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Industry News
March 8, 2013
Maxwell Technologies to Restate Prior Financial Results; Senior VP Resigns
Maxwell Technologies, Inc. announced that on March 1, 2013, the audit committee of its board of directors concluded that the previously issued financial statements contained in its annual report on Form 10-K for the year ended December 31, 2011, and all unaudited quarterly reports on Form 10-Q in 2011 and 2012 (collectively, the "Prior Periods"), as well its selected financial data for the related periods, should no longer be relied upon because of errors in those financial statements. The errors relate to the timing of recognition of revenue from sales to certain distributors. As a result of the investigation, certain employees were terminated and Maxwell's Sr. Vice President of Sales and Marketing resigned.
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In addition to the financial statements for the Prior Periods, related press releases furnished on current reports on Form 8-K, reports and stockholder communications describing its financial statements for the Prior Periods and the report of its independent registered public accounting firm, McGladrey LLP (formerly McGladrey & Pullen, LLP), related to the year ended December 31, 2011, should no longer be relied upon.
The conclusion that the financial statements for the Prior Periods cannot be relied upon is the result of an investigation by Maxwell's audit committee, with the assistance of independent outside counsel and forensic accountants. The investigation commenced following receipt of information concerning potential recognition of revenue prior to the satisfaction of certain of the criteria required to be met to recognize revenue.
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The investigation discovered arrangements with certain distributors regarding the payment terms for sales to such distributors with respect to certain transactions. These arrangements had not been communicated to Maxwell's finance and accounting department and, therefore, had not been considered when recording revenue on shipments to these distributors. Based on the terms of the agreements with these distributors as they were known to the finance and accounting department, it had been the policy to account for revenue related to shipments to these distributors as title passed to the distributor at either shipment from Maxwell's facilities or receipt at the distributor's facility, assuming all other revenue recognition criteria had been achieved.
As a result of the arrangements discovered during the investigation, Maxwell does not believe that a fixed or determinable sales price existed at the time of shipment to these distributors, nor was collection reasonably assured, at least with respect to certain transactions. Therefore, the revenue from such sales should not have been recognized at the time of shipment to these distributors.
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Maxwell believes that the impact to the Prior Periods of correcting the errors in revenue recognition related to sales transactions to these distributors will be to decrease previously reported revenues and profits for 2011 and the first three quarters of 2012, and to increase revenue and profits by the same amounts in subsequent periods.
Maxwell believes that the restatement of revenue related to these distributors will decrease previously reported revenues for fiscal year 2011 by approximately $6.5 million and decrease revenues in the first three quarters of 2012 by approximately $5.5 million in the aggregate.
Maxwell also believes that the restatement of revenue related to these distributors will result in shipments to these distributors for which title has passed to the distributor, but for which the revenue recognition criteria has not been fully achieved, of approximately $12.0 million as of September 30, 2012. Of the shipments to these distributors that had not been collected as of September 30, 2012, and therefore not recognized as revenue, Maxwell collected $4.6 million in the fourth quarter of 2012 and $3.0 million to date in the first quarter of 2013, leaving $4.4 million outstanding that will be recognized as revenue as Maxwell receives payments in the future.
Maxwell is in the process of evaluating deficiencies in its internal controls over financial reporting and have preliminarily concluded that it has material weaknesses in its internal controls over financial reporting related to the identification and evaluation of revenue transactions which deviate from contractually established payment terms and therefore has preliminarily concluded that its internal controls over financial reporting and disclosure are not effective. Maxwell intends to design and implement controls to remediate these deficiencies.
The Company, including the audit committee, has discussed the foregoing matters with Maxwell's independent registered public accounting firm, McGladrey LLP. The audit committee has authorized and directed the officers of the Company to take the appropriate and necessary actions to restate its financial statements for the Prior Periods. Maxwell intends to file restated financial statements for the Prior Periods as soon as reasonable practicable.
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