
Share Reservations
The following table summarizes the reservation of shares under the Company’s stock-based compensation plans as of
December 31, 2016
:
|
|
|
|
2013 Omnibus Equity Incentive Plan
|
4,041,496
|
|
2004 Employee Stock Purchase Plan
|
195,294
|
|
Total
|
4,236,790
|
|
Note 10—Shelf Registration Statement
On June 3, 2014, the Company filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission (“SEC”) to, from time to time, sell up to an aggregate of
$125 million
of any combination of its common stock, warrants, debt securities or units. On June 30, 2014, the registration statement was declared effective by the SEC. On April 23, 2015, the Company entered into an At-the-Market Equity Offering Sales Agreement (“Sales Agreement”) with Cowen and Company, LLC (“Cowen”) pursuant to which they could sell, up to an aggregate of
$10.0 million
in shares of common stock through Cowen, as sales agent. Under the Sales Agreement, the Company agreed to pay Cowen a commission equal to
3.0%
of the gross proceeds from the sale of shares of our common stock. On June 11, 2015, the Company completed the sale of approximately
$10.0 million
of common stock and terminated the offering. Approximately
1.83 million
shares were sold in the offering at an average share price of
$5.46
. The Company received net proceeds of
$9.6 million
after commissions and offering costs of
$0.4 million
.
Note 11—Income Taxes
For financial reporting purposes, loss before income taxes includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
(38,319
|
)
|
|
$
|
(35,074
|
)
|
|
$
|
(19,301
|
)
|
Foreign
|
|
18,759
|
|
|
17,344
|
|
|
17,375
|
|
Total
|
|
$
|
(19,560
|
)
|
|
$
|
(17,730
|
)
|
|
$
|
(1,926
|
)
|
The provision for income taxes based on loss before income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
(11,360
|
)
|
|
(4,297
|
)
|
|
(5,608
|
)
|
|
|
(11,360
|
)
|
|
(4,297
|
)
|
|
(5,608
|
)
|
State:
|
|
|
|
|
|
|
Current
|
|
7
|
|
|
6
|
|
|
6
|
|
Deferred
|
|
923
|
|
|
62
|
|
|
853
|
|
|
|
930
|
|
|
68
|
|
|
859
|
|
Foreign:
|
|
|
|
|
|
|
Current
|
|
3,742
|
|
|
4,930
|
|
|
2,453
|
|
Deferred
|
|
561
|
|
|
8
|
|
|
1,944
|
|
|
|
4,303
|
|
|
4,938
|
|
|
4,397
|
|
Increase in valuation allowance
|
|
10,272
|
|
|
3,894
|
|
|
4,698
|
|
Tax provision
|
|
$
|
4,145
|
|
|
$
|
4,603
|
|
|
$
|
4,346
|
|
The provision for income taxes in the accompanying consolidated statements of operations differs from the amount calculated by applying the statutory income tax rate to loss before income taxes. The primary components of such difference are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Taxes at federal statutory rate
|
|
$
|
(6,650
|
)
|
|
$
|
(6,028
|
)
|
|
$
|
(655
|
)
|
State taxes, net of federal benefit
|
|
(208
|
)
|
|
(236
|
)
|
|
(90
|
)
|
Effect of tax rate differential for foreign subsidiary
|
|
(2,985
|
)
|
|
(2,641
|
)
|
|
(3,570
|
)
|
Valuation allowance, including tax benefits of stock activity
|
|
10,272
|
|
|
3,894
|
|
|
4,698
|
|
Foreign taxes on unremitted earnings
|
|
1,204
|
|
|
2,085
|
|
|
1,590
|
|
Stock-based compensation
|
|
441
|
|
|
134
|
|
|
621
|
|
Foreign withholding taxes
|
|
260
|
|
|
180
|
|
|
—
|
|
Return to provision adjustments
|
|
1,062
|
|
|
1,131
|
|
|
536
|
|
Subpart F income inclusion
|
|
906
|
|
|
5,914
|
|
|
1,167
|
|
Other
|
|
(157
|
)
|
|
170
|
|
|
49
|
|
Tax provision
|
|
$
|
4,145
|
|
|
$
|
4,603
|
|
|
$
|
4,346
|
|
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
December 31, 2016
. Management periodically evaluates the recoverability of the deferred tax assets. 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 and recorded as a tax benefit, with the exception of
$15.5 million
which will impact additional paid in capital as discussed below. The Company has recorded a valuation allowance of
$78.4 million
as of
December 31, 2016
to reflect the estimated amount of deferred tax assets that may not be realized. The Company increased its valuation allowance by
$10.3 million
for the year ended
December 31, 2016
.
