0001193125-11-214659 | 10-Q | XBRL Viewer

Beginning balance at January 1, 2011

Adjustments

Ending balance at June 30, 2011

Document And Entity Information - shares	6 Months Ended
Document And Entity Information - shares	Jun. 30, 2011	Aug. 04, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	NOVATEL WIRELESS INC
Entity Central Index Key	0001022652
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		32,056,487

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2011	Dec. 31, 2010
ASSETS
Cash and cash equivalents	$ 32,013	$ 17,375
Marketable securities	26,112	59,775
Accounts receivable, net of allowance for doubtful accounts of $297 at June 30, 2011 and $228 at December 31, 2010	41,523	63,570
Inventories	50,145	43,094
Deferred tax assets, net	225	218
Prepaid expenses and other	4,159	6,961
Total current assets	154,177	190,993
Property and equipment, net of accumulated depreciation of $53,962 at June 30, 2011 and $48,223 at December 31, 2010	19,905	21,281
Marketable securities	17,090	20,676
Intangible assets, net of accumulated amortization of $7,941 at June 30, 2011 and $4,019 at December 31, 2010	40,367	44,265
Goodwill	22,258	22,258
Deferred tax assets, net	2,144	2,103
Other assets	710	532
Total assets	256,651	302,108
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	57,357	77,769
Accrued expenses	25,479	26,050
Total current liabilities	82,836	103,819
Capital lease obligations, long-term	0	55
Other long-term liabilities	12,528	12,831
Total liabilities	95,364	116,705
Stockholders' equity:
Preferred stock, par value $0.001; 2,000 shares authorized and none outstanding	0	0
Common stock, par value $0.001; 50,000 shares authorized, 32,056 and 31,852 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively	32	32
Additional paid-in capital	426,134	424,270
Accumulated other comprehensive income	27	21
Accumulated deficit	(239,906)	(213,920)
Total stockholders' equity before treasury stock	186,287	210,403
Treasury stock at cost; 2,436 common shares at June 30, 2011 and December 31, 2010, respectively	(25,000)	(25,000)
Total stockholders' equity	161,287	185,403
Total liabilities and stockholders' equity	$ 256,651	$ 302,108

Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2011	Dec. 31, 2010
Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts	$ 297	$ 228
Property and equipment, accumulated depreciation	53,962	48,223
Intangible assets, accumulated amortization	$ 7,941	$ 4,019
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,000	2,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	50,000	50,000
Common stock, shares issued	32,056	31,852
Common stock, shares outstanding	32,056	31,852
Treasury stock, shares	2,436	2,436

Consolidated Statements Of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consolidated Statements Of Operations
Net revenues	$ 118,021	$ 71,823	$ 179,805	$ 144,062
Cost of net revenues	91,839	58,231	147,629	112,701
Gross profit	26,182	13,592	32,176	31,361
Operating costs and expenses:
Research and development	14,832	11,152	30,391	22,494
Sales and marketing	8,210	4,351	15,594	11,095
General and administrative	5,714	6,103	10,307	10,476
Amortization of purchased intangible assets	527	0	1,055	0
Total operating costs and expenses	29,283	21,606	57,347	44,065
Operating loss	(3,101)	(8,014)	(25,171)	(12,704)
Other income (expense):
Interest income (expense), net	85	(604)	243	(406)
Other income (expense), net	(607)	1,390	(485)	1,251
Loss before income taxes	(3,623)	(7,228)	(25,413)	(11,859)
Income tax expense	275	14,811	573	13,569
Net loss	$ (3,898)	$ (22,039)	$ (25,986)	$ (25,428)
Per share data:
Basic	$ (0.12)	$ (0.70)	$ (0.81)	$ (0.81)
Diluted	$ (0.12)	$ (0.70)	$ (0.81)	$ (0.81)
Weighted average shares used in computation of basic and diluted net loss per share:
Basic	32,048	31,439	31,979	31,312
Diluted	32,048	31,439	31,979	31,312

Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net loss	$ (25,986)	$ (25,428)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Accrued interest expense	0	147
Amortization of debt issuance costs	0	541
Depreciation and amortization	9,686	5,409
Impairment loss on intangible assets and equipment	75	146
Provision for bad debts	123	28
Net impairment loss on marketable securities	154	0
Inventory provision	320	430
Share-based compensation expense	2,486	3,143
Excess tax benefits from equity based compensation	0	(89)
Non-cash income tax expense (benefit)	(401)	13,569
Changes in assets and liabilities:
Accounts receivable	21,925	(9,108)
Inventories	(7,371)	7,714
Prepaid expenses and other assets	3,010	483
Accounts payable	(20,965)	10,864
Accrued expenses, income taxes, and other	(575)	(3,888)
Net cash provided by (used in) operating activities	(17,519)	3,961
Cash flows from investing activities:
Purchases of property and equipment	(3,835)	(3,609)
Purchases of intangible assets	(100)	(185)
Purchases of securities	(10,959)	(77,367)
Securities maturities/sales	47,674	153,371
Net cash provided by investing activities	32,780	72,210
Cash flows from financing activities:
Proceeds from the issuance of short-term debt, net of issuance costs	0	27,415
Principal payments under capital lease obligations	(55)	(76)
Proceeds from stock option exercises net of taxes paid on vested restricted stock units	(622)	570
Excess tax benefits from equity based compensation	0	89
Deposit of restricted funds	0	(188,890)
Net cash used in financing activities	(677)	(160,892)
Effect of exchange rates on cash and cash equivalents	54	(83)
Net increase (decrease) in cash and cash equivalents	14,638	(84,804)
Cash and cash equivalents, beginning of period	17,375	100,025
Cash and cash equivalents, end of period	32,013	15,221
Supplemental disclosures of cash flow information:
Interest	3	66
Income taxes	152	229
Supplemental disclosures of non-cash financing activities:
Marketable equity securities received in settlement of note receivable	384	0
Accrued debt issuance costs	$ 0	$ 325

Basis Of Presentation

6 Months Ended

Jun. 30, 2011

Basis Of Presentation

Basis Of Presentation

1. Basis of Presentation

The information contained herein has been prepared by Novatel Wireless, Inc. (the "Company") in accordance with the rules of the Securities and Exchange Commission. The information at June 30, 2011 and the results of the Company's operations for the three and six months ended June 30, 2011 and 2010 are unaudited. The consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods presented. These consolidated financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 ("2010 Form 10-K"). The accounting policies used in preparing these consolidated financial statements are the same as those described in the 2010 Form 10-K with the exception of new accounting pronouncements adopted in 2011. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the year as a whole.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and disclosures of contingent assets and liabilities. Actual results could differ materially from these estimates. Significant estimates include allowance for doubtful accounts receivable, provision for excess and obsolete inventory, valuation of intangible and long-lived assets, valuation of goodwill, valuation of contingent consideration, royalty costs, provision for warranty costs, income taxes and share-based compensation expense.

Difficult global economic conditions, tight credit markets, volatile equity, foreign currency and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in these estimates and assumptions. As future events and their effects cannot be determined with precision, particularly those related to the condition of the economy, actual results could differ significantly from these estimates.

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05 "Comprehensive Income (Topic 220) — Presentation of Comprehensive Income." ASU 2011-05 requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. We are assessing the impact of ASU 2011-05 on our comprehensive income presentation.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

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+ Details

Merger And Acquisition Activities

6 Months Ended

Jun. 30, 2011

Merger And Acquisition Activities

Merger And Acquisition Activities

2. Merger and Acquisition Activities

Acquisition of Enfora

On November 30, 2010, the Company completed the acquisition of Enfora, Inc. ("Enfora"), a provider of intelligent asset-management solutions utilizing wireless technology and machine-to-machine (M2M) communications. The acquisition of Enfora diversifies the Company's customer base and product lines into adjacent markets and advances the Company's strategy of providing intelligent devices to all end markets - enterprise, consumer and vertical applications.

Enfora's results of operations and estimated fair value of assets acquired and liabilities assumed are included in the Company's consolidated financial statements from the date of acquisition. The Company may adjust the preliminary purchase price allocation after obtaining more information regarding preliminary estimates of net deferred tax assets and potential limitations on their use. The revenue and operating results contributed by Enfora during the three and six months ended June 30, 2011 are disclosed in the Company's Segment Information and Concentrations of Risk footnote (see Note 7).