At
December 31, 2016
, the Company has federal and state net operating loss carryforwards of approximately
$186.8 million
and
$48.4 million
, respectively. The federal tax loss carryforwards will begin to expire in 2020 and the state tax loss carryforwards will begin to expire in 2016. In addition, the Company has research and development and other tax credit carryforwards for federal and state income tax purposes as of
December 31, 2016
of
$6.9 million
and
$8.6 million
, respectively. The federal credits will begin to expire in 2019 unless utilized and the state credits have an indefinite life. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s federal net operating loss and credit carryforwards may be limited upon a cumulative change in ownership of more than 50% within a three-year period.
Excess tax benefits associated with stock option exercises, restricted stock unit vesting, restricted stock grants, and disqualifying dispositions of both incentive stock options and stock issued from the Company’s Employee Stock Purchase Plan in the amount of
$3.5 million
for
2016
and
2015
, did not reduce current income taxes payable and, accordingly, are not included in the deferred tax asset relating to net operating loss carryforwards, but are included with the federal and state net operating loss carryforwards disclosed in this footnote. The tax benefits associated with stock option deductions from 1998 to 2005 in the amount of
$15.5 million
were not recorded in additional paid-in capital because their realization was not more likely than not to occur and, consequently, a valuation allowance was recorded against the entire benefit.
The Company was granted a tax holiday in Switzerland, which was effective as of January 1, 2012 for up to 10 years. The tax holiday is conditioned upon the Company meeting certain employment and investment thresholds. As of January 1, 2017, the Company is no longer eligible for the tax holiday due to not meeting the employment threshold. The impact of the tax holiday decreased foreign taxes by
$0.6 million
and
$0.7 million
for
2016
and
2015
, respectively. The benefit of the tax holiday on net loss per diluted share was
$0.02
for
2016
and
2015
.
The Company records U.S. income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the U.S. As of
December 31, 2016
, the Company has recorded a
$4.9 million
deferred tax liability for Swiss withholding taxes associated with
$97.6 million
of undistributed earnings of its Swiss subsidiary that are no longer considered indefinitely reinvested. In the event that the Company repatriates these funds, this withholding tax would become payable to the Swiss government. During the years ended
December 31, 2016, 2015 and 2014
, income tax expense associated with undistributed earnings of its Swiss subsidiary that are no longer considered indefinitely reinvested was
$1.2 million
,
$2.1 million
and
$1.6 million
, respectively. As of
December 31, 2016
, there were
no
undistributed earnings considered indefinitely reinvested. Determination of the amount of any unrecognized deferred income tax liability on the excess of the financial reporting basis over the tax basis of investments in foreign subsidiaries is not practicable because of the complexities of the hypothetical calculation.