Actual and Pro Forma Results of Enfora Acquisition

The following table presents the unaudited results for the three and six months ended June 30, 2011 and pro forma financial information for the three and six months ended June 30, 2010. The unaudited pro forma financial information for the three and six months ended June 30, 2010 combines the results of operations of Novatel Wireless and Enfora as though the companies had been combined as of the beginning of fiscal 2009 as previously reported in the 2010 Form 10-K. The pro forma financial information is presented for informational purposes only. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2009. The following unaudited results and pro forma financial information presented include amortization charges for acquired intangible assets, inventory fair value adjustments, eliminations of intercompany transactions, adjustments to interest expense, reduction in share-based compensation and related tax effects (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010 (1)			2011			2010 (1)
Net revenue	$	118,021		$	87,328		$	179,805		$	175,292
Net loss		(3,898	)		(23,600	)		(25,986	)		(28,672	)

(1)	Pro forma results

Enfora acquisition consideration

Under the terms of the acquisition agreement, the Company paid cash of $64.5 million and additional cash of $13.0 million for an agreed upon amount of Enfora working capital. The Company also agreed to pay additional consideration ("contingent consideration") of up to $6.0 million based on the operating results of Enfora for the 15 month period from October 1, 2010 to December 31, 2011. The estimated fair value of this contingent consideration at the acquisition date was $0.9 million, resulting in total estimated cash to be paid of $78.4 million. During the quarter ended March 31, 2011, the Company revised its estimate of contingent consideration to $0 and accordingly reflected this change as a benefit to general and administrative expenses for the quarter ended March 31, 2011. There were no changes in the fair value recorded in the three months ended June 30, 2011 as the Company continues to believe the operating results necessary to receive payment of the contingent consideration will not be achieved.

Cinterion

In June 2010, the Company submitted a bid to purchase certain assets of Cinterion Wireless Modules ("Cinterion"), a company in the cellular machine-to-machine communications industry. The Company was not the successful bidder at the conclusion of the process on June 28, 2010.

In June 2010, the Company borrowed $30 million, net of $2.2 million in lender fees, under a bridge loan facility in connection with its bid. In accordance with bidding procedures during June 2010, the Company deposited into escrow an amount in Euros equal to its bid price using cash and cash equivalents, proceeds from the sale of marketable securities, and borrowings under the $30 million bridge loan facility. The escrowed funds are reflected as a deposit of restricted funds in the accompanying Consolidated Statement of Cash Flows for the six months ended June 30, 2010. The escrowed funds were returned to the Company in July 2010.

While the Company's Euro funds were held in escrow, the Company engaged in hedging transactions to address foreign currency risk at a cost of $1.2 million, which amount was recorded in other income (expense), net, in the Consolidated Statement of Operations for the three months ended June 30, 2010.

During the three months ended June 30, 2010, the Company recorded a foreign currency gain of $2.9 million, which was recorded in other income (expense), net, in connection with the conversion of its Euro-denominated escrowed funds into U.S. dollars following completion of the auction on June 28, 2010.

Pursuant to authoritative accounting guidance, the $2.2 million in lender fees on the $30 million bridge loan facility were recorded as a discount to amounts outstanding under the facility and amortized over the stated term of the facility which was scheduled to mature on September 8, 2010. During June 2010, the Company also incurred $660,000 in professional fees attributable to the bridge facility, which were capitalized and amortized over the stated term of the facility. For the three months ended June 30, 2010, the Company recognized $687,000 in interest expense related to this facility, which primarily consisted of the amortization of lender and professional fees.

In connection with its bid, the Company incurred $2.0 million in legal, advisory and professional fees unrelated to the bridge loan facility, which were recorded in general and administrative expenses in the Consolidated Statement of Operations for the three months ended June 30, 2010.

In July 2010, the Company repaid all amounts outstanding under the bridge loan facility.

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Emerging Issues Task Force (EITF)
-Number 88-16
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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+ Details

Balance Sheet Details

6 Months Ended

Jun. 30, 2011

Balance Sheet Details

Balance Sheet Details

3. Balance Sheet Details

Marketable Securities

The Company's portfolio of available-for-sale securities by contractual maturity consists of the following (in thousands):


June 30, 2011	Maturity in Years		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale:
Corporate debentures / bonds		1 or less	$	18,337	$	18	$	0		$	18,355
Government agency securities		1 or less		3,108		1		0			3,109
Municipal bonds		1 or less		2,255		0		0			2,255
Certificates of deposit		1 or less		2,160		2		0			2,162
Marketable equity securities		N/A		231				0			231

Total short-term marketable securities				26,091		21		0			26,112

Available-for-sale:
Corporate debentures / bonds		1 to 2		5,220		0		(5	)		5,215
Government agency securities		1 to 2		8,638		6		0			8,644
Muncipal bonds		1 to 2		2,267		0		(1	)		2,266
Certificates of deposit		1 to 2		959		6		0			965

Total long-term marketable securities				17,084		12		(6	)		17,090

			$	43,175	$	33	$	(6	)	$	43,202


December 31, 2010
Available-for-sale:
Corporate debenture/bonds		1 or less	$	33,356	$	31	$	(3	)	$	33,384
Municipal bonds		1 or less		5,259		0		(4	)		5,255
Certificates of deposit		1 or less		925		0		0			925
Government agency securities		1 or less		20,207		4		0			20,211

Total short-term marketable securities				59,747		35		(7	)		59,775

Available-for-sale:
Corporate debenture/bonds		1 to 2		8,808		0		(14	)		8,794
Certificates of deposit		1 to 2		2,397		6		0			2,403
Government agency securities		1 to 2		9,478		1		0			9,479

Total long-term marketable securities				20,683		7		(14	)		20,676

			$	80,430	$	42	$	(21	)	$	80,451

The Company's available-for-sale securities are carried at fair value market value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), which is a separate component of stockholders' equity. Realized gains and losses on the sale of available-for-sale marketable securities are determined using the specific-identification method.

As of June 30, 2011, the Company had a net unrealized gain of $27,000 in accumulated other comprehensive (loss) income. The Company's net unrealized gain is the result of market conditions affecting its fixed-income, debt and equity securities, which are included in accumulated other comprehensive (loss) income in the Consolidated Balance Sheet.

As of June 30, 2011, the Company's investment portfolio included $385,000 of marketable equity securities at original cost, with a fair value of $231,000. These securities are currently traded on the Over the Counter Bulletin Board (OTCBB) and are not traded on major exchanges such as the New York Stock Exchange. For the three months ended June 30, 2011, the Company recorded an other-than-temporary loss of $154,000 within other income (expense), net on the Consolidated Statement of Operations.

Inventories

Inventories consist of the following (in thousands):


	June 30,		December 31,
	2011		2010
Finished goods	$	46,970	$	36,764
Raw materials and components		3,175		6,330

	$	50,145	$	43,094

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	June 30, 2011		December 31, 2010
Royalties	$	6,202	$	6,461
Payroll and related expenses		6,366		5,704
Product warranty		1,709		2,279
Market development fund and price protection		1,448		1,452
Deferred rent		1,200		1,092
Professional fees		1,111		1,103
Other		7,443		7,959

	$	25,479	$	26,050

Accrued Warranty Obligations

Accrued warranty obligations consist of the following (in thousands):


	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
Warranty liability at beginning of period	$	2,349		$	3,150		$	2,279		$	3,039
Additions charged to operations		334			229			1,197			620
Deductions from liability		(974	)		(912	)		(1,767	)		(1,192	)

Warranty liability at end of period	$	1,709		$	2,467		$	1,709		$	2,467

The Company accrues warranty costs based on estimates of future warranty-related replacement, repairs or rework of products. The Company generally provides one to three years of coverage for products following the date of purchase and the Company accrues the estimated cost of warranty coverage as a component of cost of revenues in the Consolidated Statements of Operations at the time revenue is recognized. In estimating our future warranty obligations we consider various relevant factors, including the historical frequency and volume of claims, and the cost to replace or repair products under warranty.

Intangible Assets

6 Months Ended

Jun. 30, 2011

Intangible Assets

Intangible Assets

4. Intangible Assets

The Company's amortizable purchased intangible assets resulting from its acquisition of Enfora are composed of (in thousands):


	June 30, 2011							December 31, 2010
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Developed technology - Modules	$	18,500	$	(1,350	)	$	17,150	$	18,500	$	(193	)	$	18,307
Trade name		12,800		(747	)		12,053		12,800		(107	)		12,693
Developed technology - Integrated Products		10,700		(1,248	)		9,452		10,700		(178	)		10,522
Covenant-not-to-compete agreements		1,020		(443	)		577		1,020		(63	)		957
Customer relationships		700		(40	)		660		700		(6	)		694
Backlog		500		(500	)		—		500		(287	)		213

Total amortizable purchased intangible assets	$	44,220	$	(4,328	)	$	39,892	$	44,220	$	(834	)	$	43,386

The following table presents details of the amortization of purchased intangible assets of Enfora included in the cost of net revenues and operating costs and expenses categories (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of net revenues	$	1,120	$	0	$	2,439	$	0
Operating costs and expenses		527		0		1,055		0

Total amortization expense	$	1,647	$	0	$	3,494	$	0

The following table presents details of the amortization of existing amortizable purchased intangible assets of Enfora that is currently estimated to be expensed in the remainder of 2011 and thereafter (in thousands):


Fiscal year:	Amount
2011 (remaining 6 months)	$	3,239
2012		6,040
2013		5,803
2014		5,803
2015		5,624
2016		3,663
Thereafter		9,720

Total	$	39,892

Additionally, at June 30, 2011 and December 31, 2010, the Company had $475,000 and $879,000, respectively, of acquired software licenses, net, representing rights to use certain software necessary for the development and commercial sale of the Company's products.