Items that give rise to significant portions of the deferred tax accounts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
Tax loss carryforwards
|
|
$
|
62,994
|
|
|
$
|
52,504
|
|
Tax credit carryforwards
|
|
19
|
|
|
19
|
|
Uniform capitalization, contract and inventory related reserves
|
|
598
|
|
|
1,558
|
|
Accrued vacation
|
|
514
|
|
|
592
|
|
Stock-based compensation
|
|
2,130
|
|
|
1,466
|
|
Capitalized research and development
|
|
5,532
|
|
|
6,212
|
|
Tax basis depreciation less book depreciation
|
|
1,661
|
|
|
1,019
|
|
Intangible assets
|
|
1,354
|
|
|
1,533
|
|
Deferred revenue
|
|
33
|
|
|
254
|
|
Accrued foreign taxes
|
|
1,263
|
|
|
1,271
|
|
Other
|
|
2,523
|
|
|
2,527
|
|
Total
|
|
78,621
|
|
|
68,955
|
|
Deferred tax liabilities:
|
|
|
|
|
Inventory deduction
|
|
(369
|
)
|
|
(235
|
)
|
Pension assets
|
|
(1,733
|
)
|
|
(1,173
|
)
|
Allowance for doubtful accounts
|
|
(677
|
)
|
|
(378
|
)
|
Withholding tax on undistributed earnings of foreign subsidiary
|
|
(4,879
|
)
|
|
(3,675
|
)
|
Unrealized gains and losses
|
|
(733
|
)
|
|
(984
|
)
|
Other
|
|
—
|
|
|
(1
|
)
|
Total
|
|
(8,391
|
)
|
|
(6,446
|
)
|
Net deferred tax assets before valuation allowance
|
|
70,230
|
|
|
62,509
|
|
Valuation allowance
|
|
(78,366
|
)
|
|
(68,093
|
)
|
Net deferred tax liabilities
|
|
$
|
(8,136
|
)
|
|
$
|
(5,584
|
)
|
As of
December 31, 2016 and 2015
, deferred tax assets of
$0.4 million
and
$0.5 million
, respectively were included in other non-current assets in the consolidated balance sheet.
The Company accounts for uncertain tax benefits in accordance with the provisions of section 740-10 of the
Accounting for Uncertainty in Income Taxes
Topic of the FASB ASC. Of the total unrecognized tax benefits at
December 31, 2016
, approximately
$15.6 million
was recorded as a reduction to deferred tax assets, which caused a corresponding reduction in the Company’s valuation allowance of
$15.6 million
. To the extent unrecognized tax benefits are recognized at a time when a valuation allowance does not exist, the recognition of the
$15.6 million
tax benefit would reduce the effective tax rate. The Company does not anticipate that the amount of unrecognized tax benefits as of
December 31, 2016
will change materially within the 12-month period following
December 31, 2016
.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2014
|
$
|
11,939
|
|
Increase in current period positions
|
1,466
|
|
Increase in prior period positions
|
609
|
|
Balance at December 31, 2015
|
14,014
|
|
Increase in current period positions
|
1,596
|
|
Increase in prior period positions
|
116
|
|
Decrease in prior period positions
|
(147
|
)
|
Balance at December 31, 2016
|
$
|
15,579
|
|
The Company recognizes interest and penalties as a component of income tax expense. Interest and penalties for the years ended
December 31, 2016, 2015 and 2014
were
$148,000
,
$119,000
and
$34,000
, respectively.
The Company’s U.S. federal income tax returns for tax years subsequent to 2009 are subject to examination by the Internal Revenue Service and its state income tax returns subsequent to 2008 are subject to examination by state tax authorities. The Company’s foreign tax returns subsequent to 2004 are subject to examination by the foreign tax authorities.
Net operating losses from years for which the statute of limitations has expired (2009 and prior for federal and 2008 and prior for state) could be adjusted in the event that the taxing jurisdictions challenge the amounts of net operating loss carryforwards from such years.
Note 12—Leases
Rental expense amounted to
$4.1 million
,
$5.0 million
and
$5.6 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively, and was incurred primarily for facility leases. Future annual minimum rental commitments as of
December 31, 2016
are as follows (in thousands):
|
|
|
|
|
Fiscal Years
|
|
2017
|
$
|
3,167
|
|
2018
|
2,392
|
|
2019
|
2,322
|
|
2020
|
2,199
|
|
2021
|
1,282
|
|
Thereafter
|
5,145
|
|
Total
|
$
|
16,507
|
|
Note 13—Pension and Other Postretirement Benefit Plans
Foreign Plan
The
Compensation—Retirement Benefits
Subtopic of the FASB ASC requires balance sheet recognition of the total over funded or underfunded status of pension and postretirement benefit plans. Under the guidance, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized as a component of accumulated other comprehensive income (loss) within stockholders’ equity, net of tax effects, until they are amortized as a component of net periodic benefit cost (income).
The Company’s plan is regulated by the Swiss Government and is funded by the employees and the Company. 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. The Company made pension contributions of
$0.6 million
,
$0.6 million
and
$0.7 million
in
2016
,
2015
and
2014
, respectively; approximately
45%
of the total contributions to the plan each year are made by the employees. This plan has a measurement date of December 31. The Company does not have any rights to the assets of the plan other than the right to offset the liabilities of the plan.