Fair Value Measurement Of Assets And Liabilities

6 Months Ended

Jun. 30, 2011

Fair Value Measurement Of Assets And Liabilities

Fair Value Measurement Of Assets And Liabilities

5. Fair Value Measurement of Assets and Liabilities

The Company's fair value measurements relate to its cash equivalents, marketable debt securities, and marketable equity securities, which are classified pursuant to authoritative guidance for fair value measurements. The Company places its cash equivalents and marketable debt securities in instruments that meet credit quality standards, as specified in its investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

The Company's cash equivalents consist of its investment in money market securities and treasury bills. The Company values its investments in money market and equity securities based on quoted market prices in active markets (Level 1 of the fair value hierarchy).

The Company's marketable debt securities consist primarily of investment-grade corporate bonds, municipal bonds, time deposits, and government agency securities. These types of financial instruments are valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency (Level 2 of the fair value hierarchy). From time to time, the Company may utilize foreign exchange forward contracts. These contracts are valued using pricing models that take into account the currency rates as of the balance sheet date (Level 2 of the fair value hierarchy).

The following table summarizes the Company's financial instruments measured at fair value on a recurring basis in accordance with the authoritative guidance for fair value measurements as of June 30, 2011 (in thousands):


Description	June 30, 2011		Level 1		Level 2		Level 3
Assets:
Cash equivalents:
Money market funds	$	15,136	$	15,136	$	0	$	0
US Treasury notes		4,451		0		4,451		0

Total cash equivalents		19,587		15,136		4,451		0

Short-term marketable securities:
Available-for-sale:
Corporate debentures / bonds		18,355		0		18,355		0
Government agency securities		3,109		0		3,109		0
Muncipal bonds		2,255		0		2,255		0
Certificates of deposit		2,162		0		2,162		0
Marketable equity securities		231		231		0		0

Total short-term marketable securities		26,112		231		25,881		0

Long-term marketable securities:
Available-for-sale:
Corporate debentures / bonds		5,215		0		5,215		0
Government agency securities		8,644		0		8,644		0
Muncipal bonds		2,266		0		2,266		0
Certificates of deposit		965		0		965		0

Total long-term marketable securities		17,090		0		17,090		0

Total financial assets	$	62,789	$	15,367	$	47,422	$	0

There were no transfers between Level 1 and Level 2 securities during the six months ended June 30, 2011. All of our long-term marketable debt securities had maturities of between one and two years in duration at June 30, 2011.

The table below present Level 3 activity for our contingent consideration liability for the six months ended June 30, 2011 (in thousands):

As of June 30, 2011, the Company had no outstanding foreign exchange forward contracts. On December 31, 2010, the Company recorded an unrealized loss of $8,000 on its outstanding foreign currency exchange forward contracts. These contracts were utilized to hedge the Company's Euro-denominated cash and accounts receivable balances.

During the three and six months ended June 30, 2011, the Company recorded foreign currency losses on its Euro-denominated foreign exchange forward contracts of approximately $0 and $19,000, respectively. During the same periods in 2010, the Company recorded gains on its foreign exchange forward contracts of approximately $180,000 and $336,000, respectively. All recorded gains and losses on foreign exchange transactions are recorded in other (income) expense.

- Definition

Tabular disclosure of the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 33
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 6
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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
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-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

+ Details

Share-Based Compensation

6 Months Ended

Jun. 30, 2011

Share-Based Compensation

Share-Based Compensation

6. Share-Based Compensation

The Company included the following amounts for share-based compensation awards in the accompanying unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of net revenues	$	108	$	174	$	234	$	317
Research and development		383		646		808		1,142
Sales and marketing		284		331		563		572
General and administrative		416		600		881		1,112

Totals	$	1,191	$	1,751	$	2,486	$	3,143

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Segment Information And Concentrations Of Risk

6 Months Ended

Jun. 30, 2011

Segment Information And Concentrations Of Risk

Segment Information And Concentrations Of Risk

7. Segment Information and Concentrations of Risk

Segment Information

The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's reportable segments.

The Company operates in the wireless broadband technology industry and senior management makes decisions about allocating resources based on the following reportable segments:

•

Mobile Computing Products segment - includes our MiFi products, USB and PC-card modems and Embedded Modules that enable data transmission and services via cellular wireless networks. All products within the segment represent a single product family.

•

M2M Products and Solutions segment - includes our intelligent asset-management solutions utilizing wireless technology and M2M communications acquired with our acquisition of Enfora.

Segment revenues and segment operating income (loss) represent the primary financial measures used by senior management to assess performance and include the net revenues, cost of net revenues, sales and operating costs and expenses for which management is held accountable. Segment expenses include sales and marketing, research and development, general and administrative, and amortization expenses that are directly related to individual segments. Segment operating income (loss) also includes acquisition-related costs, purchased intangible asset amortization, restructuring and integration costs.

The table below presents net revenues, operating income (loss) and identifiable assets for our reportable segments (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net revenues by reportable segment:
Mobile Computing Products	$	105,781		$	71,823		$	155,577		$	144,062
M2M Products and Solutions		12,240			0			24,228			0

Total	$	118,021		$	71,823		$	179,805		$	144,062


Operating income (loss) by reportable segment:
Mobile Computing Products	$	1,010		$	(8,014	)	$	(15,670	)	$	(12,704	)
M2M Products and Solutions		(4,111	)		0			(9,501	)		0

Total	$	(3,101	)	$	(8,014	)	$	(25,171	)	$	(12,704	)


	June 30,			December 31,
	2011			2010
Identifiable assets by reportable segment:
Mobile Computing Products	$	181,538		$	217,445
M2M Products and Solutions		75,113			84,663

Total	$	256,651		$	302,108

The Company has operations in the United States, Canada, Europe and Asia. The following table details the geographic concentration of the Company's assets in the United States, Canada, Europe and Asia (in thousands):


	June 30, 2011		December 31, 2010
United States	$	248,291	$	293,227
Canada		7,186		8,059
Europe		328		318
Asia		846		504

	$	256,651	$	302,108

The following table details the concentration of the Company's net revenues by geographic region based on the ship to location:


	Three months ended						Six months ended
	June 30,						June 30,
	2011			2010			2011			2010
North America		95.2	%		95.0	%		93.3	%		93.6	%
Europe / Middle East / Africa		3.3			4.7			4.2			5.6
Asia / Australia		1.5			0.3			2.5			0.8

		100.0	%		100.0	%		100.0	%		100.0	%

Concentrations of Risk

Substantially all of the Company's net revenues are derived from sales of wireless access products. Any significant decline in market acceptance of the Company's products or in the financial condition of the Company's existing customers would have an adverse effect on the Company's results of operations and financial condition.

A significant portion of the Company's net revenues are derived from a small number of customers. For the three months ended June 30, 2011, sales to our three largest customers accounted for 46.9%, 19.4%, and 12.3% of net revenues. In the same period in 2010, sales to our two largest customers accounted for 62.2% and 20.9% of net revenues. No other customer accounted for more than ten percent of total net revenues in the three months ended June 30, 2011 and 2010. For the six months ended June 30, 2011, sales to our three largest customers accounted for 42.7%, 20.2%, and 11.5% of net revenues. In the same period in 2010, sales to our two largest customers accounted for 59.1% and 12.9% of net revenues. No other customer accounted for more than ten percent of total net revenues in the six months ended June 30, 2011 and 2010.

The Company outsources its manufacturing to five third-party contract manufacturers. If one or more of these manufacturers were to experience delays, disruptions, capacity constraints or quality control problems in manufacturing operations, product shipments to the Company's customers could be delayed or its customers could consequently elect to cancel the underlying product purchase order, which would negatively impact the Company's revenues and results of operations.

The Company contracts with a number of suppliers in Japan. Some of these suppliers have been unable to deliver sufficient quantities of components as a result of the effects of the earthquake and tsunami that occurred in Japan in March 2011. The Company's M2M products are being impacted significantly by these component shortages. The shortages have limited the Company's ability to deliver against sales opportunities, negatively impacting gross margins.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 131
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
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-URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8933-108599

+ Details

Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share

Earnings Per Share

8. Earnings Per Share

Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Potentially dilutive securities (consisting of options and restricted stock units ("RSUs") and employee stock purchase plan ("ESPP") withholdings using the treasury stock method) are excluded from the diluted EPS computation in loss periods and when the applicable exercise price is greater than the market price on the period end date as their effect would be anti-dilutive.