The net pension asset increased from
$5.8 million
to
$8.9 million
during the year ended
December 31, 2016
. The increase in plan assets was primarily due to a higher return on plan assets than expected, demographic and assumption changes made to reflect current market conditions, as well as higher than expected withdrawal and mortality experience during the year. The accumulated benefit obligation was
$29.4 million
and
$31.3 million
as of
December 31, 2016
and
2015
, respectively. The decrease in the benefit obligation was primarily due to higher than expected withdrawal and mortality experience and a higher amount of benefits paid during the year than new obligations incurred. The plan is fully funded and continues to be in a surplus condition.
The following table reflects changes in the pension benefit obligation and plan assets for the years ended
December 31, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
Change in benefit obligation:
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
33,153
|
|
|
$
|
33,006
|
|
Service cost
|
|
1,171
|
|
|
958
|
|
Interest cost
|
|
246
|
|
|
332
|
|
Plan participant contributions
|
|
509
|
|
|
523
|
|
Benefits paid
|
|
(1,570
|
)
|
|
(3,064
|
)
|
Actuarial (gain) loss
|
|
(2,425
|
)
|
|
1,262
|
|
Plan change
|
|
—
|
|
|
83
|
|
Effect of foreign currency translation
|
|
(827
|
)
|
|
53
|
|
Projected benefit obligation at end of year
|
|
30,257
|
|
|
33,153
|
|
Changes in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
39,002
|
|
|
40,368
|
|
Actual return on plan assets
|
|
1,657
|
|
|
419
|
|
Company contributions
|
|
596
|
|
|
640
|
|
Plan participant contributions
|
|
509
|
|
|
523
|
|
Benefits paid
|
|
(1,570
|
)
|
|
(3,064
|
)
|
Effect of foreign currency translation
|
|
(1,050
|
)
|
|
116
|
|
Fair value of plan assets at end of year
|
|
39,144
|
|
|
39,002
|
|
Funded status at end of year
|
|
$
|
8,887
|
|
|
$
|
5,849
|
|
Amounts recognized in the consolidated balance sheets consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Net long-term pension asset
|
|
$
|
8,887
|
|
|
$
|
5,849
|
|
|
|
|
|
|
Accumulated other comprehensive loss consists of the following:
|
|
|
|
|
Net prior service cost
|
|
779
|
|
|
837
|
|
Net loss
|
|
3,113
|
|
|
5,668
|
|
Accumulated other comprehensive loss before taxes
|
|
$
|
3,892
|
|
|
$
|
6,505
|
|
The components of net periodic pension cost and other amounts recognized in other comprehensive income (loss) before taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,171
|
|
|
$
|
958
|
|
|
$
|
846
|
|
Interest cost
|
|
246
|
|
|
332
|
|
|
697
|
|
Expected return on plan assets
|
|
(1,175
|
)
|
|
(1,551
|
)
|
|
(1,784
|
)
|
Prior service cost amortization
|
|
150
|
|
|
136
|
|
|
140
|
|
Deferred loss amortization
|
|
243
|
|
|
45
|
|
|
—
|
|
Settlement cost
|
|
—
|
|
|
492
|
|
|
420
|
|
Net periodic pension cost
|
|
$
|
635
|
|
|
$
|
412
|
|
|
$
|
319
|
|
Other amounts recognized in other comprehensive income (loss) before income taxes are as follows:
|
|
|
|
|
|
|
Prior service cost amortization
|
|
$
|
(150
|
)
|
|
$
|
(136
|
)
|
|
$
|
(140
|
)
|
(Gain) loss on value of plan assets
|
|
(476
|
)
|
|
1,131
|
|
|
(1,695
|
)
|
Actuarial (gain) loss on benefit obligation
|
|
(2,425
|
)
|
|
1,262
|
|
|
4,975
|
|
Plan change
|
|
—
|
|
|
83
|
|
|
—
|
|
Settlement
|
|
—
|
|
|
(492
|
)
|
|
(420
|
)
|
Deferred loss amortization