For the three and six months ended June 30, 2011, basic and diluted weighted-average common shares outstanding were 32,048,141 and 31,978,771, respectively. During these same periods, weighted-average options and RSUs shares to acquire a total of 4,792,540 and 3,953,808 shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per share as their effect was anti-dilutive.

For the three and six months ended June 30, 2010, basic and diluted weighted-average common shares outstanding were 31,438,514 and 31,312,416, respectively. During these same periods, weighted-average options RSUs, and unissued ESPP shares to acquire a total of 4,898,809 and 4,337,627 shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per share as their effect was anti-dilutive.

Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

9. Commitments and Contingencies

Legal Matters

The Company is, from time to time, party to various legal proceedings arising in the ordinary course of business. For example, the Company is currently named as a defendant or co-defendant in a number of patent infringement lawsuits in the U.S. and is indirectly participating in other U.S. patent infringement actions pursuant to its contractual indemnification obligations to certain customers. Based on evaluation of these matters and discussions with Company's counsel, the Company believes that liabilities arising from or sums paid in settlement of these existing matters would not have a material adverse effect on its consolidated results of operations or financial condition.

On September 15, 2008 and September 18, 2008, two putative securities class action lawsuits were filed in the United States District Court for the Southern District of California on behalf of persons who allegedly purchased our stock between February 5, 2007 and August 19, 2008. On December 11, 2008, these lawsuits were consolidated into a single action entitled Backe v. Novatel Wireless, Inc., et al., Case No. 08-CV-01689-H (RBB) (Consolidated with Case No. 08-CV-01714-H (RBB)) (U.S.D.C., S.D. Cal.). In May 2010, the district court re-captioned the case In re Novatel Wireless Securities Litigation. The plaintiffs filed the consolidated complaint on behalf of persons who allegedly purchased our stock between February 27, 2007 and November 10, 2008. The consolidated complaint names the Company and certain of our current and former officers as defendants. The consolidated complaint alleges generally that we issued materially false and misleading statements during the relevant time period regarding the strength of our products and market share, our financial results and our internal controls. The plaintiffs are seeking an unspecified amount of damages and costs. The court has denied defendants' motions to dismiss. In May 2010, the court entered an order granting the plaintiffs' motion for class certification and certified a class of purchasers of Company common stock between February 27, 2007 and September 15, 2008. On February 14, 2011, following extensive discovery, the Company filed a motion for summary judgment on all of plaintiffs' claims. A trial date had been set for May 10, 2011. On March 15, 2011, the case was reassigned to a new district judge, the Honorable Anthony J. Battaglia. Following the reassignment, the court vacated the trial date pending the court's consideration of dispositive motions. Oral argument on the motion for summary judgment was heard by the court on June 17, 2011, after which the court took the matter under submission. The court has not yet issued a ruling on the motion. The Company intends to defend this litigation vigorously. We are unable at this time to estimate the effects of this lawsuit on our financial position, results of operations or cash flows.

On October 8, 2008, a purported shareholder, Jerry Rosenbaum, filed a derivative action in the Superior Court for the State of California, County of San Diego, against the Company, as nominal defendant, and certain of our current and former officers and directors, as defendants. Two other purported shareholders, Mark Campos and Chris Arnsdorf, separately filed substantially similar lawsuits in the same court on October 20, 2008 and November 5, 2008, respectively. On October 16, 2009, the plaintiffs filed a consolidated complaint. The consolidated complaint, Case No. 37-2008-00093576-CU-NP-CTL, alleges claims for breaches of fiduciary duties, violations of certain provisions of the California Corporations Code, unjust enrichment, and gross mismanagement. In February 2010, the court granted the defendants' motion to stay the action pending the resolution of the federal securities class action described above. In July 2010, the parties executed a memorandum of understanding setting forth the terms to be included in a contemplated settlement. Any settlement would be subject to court approval. The memorandum of understanding does not contemplate any restitution from the defendants. Following execution of the memorandum of understanding, plaintiffs conducted certain confirmatory discovery and sought to negotiate an award of legal fees as part of the terms to be included in a stipulation of settlement. Plaintiffs have since purported to terminate the memorandum of understanding. On January 28, 2011, the court held an informal status conference, at which plaintiffs requested that the court lift the stay of the action. The court declined plaintiffs' request. Following certain additional confirmatory discovery, the Company anticipates seeking to enforce the terms of the parties' memorandum of understanding. At this time the Company is unable to estimate the amount of attorney's fees that may be approved by the court.