|
|
(243
|
)
|
|
(45
|
)
|
|
—
|
|
Total recognized in other comprehensive income (loss), before taxes
|
|
$
|
(3,294
|
)
|
|
$
|
1,803
|
|
|
$
|
2,720
|
|
Total recognized in net periodic pension cost and other comprehensive income (loss), before taxes
|
|
$
|
(2,659
|
)
|
|
$
|
2,215
|
|
|
$
|
3,039
|
|
Assumptions used to determine the benefit obligation and net periodic pension cost are as follows:
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2016
|
|
2015
|
Weighted-average assumptions used to determine benefit obligation:
|
|
|
|
|
Discount rate
|
|
0.75
|
%
|
|
0.75
|
%
|
Rate of compensation increase
|
|
2.00
|
%
|
|
2.50
|
%
|
Measurement date
|
|
11/30/2016
|
|
|
11/30/2015
|
|
Weighted-average assumptions used to determine net periodic pension cost:
|
|
|
|
|
Discount rate
|
|
0.75
|
%
|
|
1.00
|
%
|
Expected long-term return on plan assets
|
|
3.00
|
%
|
|
3.75
|
%
|
Rate of compensation increase
|
|
2.50
|
%
|
|
2.50
|
%
|
|
|
|
|
|
Percentage of the fair value of total plan assets held in each major category of plan assets:
|
|
|
|
|
Equity securities
|
|
29
|
%
|
|
29
|
%
|
Debt securities
|
|
23
|
%
|
|
23
|
%
|
Real estate investment funds
|
|
43
|
%
|
|
43
|
%
|
Other
|
|
5
|
%
|
|
5
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
The pension plan’s overall strategy and investment policy is managed by the board of the plan. The overall long-term rate is based on the target asset allocation of
14%
Swiss bonds,
10%
non-Swiss hedged bonds,
10%
Swiss equities,
15%
global equities,
5%
emerging market equities,
4%
alternative investments,
40%
real estate and
2%
cash and equivalents.
The
2017
expected future long-term rate of return is estimated to be
2.50%
, which is based on historical asset rates of return for each asset allocation classification of
(1.11)%
for Swiss bonds,
(1.20)%
for non-Swiss hedged bonds,
3.00%
for Swiss equities,
4.80%
for global equities,
5.00%
for emerging market equities,
1.80%
for alternative investments,
2.10%
for real estate and
(0.20)%
for cash and equivalents. The
2016
expected long-term rate of return was
3.00%
and was based on the historical asset rates of return of
0.21%
for Swiss bonds,
0%
for non-Swiss hedged bonds,
3.52%
for Swiss equities,
5.21%
for global equities,
5.21%
for emerging market equities,
1.23%
for alternative investments,
2.54%
for real estate and
0.23%
for cash and equivalents.
|
|
|
|
|
Expected amortization during the year ending December 31, 2017 is as follows (in thousands):
|
|
|
|
Amortization of net prior service costs
|
$
|
145
|
|
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):
|
|
|
|
|
2017
|
$
|
1,320
|
|
2018
|
1,409
|
|
2019
|
1,380
|
|
2020
|
1,301
|
|
2021
|
1,338
|
|
Years 2022 through 2026
|
7,306
|
|
Total
|
$
|
14,054
|
|
The Company expects to contribute approximately
$0.5 million
to the pension plan in
2017
.
Investment objectives:
The primary investment goal of the pension plan is to achieve a total annualized return of
3.00%
over the long-term. The investments are evaluated, compared and benchmarked to plans with similar investment strategies. The plan also attempts to minimize risk by not having any single security or class of securities with a disproportionate impact on the plan. As a guideline, assets are diversified by asset classes (equity, fixed income/bonds, and alternative investments).
The fair values of the plans assets at
December 31, 2016
and
2015
, by asset category, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
December 31, 2016
|
|
|
Total
|
|
Active
Market
Prices
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Cash held in Swiss Franc, Euro and USD
|
|
$
|
705
|
|
|
$
|
705
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Investment funds
|
|
12,534
|
|
|
11,481
|
|
|
1,053
|
|
|
—
|
|
Real estate investment funds
|
|
17,034
|
|
|
—
|
|
|
—
|
|
|
17,034
|
|
Fixed income / Bond securities:
|
|
8,842
|
|
|
8,842
|
|
|
—
|
|
|
—
|
|
Other assets (accounts receivable, assets at real estate management company)
|
|
29
|
|
|
—
|
|
|
29
|
|
|
—
|
|
Net assets of pension plan
|
|
$
|
39,144
|
|
|
$
|
21,028
|
|
|
$
|
1,082
|
|
|
$
|
17,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
December 31, 2015
|
|
|
Total
|
|
Active
Market
Prices
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Cash held in Swiss Franc, Euro and USD
|
|
$
|
808
|
|
|
$
|
808
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Investment funds
|
|
12,292
|
|
|
11,303
|
|
|
989
|
|
|
—
|
|
Real estate investment funds
|
|
16,917
|
|
|
—
|
|
|
—
|
|
|
16,917
|
|
Fixed income / Bond securities:
|
|
8,949
|
|
|
8,949
|
|
|
—
|
|
|
—
|
|
Other assets (accounts receivable, assets at real estate management company)
|
|
36
|
|
|
—
|
|
|
36
|
|
|
—
|
|
Net assets of pension plan
|
|
$
|
39,002
|
|
|
$
|
21,060
|
|
|
$
|
1,025
|
|
|
$
|
16,917
|
|
Fair Value of Assets
Level 1:
Observable inputs such as quoted prices in active markets for identical assets.
Level 2:
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3
: Unobservable inputs that reflect the reporting entity’s own assumptions.
For those financial instruments with significant Level 3 inputs, the following table summarizes the activity for the year by investment type:
|
|
|
|
|
|
Description
|
|
Real estate
investments
|
Balance as of December 31, 2015
|
|
$
|
16,917
|
|
Total unrealized gains included in net gain
(1)
|
|
575
|
|
Foreign currency translation adjustments
|
|
(458
|
)
|
Balance as of December 31, 2016
|
|
$
|
17,034
|
|
___________________
|
|
(1)
|
Total unrealized gains are reported as a component of the pension adjustment in accumulated other comprehensive income in the consolidated statement of stockholders’ equity.
|
U.S. Plan
The Company has a postretirement benefit plan covering its employees in the United States. Substantially all U.S. employees are eligible to elect coverage under a contributory employee savings plan which provides for Company matching contributions based on one-half of employee contributions up to certain plan limits. The Company’s matching contributions under this plan totaled
$0.5 million
,
$0.6 million
and
$0.5 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Note 14—Legal Proceedings
Although the Company expects to incur legal fees in connection with the below legal proceedings, the Company is unable to estimate the amount of such legal fees and therefore, such fees will be expensed in the period the legal services are performed.
FCPA Matter
In January 2011, the Company reached settlements with the U.S. Securities and Exchange Commission (“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 U.S. Foreign Corrupt Practices Act (“FCPA”) and other securities laws violations. The Company paid the monetary penalties under these settlements in installments such that all monetary penalties were paid in full by January 2013. With respect to the DOJ charges, a judgment of dismissal was issued in the U.S. District Court for the Southern District of California on March 28, 2014.
On October 15, 2013, the Company received an informal notice from the DOJ that an indictment against the former Senior Vice President and General Manager of its Swiss subsidiary had been filed in the United States District Court for the Southern District of California. The indictment is against the individual, a former officer, and not against the Company and the Company does not foresee that further penalties or fines could be assessed against it as a corporate entity for this matter. However, the Company may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendant and to incur other financial obligations. While the Company maintains directors’ and officers’ insurance policies which are intended to cover legal expenses related to its indemnification obligations in situations such as these, the Company cannot determine if and to what extent the insurance policy will cover the ongoing legal fees for this matter. Accordingly, the legal fees that may be incurred by the Company in defending this former officer could have a material impact on its financial condition and results of operation.