Indemnification

In the normal course of business, the Company periodically enters into agreements that require the Company to indemnify and defend its customers for, among other things, claims alleging that the Company's products infringe third-party patents or other intellectual property rights. The Company's maximum exposure under these indemnification provisions cannot be estimated but the Company does not believe that there are any matters individually or collectively that would have a material adverse effect on its financial condition.

Credit Facility

During July 2011, the Company entered into a credit facility with a bank to allow margin borrowings based on the Company's investments in cash equivalents and marketable securities held with the bank. This facility is collateralized by the Company's cash equivalents and marketable securities held with the bank. Borrowings under the facility incur interest rate at the bank's base rate plus 1%. This margin account facility provides us with the flexibility to access cash for short periods of time and avoid the need to sell marketable securities for these short-term requirements. At August 1, 2011, the Company had approximately $25 million in cash equivalents and marketable securities held at this bank. Any monies borrowed and interest incurred are payable on demand, and there is no express expiration date to the credit facility. As of August 1, 2011, the Company has outstanding borrowings of $8 million under the credit facility.

- Definition

The entire disclosure for commitments and contingencies.

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+ Details

Comprehensive Loss

6 Months Ended

Jun. 30, 2011

Comprehensive Loss

Comprehensive Loss

10. Comprehensive Loss

Comprehensive loss consists of the following (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net loss	$	(3,898	)	$	(22,039	)	$	(25,986	)	$	(25,428	)
Unrealized gain on cash equivalents and marketable securities, net of tax		104			(36	)		6			(15	)

Comprehensive loss	$	(3,794	)	$	(22,075	)	$	(25,980	)	$	(25,443	)

- Definition

The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

11. Income Taxes

The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable to or refundable by tax authorities in the current fiscal year. The Company also recognizes federal, state and foreign deferred tax liabilities or assets based on the Company's estimate of future tax effects attributable to temporary differences and carry forwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a "more likely than not" realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (1) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. A significant factor in the Company's assessment is that the Company is in a three-year historical cumulative loss position. This fact, combined with uncertain near-term market and economic conditions, reduced the Company's ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.

After a review of the four sources of taxable income as of June 30, 2011 (as described above), the Company recognized an increase in the valuation allowance primarily related to its U.S.-based deferred tax amounts resulting from carryforward net operating losses generated during the three and six months ended June 30, 2011. These deferred tax benefits, combined with a corresponding charge to income tax expense of $1.6 and $10.1 million related to the increased valuation allowance, during the three and six months ended June 30, 2011, respectively, resulted in an insignificant effective income tax rate for the three and six months ended June 30, 2011. The Company's valuation allowance was $31.8 million on gross deferred tax assets of $34.2 million at June 30, 2011. The net unreserved portion of the Company's remaining deferred tax assets at June 30, 2011 primarily related to research and development tax credits associated with the Company's Canadian subsidiary.

For the three and six months ended June 30, 2011, the Company recorded income tax expense, including discrete items, of $275,000, and $573,000, respectively. These amounts vary from the income tax benefit that would be computed at the U.S. statutory rate resulting from its operating losses during the same period primarily due to an offsetting increase in the Company's U.S.-based deferred tax valuation allowance and expenses attributable to foreign operations.

The Company follows the accounting guidance related to financial statement recognition, measurement and disclosure of uncertain tax positions. The Company recognizes the impact of an uncertain income tax position at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. As of June 30, 2011 and December 31, 2010, the total liability for unrecognized tax benefits was $12.3 million and $12.0 million, respectively, and is included in other long-term liabilities. For the three and six months ended June 30, 2011, the Company included $145,000 and $299,000 respectively, of interest expense related to uncertain tax positions in its Consolidated Statements of Operations.

In the third quarter of 2011, the Company expects to release $11.8 million of its liability for unrecognized tax benefits due to the expiration of the statute of limitations applicable to the 2007 taxable year.

The Company and its subsidiaries file U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. The California Franchise Tax Board is currently conducting an examination of the Company's California income tax returns for 2006 and 2007. The Internal Revenue Service is currently conducting an examination of the Company's U.S. income tax return for 2009. The Company is also subject to various income federal tax examinations for the 2001 through 2009 calendar years due to the availability of net operating loss carryforwards. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years. However, because audit outcomes and the timing of audit settlements are subject to significant uncertainty, the Company's current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open years.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

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-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

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+ Details