Swiss Bribery Matter
In August 2013, the Company’s Swiss subsidiary was served with a search warrant from the Swiss federal prosecutor’s office. At the end of the search, the Swiss federal prosecutor presented the Company with a listing of the materials gathered by the representatives and then removed the materials from its premises for keeping at the prosecutor’s office. Based upon the Company’s exposure to the case, the Company believes this action to be related to the same or similar facts and circumstances as the FCPA action previously settled with the SEC and the DOJ. During initial discussions, the Swiss prosecutor has acknowledged both the existence of the Company’s deferred prosecution agreement with the DOJ and its cooperation efforts thereunder, both of which should have a positive impact on discussions going forward. Additionally, other than the activities previously reviewed in conjunction with the SEC and DOJ matters under the FCPA, the Company has no reason to believe that additional facts or circumstances are under review by the Swiss authorities. To date, the Swiss prosecutor has not issued its formal decision as to whether charges will be brought against individuals or the Company or whether the proceeding will be abandoned. At this stage in the investigation, the Company is currently unable to determine the extent to which it will be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. As such, the Company cannot determine whether there is a reasonable possibility that a loss will be incurred nor can it estimate the range of any such potential loss. Accordingly, the Company has not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on its financial condition and results of operation.
Government Investigations
In early 2013, the Company voluntarily provided information to the SEC and the United States Attorney’s Office for the Southern District of California related to its announcement that it intended to file restated financial statements for fiscal years 2011 and 2012. On June 11, 2015 and June 16, 2016, the Company received subpoenas from the SEC requesting certain documents related to, among other things, the facts and circumstances surrounding the restated financial statements. The Company has provided documents and information to the SEC in response to the subpoenas and continues to cooperate with the SEC. On September 6, 2016, the Company entered into a tolling agreement effective for the period beginning on September 12, 2016, and running through June 30, 2017, with the SEC related to these matters. At this stage, the Company cannot predict the ultimate outcome of this investigation or whether it will result in any loss. Accordingly, the Company has not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on its financial condition and results of operation.
Note 15—Unaudited Quarterly Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
March 31
|
|
|
|
June 30
|
|
|
|
September 30
|
|
|
|
December 31
|
|
|
|
|
(in thousands except per share data)
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
35,203
|
|
|
|
|
$
|
34,135
|
|
|
|
|
$
|
25,506
|
|
|
|
|
$
|
26,400
|
|
|
|
Gross profit
|
|
9,653
|
|
|
|
|
9,981
|
|
|
|
|
7,628
|
|
|
|
|
5,708
|
|
|
|
Net income (loss)
|
|
(6,848
|
)
|
|
(a)
|
|
2,167
|
|
|
(b)
|
|
(6,855
|
)
|
|
(c)
|
|
(12,169
|
)
|
|
(d)
|
Basic and diluted net loss per share
|
|
$
|
(0.22
|
)
|
|
|
|
$
|
0.07
|
|
|
|
|
$
|
(0.21
|
)
|
|
|
|
$
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
March 31
|
|
|
|
June 30
|
|
|
|
September 30
|
|
|
|
December 31
|
|
|
|
|
(in thousands except per share data)
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
34,670
|
|
|
|
|
$
|
37,796
|
|
|
|
|
$
|
45,076
|
|
|
|
|
$
|
49,830
|
|
|
|
Gross profit
|
|
10,303
|
|
|
|
|
12,153
|
|
|
|
|
14,256
|
|
|
|
|
14,250
|
|
|
|
Net income (loss)
|
|
(9,341
|
)
|
|
(e)
|
|
(9,376
|
)
|
|
(f)
|
|
(1,449
|
)
|
|
(g)
|
|
(2,167
|
)
|
|
(h)
|
Basic and diluted net income (loss) per share
|
|
$
|
(0.32
|
)
|
|
|
|
$
|
(0.31
|
)
|
|
|
|
$
|
(0.05
|
)
|
|
|
|
$
|
(0.07
|
)
|
|
|
_____________________
|
|
(a)
|
Includes non-cash expense for stock-based compensation of
$1.2 million
.
|
|
|
(b)
|
Includes gain on sale of product line of
$6.7 million
, release of tax liability of
$1.5 million
and non-cash expense for stock-based compensation of
$1.5 million
.
|
|
|
(c)
|
Includes non-cash expense for stock-based compensation of
$1.1 million
.
|
|
|
(d)
|
Includes impairment of assets of
$1.2 million
, non-cash deferred tax expense of
$1.2 million
in connection with the probable repatriation of a portion of the unremitted earnings of a foreign subsidiary and non-cash expense for stock-based compensation of
$1.6 million
.
|
|
|
(e)
|
Includes non-cash expense for stock-based compensation of
$0.8 million
.
|
|
|
(f)
|
Includes restructuring and exit costs of
$2.3 million
, non-cash deferred tax expense of
$2.1 million
in connection with the probable repatriation of a portion of the unremitted earnings of a foreign subsidiary and non-cash expense for stock-based compensation of
$1.0 million
.
|
|
|
(g)
|
Includes non-cash expense for stock-based compensation of
$1.1 million
.
|
|
|
(h)
|
Includes non-cash expense for stock-based compensation of
$1.0 million
.
|
Note 16—Subsequent Events
Localization Agreement
On January 25, 2017, the Company entered into a Localization Agreement (the “Agreement”) with CRRC Qingdao Sifang Rolling Stock Research Institute Co. Ltd. (“CRRC-SRI”) to localize manufacturing of its ultracapacitor-based modules for use in the China new energy bus market. Under the terms of the Agreement, localized production of its ultracapacitor-based modules is expected to begin in China in the second half of 2017.
The Agreement provides that the Company will transfer certain assets and grant an exclusive license to certain intellectual property and know-how, subject to appraisal of both the transferred assets and the grant of intellectual property rights and subject to certain regulatory approvals. Additionally, the Agreement requires CRRC-SRI to pay an up-front technology transfer fee of
$3.0 million
, with
two
additional contingent payments of
$1.0 million
that are payable if certain revenue metrics are achieved. Also, the Agreement provides for ongoing graduated royalties based upon net sales and which decrease over time.
Additionally, the Agreement contemplates additional sales and marketing services and design and engineering services to be performed by the Company over a period of
two
years. In exchange for these services and based in part upon achievement of milestones to be identified by the parties, the Agreement provides that the Localization Partner will pay the Company certain milestone payments.
Acquisition of Nesscap Energy, Inc.
On February 28, 2017, the Company entered into an Arrangement Agreement (the “Arrangement Agreement”) providing for the acquisition (the “Acquisition”) of substantially all of the assets and business of Nesscap Energy, Inc. (“Nesscap”), a developer and manufacturer of ultracapacitor products for use in transportation, renewable energy, industrial and consumer markets, for an aggregate purchase price of
$23.2 million
(the “Purchase Price”). The Company will pay the purchase price in full by issuing
4.6 million
shares of its common stock, subject to adjustment as provided in the Arrangement Agreement (the “Share Consideration”). The Arrangement Agreement provides that Share Consideration may be subject to an adjustment upon the closing of the Acquisition based on the average closing price of the Company’s common stock for the ten (
10
) prevailing trading days on The Nasdaq Stock Market ending (and including) two (
2
) days prior to the closing in order to account for an increase or decrease to such per share price compared to the trading price used to calculate the Share Consideration at signing; provided, however, in any event, that any such increase or reduction in the Share Consideration is limited to a maximum adjustment of ten percent (
10%
). The Share Consideration represents approximately
14.28%
of the Company’s outstanding shares, based on the number of shares of the Company’s outstanding common stock as of February 27, 2017 and assuming no adjustments. The Company expects the acquisition to be completed in the second quarter of 2017.
Consummation of the Acquisition also requires approval by a certain magnitude of Nesscap’s shareholders, the approval of the Canadian court
,
and is subject to various closing conditions, including that a material adverse effect will not have occurred to the Company or Nesscap. The Arrangement Agreement provides that Nesscap is subject to non-solicitation provisions and provides that the Nesscap Board may, under certain circumstances, terminate the Arrangement Agreement in favor of an unsolicited superior proposal, subject to the payment of a termination fee of USD
$1 million
to the Company, and subject to the Company’s right to match the superior proposal in question.
2017 Restructuring Plan
On February 28, 2017, the Board of Directors of the Company approved a comprehensive restructuring plan for the Company’s businesses that includes a wide range of organizational efficiency initiatives and other cost reduction opportunities. The Company estimates that it will incur total aggregate charges of approximately
$0.8 million
to
$1.0 million
from this restructuring, primarily based upon estimated severance and related costs. The Company expects that most of these charges will be cash expenditures and expects to recognize most of the charges related to this restructuring in the first quarter of fiscal 2017.